Sales commissions

Sales commissions in a subscription / royalty business model


Last updated on September 2nd, 2017

Hello founders,

I am in sales for many years now and building commission plans have always been one of the highlights in my job, and now I am faced with a real challenge, and so i turn to you for some help:

My company sells a financial product similar to strip, the idea is that we are making a revenue as a percentage of our clients' usage in our product, like royalties.

Here's a scenario: Client X comes onboard and estimates they will be making $1mm in payments using our tool, we can estimate that we will earn, say.. $5,000 from that deal.

However, this is only an estimate, and I, or my team don't have a way to effect that clients estimate to become a reality, it may be higher or lower than the initial estimate. And so, assuming I want to pay my salesperson % from the revenue, the actual amount may not be what he had in mind based on the clients estimates, and of course, such rep may have a pipeline of $200,000 in bookings, but reality is that clients will only generate half of that. Should that rep be charged against actual revenue, or estimates? (assuming they are honest and verified.. as much as possible)

So my question is (before I even get to agony managing a pipeline is such uncertainty): how can I give my sales team quotas based on clients estimates only? or what would you do different in order to make sure we are sticking with some facts.

And second, how would you build a commission plan? based on what the client told us when they signed up, or based on actual usage, which again we can't affect much after the client on-boarded.

Thanks for all your help and ideas!