The word “retroactive” means “relating to or effective from a past date.” In the context of sales commissions, retroactive means that compensation plans or specific compensation plan mechanics, such as accelerators, apply to deals from a previous date.
For example, let’s say a company has a new sales commission plan that goes into effect on January 1st. If a sales rep makes a sale on December 31st, they may be eligible to receive a commission under the new plan, even though the sale was made before the plan was in effect.
Retroactive commissions can be a great way to incentivize sales reps to close deals. By paying higher commissions on sales that were made before the rep hit a specific milestone, companies can show their sales reps that they are committed to rewarding their hard work.
However, it’s important to note that retroactive commissions can also be expensive for companies. If a company has a large number of sales reps, or if the sales reps are able to close a lot of deals, the company could end up paying out a lot of money in retroactive commissions.
As a result, companies should carefully consider the potential costs and benefits of using retroactive commissions before implementing them.
For a compensation plan example that includes retroactive payments, check out the Commission with Accelrators & Cliff template. Under this sales comp plan model, the rep does not earn commissions until reaching 60% quota. Then, once they surpass 60%, they begin earning commissions retroactively as per the base rate on every previous deal.