Commission plan
The written rules for how sellers earn on what they sell: the base, the rate, when it is paid.
In plain words
A commission plan says what a seller earns for a sale. It names the base, such as revenue, margin or payment received. It names the rate, the moment of payout and the cases when commission is not paid. A good plan fits on one page.
Sellers read the plan as a description of what the company wants. If it pays on signed deals, they chase signatures. If it pays on payment received, they follow up on invoices. The plan lives in a document each seller signs, and its inputs come from the CRM and accounting.
Worked example (invented numbers)
Payment received $20,000 at a 5% rate: commission $1,000, paid the month after the payment arrives.
How to use it
The owner approves the plan once a year or once a quarter. The head of sales explains it, applies it and checks the monthly payout against the CRM. Every seller should be able to count their own commission from the CRM. If they cannot, the data or the plan is too complex.
Read the plan next to quota. Quota sets the target, the plan sets what reaching it is worth. An accelerator raises the rate above quota. A clawback takes commission back when the customer does not pay or leaves early. Together they decide which deals sellers push hardest.
Check the plan against margin at least once a quarter. A plan that pays only on revenue can reward deals with large discounts. If sellers win volume while margin falls, the plan is pointing them there. Change the base before you change the people.
Common mistakes
- Paying on signature when cash arrives later. Sellers then have no reason to care about payment. Pay on payment received, or add a clawback for unpaid deals.
- Changing the plan in the middle of a period. Sellers lose trust in every future promise. Announce changes for the next period, in writing.
- Too many components. A plan with many bonuses and conditions is one nobody can count. Start with one base, one rate and one condition.
- Copying a plan from somewhere else. Example (invented numbers): a 10% rate may suit a high margin and ruin a thin one. Test the rate on last quarter's deals first.
NEXT STEP · TOOL
By Friday, the head of sales takes last month's won deals and counts each seller's commission from the CRM alone. Note every place where the CRM lacked data or the plan was unclear. Ask two sellers to count their own commission the same way. Compare the results. Bring the gaps to the owner with one proposal per gap.
A weekly meeting on stuck deals that ends with a decision and an owner for each.