A commission floor, or cliff, puts in place a compensation measure that prevents a salesperson from earning commissions until they meet a certain threshold. The threshold itself is called the “floor” or “cliff.” If instituting a floor, you should outline and define this clearly in your software sales commission agreement.
Commission floors are an effective way to drive your sales team to hit key performance milestones while protecting the business from having to overpay commissions for lackluster performance.
However, commission floors can cause more problems than solutions.
For example, cliffs and commission floors often promote sandbagging. Sandbagging in sales takes place when a rep holds a deal back intentionally. Maybe it’s because they already achieved their goal and want to get a jump on the next quota cycle by holding the deal. But in the context of commission floors, if a rep realizes the next deal won’t push them passed the floor, they may hold it to the next month to have a greater chance of overcoming the cliff.
Commission floors may also demotivate your reps and cause them to only to pursue big deals.
“If you design the comp plan correctly, you shouldn’t need a floor,” said Rhys Wiliams, Domestique Consulting Founder & Managing Partner and former VP of RevOps at Convercent.
For a compensation structure with a commission floor, use this template, Commission with Accelerators & Cliff.