The War Room

Commission - Making sure you know how and what you're getting paid for


Over the years of selling and managing teams, one thing that shocked me is how few reps understand their commission plan.

If you're in an early stage company, HOPEFULLY your comp plan is easy to understand - if not - red flag - your plan, UNDERSTAND your plan, in addition to the goddam multi-paragraph situational legal bullshit plan language, there should be a simple example. Do that math, understand that math.

But it's not that easy - there's more that you may want to make a play for or at least be aware of:

  1. Prepaid in advance deals - if you're in an early stage startup, prepaid deals (annual or perhaps a fatty multi-year) are as good as funding. DO THOSE but also make sure you're getting a kicker on that. Don't expect to get paid on those fatty multi-year deals until the company gets paid. They need to limit their risk (see my story below).
  2. Keeping track - always have a spreadsheet on your OWN google docs or whatever to keep track of what you sold, when you sold it, and perhaps simple terms (monthly/annual/multi-year; prepaid or not). Nobody is going to keep track of this better than you - so keep track of YOUR MONEY. Most commission teams are excel masters, but you'll find a loose screw every once and a while and a mistake will be made. Don't let any f with your money.
  3. What happens if you leave? - The plan language should state what happens in the event of a termination - if you're looking for your next gig and also waiting for a fat comish check to roll through, know damn well what the terms are in the event you bail. There should be no reason to lose out on commission if you're going to quit - just understand your timeline to get paid, then make your move. SAME THING goes for OPTIONS/STOCK/RSU VESTING - know your damn dates and plan your departure from the company around those dates!
  4. Read the plan - like I said earlier - read the goddamn plan and UNDERSTAND IT.

A few terms in your commission plan that you should always look for and understand:

PAID IN ADVANCE: This language means that you're getting paid commission BEFORE the company actually gets paid by your customer. Generally this is awesome for the sales rep as the company is taking all the risk by paying you before the customer pays the company. Usually things work out just fine - but if you get a bummer of a customer that doesn't pay (and you already got paid), get ready for the CLAWBACK. That shit hurts - every damn time.

EARNED: Every commission plan should have language that states when commission is considered "Earned". This usually means that the company has been paid and whether you've already been paid in advance or you're about to get paid on that deal, you're good to do once commission is earned. Unless there is a real shit-show of a situation where the company needs to refund the customer, you're 98% in the clear here. That 2% of risk is for situations where the company/product doesn't work/do what you said it did/breach of contract . Most of the time the company will eat it all - but if not - BEWARE OF THE CLAW.

Example: I had a rep that sold a nice $150k deal - got paid his $15k (advance payment) and left the company. The client ended up tearing up the contract and the company ended up losing all potential revenue from the deal and the company also ate the reps commission payment (Couldn't claw back because the rep left). Sometimes the business can get screwed (like this example) and the CFO wants to make things so tight that there is very little risk of that happening - but it can like in this example.

I'm sure there are countless other insights that others will share here, but these are some of the biggees I thought I'd put out there.

Now go make your calls and update your forecast in Clari.

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