The sales commission policy at the bottom of this document was written for JHMG, a SaaS & Enterprise Software consultancy that focuses on advising customers on and building enterprise applications, many of which are billed using a SaaS model. This commission policy was built over the course of many years and is used for outside sales personnel. We are putting this sales policy out publicly so that other agencies and consultancies can save the time and cost it took us to create a similar sales commission policy. In addition to using this policy for a consultancy, it can be easily used for other businesses such as a SaaS organization or other groups.

In this document, we explain why we made the decisions we made about each section within this policy. 

Annual Contract Value vs. Total Contract Value:

In the first sentence of this policy, the policy states that all sales are based on Annual Contract Value (ACV), not Total Contract Value (TCV). The reason for this is multi-fold.

• Sales team members who earn TCV on customers each month eventually become less incentivized to work. Over many years, I have worked with a number of sales team members on a TCV, paid out yearly or as the customer pays, that becomes so large that they don’t need to work anymore to just collect a large paycheck. This isn’t good for you or for them, because eventually things sour, and they get let go.
• It becomes very difficult to calculate how long customer relationships will last, so if a salesperson signs a contract that just renews indefinitely, the customer often has an out. If they cancel before their term is up, it is very rare that a smaller business will pursue them for the rest of their payment, so it ends up being lost revenue which a salesperson was paid for, especially if you paid them for a year or years and the customer cancels within the first year.
• Something that can be done is that a salesperson can sign a multi-year contract with the customer and then renew the contract at the end of each term, thus getting another commission.
• If a salesperson does a great job on a sale and closes something that will be very large, we will bonus them for some of the additional money for future years rather than adding it to the commission structure. This gives the option to pay more, but not the requirement.
• This system incentivizes the salesperson to maximize the amount of money the customer will pay in the first year. Even though we have very long-standing customers, it is difficult to tell which customers will be long-standing and which will not, so maximizing the initial revenue is beneficial to the company.
• It eats into company earnings too much to pay on TCV.

Commissions Structure:

• The Commission Rates are set to incentivize a salesperson to do larger sales. Our profit margin is substantially higher on larger sales because we have such a large upfront cost for projects. So we can afford to pay much higher commissions on these larger projects. If you’re highest profitability customers were smaller, then change the commission structure to incentivize for your highest profitability customers. 
• Increasing Contract Values states that new revenue is considered a new contract. Sometimes these are written contracts sent to the client, sometimes they are not, depending on the client. Either way, if there is new revenue on the books that an outside salesperson closes, they are paid for that new revenue on the commission rates above. This ensures we have a way to track all commissions and that everyone feels like the payments are fair for sales team members.
• The following math is explained in the policy as well, but it is worth adding it here as well: If an initial contract is 55k and paid out at 10%, then the customer chooses to increase the ongoing rate to an additional 65k, a 10k increase, the commissions would be 10% of the initial contract because it is over 50k and 7% of the secondary contract at it is 10k, for a total commission of $6,200. An additional contract or addendum for this increase must be processed by the salesperson in order for them to be compensated. 

Payment Triggers

Commission payments in this policy are paid to the salesperson WHEN THE CLIENT PAYS US. This has multiple benefits:

• If there is a dispute or a lag in payment, the salesperson is highly incentivized to help collect payments. What I’ve seen before is that if the salesperson has already been paid out, they will not have the impetus to work with the billing team on collections and the company culture will lean towards “that’s a finance or billing team problem,” rather than “collections is everybody’s problem.” In fact, it clearly states that it is the sales team’s responsibility to assist in collections in a couple of lines below.
• I also like to pay salespeople when clients pay because if there is a cancellation, then we don’t have to claw back commissions, and the salesperson is much more likely to be involved in the client’s work and check in with the client after the sale. 
• You can always pay some upfront if you want on a commission. But keep the policy stating that you pay as the client pays. If you have rules, you can bend them, but if you don’t then you end up with serious problems.

Transitioning From Outside Sales To Inside Sales or Account Management

• At a certain point, an Account Manager is going to take over control of the client. Different companies differ substantially on this. Because everyone, including outside sales, at JHMG is technical, trained, and skilled, it is not a problem for outside sales team members to manage the client for the first year. The primary reason for this is to maximize revenue during this critical period and we find that outside sales team members are better at this, although sometimes they need to be reined in. 
• It’s never a good idea to sell stuff that is not going to benefit your customers, and sometimes outside sales can lean into this. So having strong management is very important or you may lose a great customer. 
• After one year, the Account Management team will take over control from the Outside Sales. However, there have been many instances where Outside Sales was too busy to manage the client relationship during the first year and the relationship had to be transferred to Account Management. 
• Once the Outside Salesperson transitions ownership, they are done with the client unless they are specifically requested by the client to re-enter. Additionally, the Account Manager can request that the Outside Salesperson come back into the deal. Oftentimes, the contract benefits substantially from these highly skilled people coming back to the table, so Account Managers and Outside Sales are incentivized to work together on this. This is outlined in the “New Sales After Transition” section.
• If an Account Manager wishes to release ownership of an account then the Outside Salesperson has the option to step back in. Usually, the Sales Manager and Director of Accounts will meet and make a decision on how to process this issue as it is usually a personality problem with the client, which the outside salesperson was able to deal with more effectively. However, this is an edge case and very rarely happens.

Long-Term Engagements 

• This section further clarifies that Outside Salespeople are paid on ACV, not TCV. This is a secondary clarification to make sure there are no misunderstandings.

Performance and Activity Tracking

This is one of the most important sections of the policy. It states that there are two major sets of metrics being applied to sales team members. These are quota and activity counts. 

1. Within each quarter, if the salesperson is making their quota, they don’t need to make activity counts. 
2. If the salesperson does not make quota, but they do all their activities and the Director of Sales has reviewed their work and it is being done well, then they have a pass for that quarter.
3. If a salesperson does not make quota and does not make activity counts, they are subject to termination at the end of the quarter.
4. Obviously, that means that sales leadership will need to determine what activity counts must be logged each week as well as the quota for each salesperson.
5. Next, we have a rule that if it isn’t in the CRM, it doesn’t count. That means that if a salesperson closes a deal, but their activities, calls, emails, contracts, etc. are not being regularly logged within the CRM, we will not pay commission for that deal. The reason is that many salespeople do not like using the CRM as it creates accountability. With this kind of rule, they cannot escape that accountability. 
6. We have sometimes also added that all calls must be recorded and stored in the CRM. This ensures additional accountability and coachability
7. Activity counts are different for different businesses, so change these to meet your needs. But don’t remove them!

Uncapped Earnings

• The bigger the deal the happier I am to write a check to our sales team members. It incentivizes sales team members to know that there is no cap on how much money they can make, and this is important. Most sales team members are money-driven, to show them they can make a lot of money and they will work hard for it. 

Quarterly Business Reviews (QBRs)

• QBRs are something that Account Management generally oversees. It is a critical part of maintaining the relationship with the client, so if an outside salesperson is managing a client, it is important that they also maintain QBRs. Should an outside salesperson not run QBRs, the client will be moved to account management. 

Additional Responsibilities

• Often, sales team members only want to work on sales, so it is important to ensure they are aware that they are responsible for doing additional work to push the company forward. This needs to be stated so that if salespeople are asked to do things outside of sales, not that you should ask them to do that very often, it’s in their policy that they need to comply with these requests. 
• Very often they will say something like “if I’m not doing sales, then we are going to have problems” or something like that, but sometimes there are issues in the sales department or with data or communications with the marketing or demand generation departments that only salespeople can resolve. So they need to be accountable for working on those issues. 

Wrap up

I hope this review of the Agency Sales Commission Policy is helpful to you. It took many years of experience to get it put together and we still find new ways to improve the document regularly. Please remember that this is JUST THE COMMISSIONS policy and that you still need to have a strong employment contract with your employee that explains additional policies, procedures, and processes for your sales team and general team members.

This policy with slight variations can very easily be used for many different kinds of businesses. From SaaS to manufacturing, this covers many of the points you would want to have within a sales policy. If you need any help managing, organizing, or improving your sales team, please feel free to reach out for help.

Finally, if you have recommendations for changes or additions, please send them our way!

Outside Sales Commission Policy

This policy outlines the commission structure for OUTSIDE SALES PERSONNEL with notes for Account Management and other team members for sales and is based on the Annual Contract Value (ACV) of projects. This approach aims to clarify compensation while ensuring sales personnel are incentivized for both new business development and long-term client relationships.

1. Commission Calculation

• Commission Rate: Outside Sales personnel will earn a commission based on the ACV of the contract, calculated as follows:
  • 7% for contracts valued at less than $10,000 within a calendar year.
  • 9% for contracts valued between $10,000 and $49,999.99 within a calendar year.
  • 10% for contracts valued between $50,000 and $99,999.99 within a calendar year.
  • 12% for contracts valued at greater than or equal to $100,000 within a calendar year.
• Increasing Contract Values: If an initial contract is set to a certain amount and the customer increases the contract amount during a calendar year, the additional revenue is considered a new contract (even if it is a part of the initial contract) and will be paid out as a separate commission. Each time a customer increases the amount in a new year, in order for the salesperson to be compensated, a new contract or addendum must be processed and signed by the customer. 
• Example Contract Values: If an initial contract is 55k and paid out at 10%, then the customer chooses to increase the ongoing rate to an additional 65k, a 10k increase, the commissions would be 10% of the initial contract because it is over 50k and 7% of the secondary contract at it is 10k, for a total commission of $6,200. An additional contract or addendum for this increase must be processed by the salesperson in order for them to be compensated. 

See the math below:

Initial Contract: 10% X $55,000 = $5,500

+ 

New Contract or Addendum: 7% X $10,000 = $700

= 

$6,200

2. Payment Trigger

• Payment Timing: Commissions will be paid upon receipt of payment from the client and the payment amount will be paid out to the salesperson as payments are gathered from the client. For example, if a client is contracted for a 50,000k project which pays 10%, and the client pays in 5 tranches of 10k each, then for each payment the salesperson will receive 10% of $10,000, or $1000 per traunch equaling a total of $5,000.
• Delayed Payments: If payments are delayed for any reason, whether it is due to the client or to JHMG including disputes, payments to the salesperson will be delayed for the same amount of time.
• Cancellations: Should a client cancel their contract for any reason, or should JHMG cancel the contract or engagement with the client, any additional payment to the salesperson shall be voided.
• Commission Calculation: The commission will be calculated based on the annual value of the contract, reflecting the tiered rate applicable to the total contract value.
• Collections Assistance: Sales team members may be requested to assist in collections.

3. Ongoing Projects

• Definition of Ownership: After the first year of engagement, ownership of the client account will transition to the account manager.
  • Ownership entails responsibility for client communications, project delivery, and future sales opportunities. 
  • Salesperson’s Role Post-Transition: The initial salesperson will retain the right to be involved in future sales discussions for the client but will not be considered the primary point of contact. Their involvement will depend on the client’s or account manager’s request. Commission Structure for New Projects:
• New Sales After Transition:
  • If the account manager or the client requests the initial salesperson to assist with a new project after the first year, the following commission structure will apply:
    • When both an account manager and an outside salesperson collaborate on a new contract, the total commission will be split in a way that the combined commission does not exceed the tiered structure number for that contract. The split can be determined as follows:
      • For contracts valued under $10,000:
        • Outside Salesperson: 3%
        • Account Manager: 4%
      • For contracts valued between $10,000 and $49,999.99:
        • Outside Salesperson: 4%
        • Account Manager: 5%
      • For contracts valued between $50,000 and $99,999.99:
        • Outside Salesperson: 5%
        • Account Manager: 5% (equal split)
      • For contracts valued at $100,000 or more:
        • Outside Salesperson: 6%
        • Account Manager: 6% (equal split)
    • Example Calculations:
      • For a $20,000 contract:
        • Total Commission: $20,000 * 9% = $1,800
        • Outside Salesperson: $20,000 * 4% = $800
        • Account Manager: $20,000 * 5% = $1,000
      • For a $150,000 contract:
        • Total Commission: $150,000 * 12% = $18,000
        • Outside Salesperson: $150,000 * 6% = $9,000
        • Account Manager: $150,000 * 6% = $9,000
    • If additional team members need to be added, such as architects, both the outside salesperson and account manager’s commissions will be decreased equally to allow for a commission to be given to the additional team member.
  • Client Engagement Strategy:
    • Joint Meetings: If a client requests the initial salesperson to be involved in meetings or consultations, the account manager may choose to invite them. Such collaboration should be encouraged to maintain strong client relationships and ensure seamless communication.
    • Documentation of Requests: Any requests for the initial salesperson’s involvement in new projects should be documented in the CRM and reviewed to ensure clarity on roles and commission sharing. 
    • Re-engagement on Lapsed Clients: If the initial salesperson re-engages a client that has lapsed after the first year, they may receive a commission based on the standard tiered rate applicable to new contracts. 
    • Transition Back to Sales: If an account manager decides to disengage from a client for any reason, ownership may revert back to the initial salesperson under agreed-upon circumstances, allowing them to re-establish the relationship and commission structure.
• Multiple Projects: If a client engages in multiple contracts in a given year, the salesperson will receive commissions based on the ACV of each contract according to the same tiered commission rates outlined above for the first year. 
• Post First-Year:
  • After the first year, full ‘ownership’ of the client is delivered to the account manager.
  • If the customer OR the account manager requests the initial salesperson be added to the new sale, the salesperson will receive a commission for the new project after the first year (though this will remove or diminish the commission for the account manager). But if not, then the account manager will receive the commission after the first year for new sales at the AM rate.
  • After the first year, no further commissions for the client will be paid unless a new project is sold by the initial salesperson.

4. Long-Term Engagements

• Continuous Engagement: For long-term projects that involve ongoing work without a defined end date (e.g., agile software development), the salesperson will be compensated based on the ACV calculated for the annual value of those services for the first year. 

5. Performance Metrics Rewards & Penalties

• Performance Tracking: Sales personnel are required to track metrics related to their sales activities within the CRM on a daily and regular basis. Regular performance assessments may lead to additional bonuses or incentives based on achieving specific targets over a bi-yearly or annual basis. At JHMG, we have a policy that if it isn’t in the CRM, it didn’t happen. That means that if sale information isn’t in the CRM, the salesperson will not be compensated for that sale until all communications, meetings, and notes have been added to the CRM for that sale.
• Quota & Activities Counts Penalties: At JHMG, salespeople are required to hit a minimum number of ‘activities’ per quarter, which are determined per quarter or year by the leadership team.
  • If the quota is made, but activity counts are not, then there is no penalty.
  • If activity counts are made but quota is not reached, then the salesperson gets a pass on potential termination for a quarter.
  • If activity counts are made but the quota is not reached for two quarters after the initial onboarding quarter, the salesperson may be terminated.
  • If the quota is not reached and activity counts are not met in a single quarter, then the salesperson may be terminated.
• Activity Counts: Generally, activity counts after the first quarter working together are set as noted below. These counts may be modified as needed by leadership:
  • Initial Calls: 30 per week
  • Proposed Work Meetings (discovery, assessment, or proposal meetings): 7 per week
  • Emails: 150 per week
• Activity Count Notes: Per notes above, activity counts are enforced if the salesperson is not on track for quota, but can also be decreased or sometimes completely eliminated based on the discretion of leadership.

6. No Commission Caps

• Uncapped Earnings: There will be no caps on commissions, allowing sales personnel to maximize their earnings based on performance and client engagement.
• Payment On Large Sales: Leadership reserves the right to modify the payment schedule for very large sales, starting at over 150k total sales. 

7. Quota

• Year 1 quota is set to $750,000. This quota goal will begin after the first quarter, which will be a ‘ramp-up time’. There will be no quota set during the first quarter working together. 

8. Quarterly Business Reviews (QBRs)

• QBRs are required to be set up and maintained for all clients owned by a salesperson throughout their first year working together. QBRs will continue under the Account Manager after year 1. Should an outside sales team member not run regular QBRs with their clients, those accounts will be moved to Account Management.

8. Additional Responsibilities

At the beginning of each quarter, the company sets goals for each department and each person. These activities are goals that move the company forward. These responsibilities are required to be fulfilled in addition to sales activities. Leadership will not give additional responsibilities that will interfere with the salesperson’s ability to do sales. 

Examples of additional responsibilities include activities such as:

• Helping the marketing team develop new lead magnets
• Working on sales processes
• Improving contracts

These are almost exclusively activities that improve the sales and marketing team’s ability to generate leads and close sales.