Revenue or margin — which is better?

It turns on one thing: whether the rep influences price. If they may negotiate and grant discounts, a margin model aligns their interest with the company’s. If price is fixed, the revenue model is simpler and its main flaw is gone, because there is nothing to discount.

How do I stop reps pushing closings into the next period?

Cumulative thresholds instead of monthly resets. Once commission no longer depends on which side of a period boundary a deal lands, moving it stops making financial sense — and financial sense is the only reason anyone does it.

When does stage-based commission make sense?

On a long sales cycle, where paying on signature alone means months with no variable pay — especially for someone new to the team. The condition is a hard definition of the stage: what exactly counts as a meeting, and who confirms it.

How often should a commission plan change?

Less often than the temptation suggests. Every change costs a quarter of uncertainty in which the team tests the new rules instead of selling. Change it when the model produces behaviour you do not want — not because the commission bill grew alongside sales, since that means the system is working.

How does the LOT App handle commission?

The manager sets the rules, and the accrual happens the moment a deal is marked won. The rep sees their figure as it builds, without waiting for month end, and the manager sees the commission cost in the same view as the pipeline. The spreadsheet goes, and with it the manual reconciliation and the argument over which version of the rule applied.

Running a teamPublished 28 August 20268 min read

Sales commission: four models, four traps

A commission plan is the strongest document in the company — people do what you pay them for, not what the strategy deck says. Each of the four common models rewards something different.

A commission plan is the strongest document in the company. The strategy describes what you would like people to do. The commission describes what you are actually paying them for — and when the two disagree, the commission wins every time.

A team does not do what the strategy deck says. It does what you pay it for.

Below are the four models you meet most often. Each of them works, provided you know which behaviour it rewards — because each rewards something different, and the difference only surfaces a few months in.

Model 1: commission on revenue

The simplest and the most common: a fixed percentage of the sale. Everyone understands it, anyone can work it out in their head, and it needs no explaining to a new hire.

It rewards volume. The rep closes as much as possible, as fast as possible. The problem arrives with discounts: since the percentage runs off the invoice figure, a ten percent discount cuts the commission by ten percent — while the margin can fall by half.

A 10% discount — what the rep loses and what the company loses (illustrative)

List price: 10,000
Cost of delivery: 7,000
Margin, no discount: 3,000
After a 10% discount: revenue: 9,000
After a 10% discount: margin: 2,000

The rep loses 10%, the company 33%−1,000 margin

Which is why, on a revenue model, a discount is a cheap closing tool for the rep and an expensive one for the company. That is not a failing of the person. It is the design.

Model 2: commission on margin

The answer to the above: a percentage of margin rather than revenue. A discount hits the rep in proportion to how it hits the company, so both sides want the same thing.

The trap sits elsewhere and has two layers. First: the rep has to know the margin to know their earnings, which means showing them your cost of delivery. Not every company wants to. Second: when margin depends on things outside their control — an exchange rate, a purchasing negotiation — the commission stops being predictable. People do not trust a system they cannot compute for themselves.

Model 3: tiered commission

The rate rises past a threshold: one percentage up to target, a higher one above it. It is meant to drive plan attainment, and usually it does.

It also has two side effects, both visible in the calendar rather than in the spreadsheet.

Sandbagging. A rep who hit plan on the twentieth pushes closings into the next period — not out of laziness, but because they are worth more over there. Sales oscillates for reasons that have nothing to do with the market.
Giving up. Anyone who sees mid-period that the threshold is out of reach stops trying for the rest of it. A model built to motivate switches part of the team off for a fortnight.

One change softens both: cumulative thresholds instead of ones that reset monthly. Then moving a deal by a week changes nothing, and “will I make it in time” stops being a question at all.

Model 4: commission by pipeline stage

Paying not only for the close but for reaching a booked meeting or a sent proposal. Sensible wherever the sales cycle is long and paying on signature alone means several lean months at the start.

The trap is obvious to anyone who has watched it: reward meetings and you get meetings. Including the ones that never had a chance of becoming anything. The model works only with a hard definition of what counts as a stage — and with the discipline to enforce it.

The trap all four share

Whichever model you pick, one thing breaks all of them equally: commission calculated in a spreadsheet at the end of the month.

For three weeks the rep does not know what they have earned. Motivation that arrives late does not motivate at the moment it was supposed to.
The calculation is manual, so it is sometimes wrong — and one error in the company’s favour costs more trust than the whole saving on tooling is worth.
It takes a manager several hours a month, invariably at the worst possible moment, which is period close.
A rule living in a spreadsheet is invisible. Nobody knows which version is in force until they ask.

A commission a rep cannot see as it accrues stops being an incentive. It becomes a transfer that either turns up or does not.

The fix is not in the choice of model. It is in the rule living inside the system rather than inside a file. A won deal should accrue commission the moment it is won — visible to the rep straight away, and to the manager in the same place they see the cost.

Choosing a model for your process

If the rep influences price and may negotiate — pay on margin. Otherwise you personally finance the discounts they hand out.
If price is fixed and non-negotiable — pay on revenue. It is simpler, and its main flaw has just disappeared along with the discount.
If the sales cycle runs beyond a quarter — add a stage component, but define the stage tightly enough that it cannot be stretched.
If you add thresholds — make them cumulative. Thresholds that reset monthly buy you sandbagging at the end of every period.
Whatever you choose: the rule has to be computable in the rep’s head and visible in the system on the day the deal is won, not a month later.

01FAQ

Short answers

: It turns on one thing: whether the rep influences price. If they may negotiate and grant discounts, a margin model aligns their interest with the company’s. If price is fixed, the revenue model is simpler and its main flaw is gone, because there is nothing to discount.
: Cumulative thresholds instead of monthly resets. Once commission no longer depends on which side of a period boundary a deal lands, moving it stops making financial sense — and financial sense is the only reason anyone does it.
: On a long sales cycle, where paying on signature alone means months with no variable pay — especially for someone new to the team. The condition is a hard definition of the stage: what exactly counts as a meeting, and who confirms it.
: Less often than the temptation suggests. Every change costs a quarter of uncertainty in which the team tests the new rules instead of selling. Change it when the model produces behaviour you do not want — not because the commission bill grew alongside sales, since that means the system is working.
: The manager sets the rules, and the accrual happens the moment a deal is marked won. The rep sees their figure as it builds, without waiting for month end, and the manager sees the commission cost in the same view as the pipeline. The spreadsheet goes, and with it the manual reconciliation and the argument over which version of the rule applied.

Try it against your own pipeline.

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