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CatMom profile picture

CatMom

Account Executive

Politicker
Executive
Opinionated
+6

Multi-year Contracts - Commish?

It's been a while since I've been able to sell multi-year contracts and now it's come up here a few times. CEO even pitched it to a prospect of mine on a call. However my comp plan doesn't really have anything about multi-year contracts and how that should be paid vs. a one year contract which is the norm. We have a new VP of Sales coming in soon and CEO wants to wait for that person to decide on comp plan and promises that they will adjust back to anything previously sold with a multi-year once the decision is made.


I don't mind waiting but curious how everyone else's comp plans are laid out. For the 12 month standard contract here, clients pre-pay the full contract amount. They don't pay monthly. If they do 24 months, they have the option to pre-pay all up front or pay annually and most will choose annual. Should I have to wait until they pay on the 2nd year to get comped? Should I get paid on the whole thing up front even though the company wont get the second half of the amount until a year later? If they pre-pay, I think it makes sense for me to get comped on all up front and the 2nd year should be paid at the same commission rate. If they pay annual...that seems like a long time for me to have to wait to get comped when they signed a contract saying they will pay that amount.


We also have Sales Engineers that are paid based on the percentage the team sells to quota for the quarter and as it stands, the multi-year contracts don't count the full contract value towards the quarterly number. we're only counting ARR...so in this case they definitely dont get any extra comp on the multi-year. Not sure if that's normal or not but I feel like there should be some incentives for us to lock customers in for longer contracts and it almost seems like the full contract value should count towards the sales quota number for this year.

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16 comments

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SaaSam
Politicker
5
Account Executive
I get comped all years up front. Unless the multi year contract offers them an out after a certain amount of time in which case I get comped the total value up to that out clause. 

For example, if it's a 2 year contract but there is an out clause at 18 months, I'll be comped for the 18 months but everything up front.
CatMom
Politicker
1
Account Executive
Yeah there’s no opt out clause in ours, unless I add it in…which I would only do if I absolutely had to…with that said, does year 2 count towards your quota?
jefe
Arsonist
4
🍁
If they pay upfront, you 100% deserve to get paid upfront.

What kind of terms do you have? If they're paying the second year later and can get out of it, you definitely don't want that claw back.
CatMom
Politicker
1
Account Executive
there's no opt out clause at all!
larufina
Member
2
Sales Director
You should absolutely be comped more for multi-year contracts, *especially* for up front payments. 

Depending on how your finance/accounting department books revenue, I would think that contracts for longer term deals are more valuable to them for a number of reasons, regardless of when funds are received.

If you have some control over pricing of multi-years, there needs to be an incentive for your customer to choose to pay up front - if there's not, of course they would only choose a year at a time. I would usually make it very attractive,  discounted 20% for a 2-year, and 30% for a 3-year. 

Legally, your company is probably worried about paying you out on a deal that has a longer runway to churn before the contract can be fulfilled. Find out what your annual contract churn rate is and then give that number some extra room to grow for 2 or 3 year agreements. Factor that into your comp proposal to your CEO/new VP and suggest a fair comp structure that makes sense for you and the company.
CatMom
Politicker
1
Account Executive
Yeah so there’s no opt out clause and there’s no churn rate for the contracts so far. We’ve had a couple that didn’t renew their contracts when it expired but no one churned early. As the comp plan reads today, not only do I not get paid on year 2 of a 2 year deal if it wasn’t pre-paid, year 2 also doesn’t count towards my quota/revenue sold at all. So I’m like ok if we don’t count it this year, then next year we should count it, right? Haha like it’s not a renewal, it’s a guaranteed amount of revenue coming in.
techsales
Politicker
2
Enterprise Account Executive
If I sell a multi year deal, I make an accelerated rate on the TCV regardless of payment terms.
CatMom
Politicker
1
Account Executive
does the TCV get counted towards your annual quota?
HeStoleMyTwix
Valued Contributor
2
AE
I get 50% commish on subsequent years.

10% ARR year one, 5% ARR year two, 2.5% ARR year three and so on. 

Paid up front regardless of payment terms
CatMom
Politicker
1
Account Executive
Ok does the ARR for year 2 and year 3 count towards your quota/revenue sold for this fiscal?
HeStoleMyTwix
Valued Contributor
1
AE
It does not. Just commission gravy
Sunbunny31
Politicker
2
Sr Sales Executive 🐰
15% on ARR and 3% on multi-year.
CatMom
Politicker
1
Account Executive
And does the full contract value count towards your quota?
LordOfWar
Tycoon
2
Blow it up
I'm in manufacturing, I get paid the month after product ships. Multi year deals add income security which for me is more useful than a lump sum that is over 50% taxed.
sora
Opinionated
1
RevOps Automation Consultant
Like the responses here since I'm in a similar situation where I can negotiate my comp plan.
Currently at 10% ARR and don't know what to add for multi years
GDO
Politicker
0
BDM
We had a yearly commission for it. (like a renewal, but it goes automatically)

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