An Account Executive sales compensation plan that pays a higher commission rate on deals that exceed 1 year.
Use this uncapped commissions plan to reward reps for securing multiple year contracts. Under the Single Rate Commission with Contract Term Multiplier plan, the rep earns a single rate that remains flat for all deals that fall under a one-year term agreement. For two-year deals, apply a higher single rate. And, for three-year deals, pay another, higher fixed rate. These rates do not change based on attainment progress and only vary based on the length of contract term. Note: Although this plan include 3 paths, it is still considered a fairly simple plan in terms of complexity because the rates remain flat.
A Quota to OTE Ratio of 4 - 8 is best.
This path is for deals when the customer agrees to a 1-year term. The commission rates are the lowest of the three paths. Note that it is still possible for the rep to achieve OTE closing exclusively 1-year deals.
This path is for 2-year-long contracts. The commission rates for these deals rank higher than single-year deals. Remember, the commission rate is based on ARR, so reps aren’t double-dipping on the commission. These deals also count toward the same quota as 1- and 3-year deals. In this plan, the commission rate is 1.25x the base rate of the 1-year deal.
With this commission path, the highest commission rates pay out on the longest deal terms. If a rep closes a deal that is 3 years (or more!), then they get paid out at a rate that is higher than any of the other deals. In this plan, the commission rate is 1.5x the base rate of the 1-year deal.
I want our reps to focus on longer contract terms to ensure we’re maximizing our guaranteed revenue per customer. That’s why I give a (much) higher commission rate on multi-year deals.
As with most compensation plans, the two major components that will vary across sales teams are:
First, you need to decide the quota period, which is the frequency at which a rep is accountable to that sales quota.
The most common quota periods include: quarterly (45% of plans we see), annual (25% of plans), and monthly (25% of plans). Another 5% of plans feature other frequencies, such as weekly, bi-weekly, or semi-annually. Once you decide that, you will need to determine a quota that is both low enough to be attainable and high enough to be valuable for your business.
One way to do this is by using our Quota:OTE Ratio Calculator.
Once you have the quota determined, you will next need to define your commission rates.
Finding the ‘base rate’ is pretty simple. First, divide a rep’s on-target variable pay by their annualized quota. Remember, you’ll need to determine a few ‘multipliers’ on that base rate.
For multi-year contract commission rate increases, you’ll want anywhere from 1.25x to 3x depending on how much you want to incentivize longer contracts. Be careful when you add these two multipliers together though, as they can cause very high commission rates if you’re not careful!
A multi-year contract is a signed commitment from a customer to purchase services from a vendor for a period that extends beyond the first year. In SaaS, multi-year agreements are typically between 2 to 5 years.
It’s ultimately your call to do this or not, but we strongly encourage you to pay higher commission rates or bonuses on agreements that go beyond one year. This motivates and incentivizes your reps to ask for longer commitments, which equates to customers agreeing to pay you more over time. If your reps don’t get paid more on them, why would they ask for longer terms?
We consider the single rate commission plans the simplest variable compensation plan out there. The math is simple to calculate and since reps easily understand their sales commission structure, they focus on closing deals rather than wasting time thinking about how to maximize their sales commissions.
To calculate the commission rate, take the variable pay that a rep earns for hitting their target ($50k a year, for instance) and divide that number by their target ($500k a year). So it would be $50k/$500k, which gives you .10 or 10% commission. Great work!
Great question! The key difference between this plan and the the Commission with Multi-Year Accelerators Plan is that the rates in the latter change based both on length of contract and the rep’s quota attainment. In this plan, the fixed rates depend only on contract length.
Then this plan might not be for you, but it’s probably in the ballpark! If each of your products go toward the same quota and you want to pay the same rate on all products, this works great for you! However, if that isn’t the case and you want a Single Rate Commission with Contract Term Multiplier Plan for multiple products, you would need to add additional paths for each product. To calculate the commission rate for each of those paths, determine how much of a rep’s total variable compensation you want to dedicate per product. Then, divide that number by how much you want your rep to sell of that product.
They can manually calculate it, or, you can give them QuotaPath’s commission tracking and sales compensation software to do it for them. Real-time integrations ensure the data is accurate the most recent available, and our forecasted earnings tool enables reps to see how asking for a longer contract term impacts their next commission check.
An Account Executive compensation plan that pays different sales commission rates based on the length of the contract and quota attainment.
An Account Executive compensation plan that pays the same commission rate on all deals closed, regardless of quota attainment.