Performance-Based Commission

My Best Electrician Just Quit. His Resignation Letter almost Made Me Cry. "I'm tired of carrying dead weight while getting paid the same as someone who does half the work." That was the opening line of Dave's resignation letter. Dave was my star performer: Completed jobs 67% faster than team average Zero rework in 18 months Trained 4 apprentices to excellence Never missed a deadline But I was paying him the same hourly rate as Tom, who: Took 3x longer on identical jobs Generated 40% of our rework issues Avoided training responsibilities Cost us 2 client relationships Steven Levitt (Freakonomics) warned us: "Incentives are the cornerstone of modern life." I was incentivising mediocrity and punishing excellence. The brutal math: Dave generated £47k profit annually Tom generated £8k profit annually But they earned identical salaries. Dave left. Took 3 other top performers with him. Cost to replace them: £7.5K in recruitment, training, and lost productivity. Here's the incentive revolution I implemented with my remaining team: Performance multipliers: Top performers earn 40% more Quality bonuses: £50 for every zero-rework job Team efficiency sharing: Whole team gets bonuses when ALL perform Skill development rewards: £200 for each new certification Peer mentoring incentives: £100/month for training others The transformation was almost instant: Productivity increased 63% across all team members Rework dropped to 2% (from 18%) Team members started helping each other improve Apprentices ASKED for extra training Job completion times decreased by 45% The magic moment:  Tom (my former underperformer) approached me asking how he could earn performance bonuses. Within 8 weeks, he'd transformed into one of my most reliable electricians. Dave called last month. Wants his job back. My answer: "Your welcome, you'll slot in fine (I've learned my lesson)." The complete "Performance-Based Incentive Framework" is detailed in Chapter 10 of "The Electrical Contractors Master Plan." Because when you reward excellence, excellence becomes your standard. Search David Hesketh books on Amazon Are you paying your best people to leave? #ElectricalContractor #TeamIncentives #BusinessGrowth #PerformanceManagement #ElectricalBusiness #TeamMotivation #ProfitOptimization

I recently conducted an informal poll about commission splits between Customer Success Managers (CSMs) and Sales teams, and the results were insightful. Over 95% of companies reported that Sales typically does not take a commission on renewals unless the renewal is especially challenging, often termed a "bounty renewal." In these cases, the Account Executive (AE) receives a commission percentage that does not impact the CSM’s compensation. Other key findings: Commission on upsells and renewals generally represents about 30% of a CSM's total compensation. Companies usually calculate the exact commission percentage by dividing this 30% target compensation by the total Annual Recurring Revenue (ARR) managed by the CSM. How should you determine the right metrics for compensation? Most organizations follow an evolving model: Early-stage Customer Success teams often base commissions on leading indicators like product adoption milestones and completed Executive Business Reviews (EBRs). More mature teams shift to lagging indicators like retention rates, expansion revenue, and Net Revenue Retention (NRR), once they've established effective leading-indicator processes. Examples of Metrics to Consider: Leading Metrics: Scheduled vs. completed Quarterly Business Reviews (QBRs) or EBRs Achievement of specific product adoption milestones Lagging Metrics: Net Revenue Retention (NRR) – the most commonly used metric Customer Retention Expansion Revenue Advocacy (typically better suited as annual or SPIFF-based metrics due to scalability challenges) To illustrate, here’s a clear and simple compensation structure example: Criteria for Achieving 100% Bonus: 90% Renewal Retention (50% weighting) 125% Net Revenue Retention (50% weighting) This approach focuses clearly on two primary goals: retaining customers and expanding revenue. Separating the retention goal ensures that significant churn isn't obscured by substantial upsells. For example, a CSM achieving 85% retention and 115% NRR would achieve approximately 93.22% of their total bonus goal. This simplified structure provides clarity and alignment, motivating CSMs to prioritize both customer retention and growth.

It’s easy to determine how to compensate a closer since their role is commission based. But what about an inbox manager? Or a customer success rep? How do you structure their pay when there's no obvious revenue number to point to? Well, I actually have a framework that I use to build performance pay for any role, no matter how "non-sales" it seems. Here it is: Step 1 - Figure out what they actually produce You need to identify the measurable thing this person creates or delivers. And I mean really specific. So instead of saying "manages the inbox,", you can say "books qualified calls with prospects." Some examples: - Calls booked with qualified prospects - Client retention rate as a percentage - Scripts written and approved for use Step 2 - Work out the unit economics Let me walk you through this with the inbox manager example. Let's say your agency charges clients $300 for every qualified call you deliver to them. So each call your inbox manager books brings in $300 in revenue. Now, your total cost to deliver that call, when you add up ads, VA time, and tools, comes out to about $150. That leaves you with $150 in margin per call. You can comfortably pay out 15-20% of that margin without killing your profitability. If you take 15% of $150, that's $22.50. Round it up to $25 per call to keep things clean. Now you just repeat this process for every role in your business. Step 3 - Decide on the base and performance split This part really depends on how complex the role is and what your cash flow looks like. You need to figure out what makes sense for your specific situation and margins. Here's what that looks like for an inbox manager: They get $1,000 a month as a base, which covers their time. Then they earn $25 for every qualified call they book. If they hit the target of 40 calls in a month, that's $1,000 in performance pay. So their total potential earnings are $2,000 a month. This structure makes them genuinely want to book more calls, while you still have predictable base costs you can plan around. Step 4 - Get really clear on what "qualified" means You absolutely need crystal-clear definitions here, or you'll end up in constant arguments about what counts and what doesn't. For scripts, here's how I handle it: A script is considered approved when you've personally reviewed it and given the green light to use it. You measure reply rate only after the script has been sent at least 100 times. And any bonus tied to performance gets paid two weeks after the campaign launches. Apply this same level of clarity to whatever role you're paying performance on. Step 5 - Track everything in a simple way Create a performance tracker that you review with your team every single week. They should always know exactly what they've earned and exactly why they earned it. There should never be confusion or mystery around their pay. Your team should be able to calculate their own earnings in their head while they're working.

Performance-based compensation models can effectively align goals between clients and agencies, but they’re not a one-size-fits-all solution. Here’s how to think about them, and what needs to be in place so you can decide when and how to use this model effectively: ✔️ Aligned goals Both parties must share clear performance metrics tied directly to business outcomes. Everyone—from marketing to finance—should agree on how success is defined and measured. ✔️ A strong measurement system Invest in tracking and attribution systems upfront. Without them, you're setting yourself up for disagreements and subjective interpretations of success. ✔️ Ownership of the funnel If your vendor doesn’t control the entire conversion funnel, consider basing incentives on leading indicators (like qualified leads) rather than final revenue. ✔️ Shared source of truth: You have to establish a unified measurement framework that all stakeholders buy into. This helps you avoid endless debates over who is responsible for what outcomes and ensures accountability across the board. ✔️ Guardrails: Define clear parameters upfront. What does “good” look like? How will progress be reported? What cadence works for updates? 👀 When to think twice: ❌ Short-term engagements: Not ideal for quick wins or campaigns that don’t allow time to establish robust tracking systems. ❌ Complex sales cycles: For businesses with long, multi-step buying processes, tying compensation to direct revenue can be overly simplistic and ineffective. ❌ Rapidly changing priorities Performance models are less flexible and can become a source of friction if business objectives shift frequently. While clients often view performance incentives as an “easy switch,” the truth is that they require substantial upfront work to set up and ongoing effort to maintain. Misalignment, incomplete data, or a lack of trust can quickly derail the relationship. Performance-based compensation can unlock incredible results—but only if everyone is playing on the same team with a shared vision of success. If you're considering this model, ask yourself: Are you ready to do the work to set it up for success? Let me know your thoughts—has your experience with performance models been smooth or full of friction?

AE Tech Commission Plans: Choosing the Right Performance Indicators Get it wrong, and you risk: ❌ Confusing your sales team with complicated metrics ❌ Incentivizing the wrong behaviors ❌ Losing top talent to competitors with better commission plans Get it right, and you can: ✅ Increase sales performance ✅ Drive sustainable revenue growth ✅ Foster a high-performance sales culture 𝐒𝐭𝐞𝐩 𝟏️: 𝐊𝐞𝐞𝐩 𝐈𝐭 𝐒𝐢𝐦𝐩𝐥𝐞, 𝐏𝐫𝐢𝐨𝐫𝐢𝐭𝐢𝐳𝐞 𝐂𝐥𝐞𝐚𝐫, 𝐌𝐞𝐚𝐬𝐮𝐫𝐚𝐛𝐥𝐞 𝐈𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫𝐬 The best commission plans use a small number of key performance indicators (KPIs) that are: ✔ Easy to measure (quantitative, not subjective) ✔ Directly tied to business revenue ✔ Transparent (so AEs understand exactly how they’re being evaluated) Top Performance Metrics for AEs: ✔ Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR) – These are the gold standards, ensuring AEs are incentivized to drive long-term, recurring revenue. This is the most common metric, used for 70% of AEs, as it directly reflects revenue impact. ✔ New Customers Signed – Used for 30% of AEs, great for companies focused on acquiring new users above all (even above revenue). Ideal for high-velocity sales cycles. 💡 Best Practice: Choose one primary metric (e.g., ARR) and one or two secondary indicators based on your sales strategy. 𝐒𝐭𝐞𝐩 𝟐 : 𝐔𝐬𝐞 𝐚 𝐇𝐲𝐛𝐫𝐢𝐝 𝐌𝐨𝐝𝐞𝐥, 𝐁𝐚𝐥𝐚𝐧𝐜𝐞 𝐈𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐚𝐧𝐝 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐯𝐞 𝐆𝐨𝐚𝐥𝐬 Most companies focus only on individual quotas, but a growing number are adding team-based incentives to: ✔ Encourage collaboration ✔ Drive big-picture revenue growth ✔ Ensure a healthy, team-oriented culture How to Implement Team-Based Incentives: ✔ Global Revenue Bonus – If the entire sales team reaches a set revenue threshold, everyone receives a bonus. ✔ Big Deal Incentive – If the team lands a high-value account, all contributing AEs get rewarded. ✔ Cross-Team Collaboration Bonus – Incentives for working with marketing, SDRs, or customer success to close deals. 💡 Best Practice: A 70/30 or 80/20 split between individual and team-based incentives keeps AEs motivated while fostering teamwork. 𝐒𝐭𝐞𝐩 𝟑 : 𝐑𝐞𝐰𝐚𝐫𝐝 𝐌𝐮𝐥𝐭𝐢-𝐘𝐞𝐚𝐫 𝐃𝐞𝐚𝐥𝐬 & 𝐔𝐩𝐟𝐫𝐨𝐧𝐭 𝐏𝐚𝐲𝐦𝐞𝐧𝐭𝐬 One of the biggest mistakes companies make? Paying the same commission for short-term and long-term deals. How to Reward Long-Term Revenue: ✔ Multi-Year Contracts – Encourage AEs to secure long-term commitments by offering commission multipliers. Example: A 3-years deal earns 1.2x the commission of a 1-year deal. ✔ Upfront Payments – Reward deals where customers pay in full upfront. Example: Offer a 20 to 25% bonus on commission for one-time multi-years payments. 💡 Best Practice: Implement a tiered commission structure where AEs earn more for securing longer-term and upfront payment deals. How does your company structure AE commissions? Are you rewarding long-term value and team collaboration? Let’s discuss in the comments!

Rewarding effort doesn’t build great sales teams. Here’s the uncomfortable truth: Rewarding effort over results might feel good in the moment, but it creates mediocrity in the long run. In sales, results are the scoreboard. Effort matters, but it’s not the goal. When you prioritize outcomes, you encourage accountability, focus, and ownership—the traits that truly drive performance. Here’s what happens when you reward effort: - Reps stay busy but don’t necessarily move the needle. - Teams focus on activity, not impact. - Business goals take a backseat to “trying hard.” Extreme ownership flips that script. It says: Own your results. Take responsibility for outcomes. A smart commission plan reflects that philosophy. It’s not about how much effort someone puts in—it’s about aligning incentives with the results that matter: - Faster deal cycles? Reward shorter time-to-close. - Expanding markets? Offer accelerators for new regions. - Prioritizing products? Raise commissions for the focus areas. When reps take ownership of their results, and the system rewards them for it, everyone wins. Great sales teams aren’t built on effort alone. They’re built on clarity, accountability, and a relentless focus on outcomes. The best comp plans don’t just reward effort—they drive behavior. If that’s what you’re aiming for, Everstage is the system built for it. https://lnkd.in/eTyaJ8Ve