Using sales compensation to drive new business has always been a critical component of a team’s go-to-market strategy. Meanwhile, pulling compensation levers to drive renewals and retention, despite playing a part in every revenue team’s compensation strategy, has been a bit of an afterthought.
Well, we’re here to tell you that both are equally as important — and that you can use your commission structures tactfully to drive selling behaviors that support new biz, renewals, and retention.
How do you structure your sales compensation plan to align to these metrics and incentivize your team to follow suit?
Below, we’ve listed compensation tactics that help drive new logos with higher chances of renewing as well as commission rates and bonuses that increase retention probabilities and encourage upsells.
But first, let’s break down some of the basics.
What is considered new business?
New business in sales refers to the sale of products or services to a customer that has never purchased from the company before.
What is a renewal?
Unlike a new business sale, renewals occur when existing customers re-up their subscriptions or contracts.
What is customer retention?
Customer retention is the process of keeping customers coming back to your business. It is important because it costs less to retain an existing customer than to acquire a new one since businesses spend money on marketing, advertising, and sales in order to acquire new customers.
What’s the difference between renewal and retention?
Renewal and retention are often used interchangeably, but they are actually two different things.
Renewal refers to the act of a customer continuing to do business with a company after their contract or subscription has expired.
Retention refers to the act of a company keeping its customers from churning (canceling their service).
Renewal is a subset of retention. In order to retain a customer, a company must first renew its contract or subscription. However, renewal does not guarantee retention. A customer may renew their contract or subscription for a variety of reasons. However, if a customer lacks satisfaction with the company’s products or services, they may still churn, even if they have renewed their contract or subscription.
Retention is a more complex and challenging goal than renewal. It requires companies to focus on the customer experience and to continuously improve their products and services. By focusing on retention, companies can build a loyal customer base that is more likely to continue doing business with them in the future.
Now for the actual compensation levers to consider when looking to steer all three.
Compensation tactics to drive new business
We’ll start with three drivers you should consider to drive new business.
Going after new business from a specific industry, vertical, company size, or region? Consider offering logo commissions or SPIFs.
What are logo commissions? Logo commissions reward reps with higher commission percentages or bonuses on deals based on logos. An example of this might involve a $250 single-rate bonus on every deal from the top 15 logos of a specific industry.
This is an excellent driver if you’ve historically done well with real estate companies and now you’re entering a new vertical such as insurance.
In practice, this might look like paying a logo commission rate of 12% on every contract from the insurance sector versus the base rate of 9% on deals that fall outside of insurance.
We worked with our customer Prefect on designing a compensation plan that includes a new logo bounty. When a rep brings in a first-time customer, instead of a percentage, they pay a flat dollar amount that increases according to the deal size.
“It’s similar to a milestone bonus, but each new logo unlocks a bounty,” said Head of Finance Thomas Egbert. “Our sales team here focuses on expansion, upsell, and new business, so we wanted a way to create a line incentive for both activities.”
Big deal bonuses
Similar to logo commissions or Thomas’s “logo bounty,” you could also incentivize your sellers to close larger deals by offering per-deal bonuses, end-of-month, or end-of-quarter biggest new deal bonus.
Here are some examples:
- Reps earn $500 on any contract they sell above $5,000
- For deals between $5,000 and $10,000, reps receive $1,000
- $2,000 to the rep for closing any deal above $10,000
- Team competition that pays the rep with the highest deal at the end of the quarter $2,000
No matter which tactic you use, the most important piece to remember is to set clear definitions and parameters around the bonuses. Avoid gray areas and ensure your reps and finance teams have a clear understanding of bonus eligibility.
Kickers for deals that close in the 1st month of the quarter
Next, we suggest offering kickers on deals that close within the first month of the quarter.
What’s a kicker in sales? A kicker in sales is interchangeable with “accelerator” or multiplier. It pays a higher commission percentage than your base commission rate. For instance, if you set your standard or base commission rate to 10%, your kicker or accelerated rate might equal 12.5%.
This approach helps evenly distribute deals across the quarter while discouraging your reps from sprinting toward the end of a quarter armed with hail-mary discounts.
“Show me the incentive and I’ll show you the outcome, said Colin Spector, Orum VP of Sales. “Incentives drive behavior. If Finance says we need cash flow, and we want more cash flow upfront, let’s put a kicker on annual payments and an accelerator on deals that close within the first month of the first quarter.”
How to increase revenue on new biz deals:
- Reward a SPIF for non-discounted deals
- Implement decelerators on deals that require significant resources and technical assistance to onboard
Compensation tactics to drive renewals
Moving along to renewals and retention, below we highlight several ways to drive both.
Comp on highest onboarding-related NPS scores
An important factor in securing retention early on in a customer’s experience is the onboarding.
One compensation tactic you can implement to support impeccable onboarding sessions is by providing bonuses or SPIFs anytime a customer success manager (or the role equivalent at your organization) receives a perfect NPS onboarding score.
For example, if you measure your NPSs on scales from 0-10, you could pay the rep $100 for every 10 score they earn.
Reward ICP deals with higher commission rates
This comp tactic technically classifies as new biz, but let us explain.
By rewarding your sellers with a higher commission rate for signing on to what your org. has established as their ideal customer profile (ICP), you’re encouraging them to sell to customers who are most likely to renew.
Under this logic, the more ICPs you have, the higher your renewal and retention rates.
Therefore, encourage sellers to pursue opportunities with ICPs by compensating 13% on ICP customers versus 10% on non-ICP contracts.
Comp as high or higher on upsells
Your customers are more important than new business.
They are the ones who will refer you to their peers. Upsells cost less for a business than attaining a new customer. And, the more they buy from you, the more likely they are to both renew and see long-term value from your platform and services.
Additionally, investors care more about your path to profitability than net new business today — a change from previous years.
It’s for these reasons that you should consider comp’ing as high, or even higher on upsells (net new retention) than new business. This is especially important if your account executives also oversee renewals and upsells.
If you comp less on these than new biz, what do you think they’ll spend the most time on?
So, change the behavior by directing their attention to landing and expanding existing accounts with greater incentives.
How to address retention by incentivizing early renewals
Offer fixed bonus rates for renewals that AMs bring in early. For example, offer $150 on renewals that close 90 days ahead of schedule and $100 for those 60 days in advance.
Pay higher rates or SPIFs on multi-year deals and renewals
Our last suggestion to incentivize renewals and impact retention is to add accelerators for multi-year contracts and multi-year renewals.
Multi-year contracts mark your biggest opportunity to lock in retention.
The best way to get your team to present multi-year options is to pay them more when doing so by increasing your commission rates or bonuses for any contract of two years or higher.
“Multi-year deals tend to be better for the company,” said Andrew de Geofroy, SVP, of Global Revenue Platform for Quantive. “With current economic conditions, predictable revenue growth is more important toward profitability.”
You can check out these compensation templates to help: Single Rate Commission with Contract Term Multiplier and Commission with Multi-Year Accelerators.
In conclusion, a well-designed sales compensation strategy can be a powerful tool for driving new business, renewals, and retention.
By aligning the interests of sales reps with the overall goals of the business, sales compensation can help to ensure that reps are focused on closing deals, upselling and cross-selling, and building long-term relationships with customers.
When designing a sales compensation strategy, there are a number of factors to consider, such as the company’s goals, the type of products or services being sold, and the competitive landscape. However, by taking the time to design a thoughtful and effective sales compensation strategy, businesses can give themselves a significant advantage in the marketplace.
Here are some additional tips for designing a successful sales compensation strategy:
- Make sure the strategy is aligned with the company’s overall goals. The sales compensation strategy should be designed to support the company’s overall goals, such as increasing revenue, growing market share, or expanding into new markets.
- Consider the type of products or services being sold. The sales compensation strategy should be tailored to the type of products or services being sold. For example, if one product or service costs the company more to sell, consider dropping the commission rate compared to other lines that are more profitable.
- Take into account the competitive landscape. The sales compensation strategy should also take into account the competitive landscape. For example, if a company is competing against companies that offer higher commissions, the company may need to offer higher commissions in order to attract and retain top sales talent.
- Get input from sales reps. Sales reps are the ones who will be most affected by the sales compensation strategy, so it is important to get rep feedback when designing the strategy. Sales reps can provide valuable insights into what motivates them and what they need to be successful.
- Review the strategy regularly and make adjustments as needed. The sales compensation strategy should be reviewed regularly and adjustments should be made as needed. This is especially important in a rapidly changing marketplace.
By following these tips, businesses can design a sales compensation strategy that will help them to reach their new business and retention goals.
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