Q: Why do I pay off of ARR?

You want to make sure to pay off of ARR ( Annual Recurring Revenue ), ACV (Annual Contract Value), or MRR (Monthly Recurring Revenue) to ensure you aren’t double compensating your reps for closing longer deals. If you paid them off of TCV (Total Contract Value), they’ll earn a higher commission rate and at a higher amount, which essentially double dips.

Question 1

What is a multi-year contract?

Accepted Answer

A multi-year contract involves a signed commitment from a customer to purchase services from a vendor for a period that extends beyond the first 12 months in which the contract is signed upon.

Question 2

Why would I pay more for longer deals?

Accepted Answer

Longer deals are generally preferable because they create a reliable and guaranteed source of revenue for more than one year. A customer that has agreed to work with you for three years gives you the time needed to properly create a longstanding relationship. Typically longer contract terms also come with a discount for the client, so you’ll need to pay a higher rate to prevent salespeople from earning less when selling a more desirable deal.

Question 3

What is an accelerator in sales?

Accepted Answer

Accelerators, which we sometimes refer to as multiple rate commissions, bump the commission rate to a higher rate once a rep has reached a quota attainment parameter, deal size, or total amount of sales in a month or quarter.

Question 4

Are accelerators necessary?

Accepted Answer

Accelerators (and decelerators) are designed to encourage overachievement of quota and motivate sales reps. Not only are they one of the most common compensation plan components (80% of comp plans use accelerators), but they’re very well understood by sales reps. If you’re hoping to see a lot of reps overachieve, it’s recommended to include accelerators.

Question 5

Is this plan too complex?

Accepted Answer

This is definitely a more complex sales commission structure. If you’re worried about this compensation plan being overly complicated, you could try one of our other plans like Account Executive: Commission with Accelerators or Single Rate Commission with Contract Term Multiplier.

Question 6

What if I sell more than one product?

Accepted Answer

If you sell more than one product and want to have the same commission rate across products, this sales compensation plan model would still work just fine for you. If you want to pay different commission rates for different products or have different quotas for each product, this plan might not be best. It’s already a fairly complex plan, so adding in another layer with different product rates might make it too complicated for your reps to understand fully.

Question 7

Does it make sense to have different quotas for each contract length?

Accepted Answer

It generally doesn’t make sense to give different quotas for each different contract length. This is because that would add in extra complexity for no additional gain. By paying your reps based on their quota attainment and the contract length, you are signaling that you want them to close longer deals.

Question 8

What about contracts that are 2.5 years long?

Accepted Answer

Contracts that aren’t exactly 1, 2, or 3 years long should be rounded down. So if you have an 18 month contract, that would be paid out at the one year rate. If you have a 2.5 year long contract, that would be paid on the 2-year commission rate.

Question 9

Why do I pay off of ARR?

Accepted Answer

You want to make sure to pay off of ARR (Annual Recurring Revenue), ACV (Annual Contract Value), or MRR (Monthly Recurring Revenue) to ensure you aren’t double compensating your reps for closing longer deals. If you paid them off of TCV (Total Contract Value), they’ll earn a higher commission rate and at a higher amount, which essentially double dips.

Question 10

What’s the easiest way to track and calculate this plan?

Accepted Answer

With QuotaPath, give your reps, leadership and finance real-time earnings and attainment data for accurate and trusted commission reporting. Our commission tracking and sales compensation software. Plus, use our forecasted earnings function so that reps can see how the next deal impacts their path to the next accelerator tier.