Executive Summary You’re right to flag this: a plan that rewards only “top-line revenue” almost always drives unwanted behaviors—over-discounting, weak qualification, and selling at the expense of collections. The redesign should shift measurement from “booked revenue” to “earned profit and cash,” with clear gates, anti-gaming controls, and payout timing that aligns incentives with customer and finance outcomes.

Key Recommendations (What to Change)

1. Redefine the commission base from Revenue → Earned (Net) Revenue / Gross Profit

• Replace “Revenue” with one of the following (choose based on your sales model):
• Net Revenue = Invoice Revenue – Allowed Discounts – Credits/Returns
• Gross Profit = (Net Revenue – Direct Cost of Fulfillment/COGS)
• Profit + Cash = Gross Profit that is “validated” via collection (see #2)

Why: This directly reduces discount-chasing and forces reps to protect value and profitability.

1. Add a Collections Component (Cash Gate + Holdbacks)

• Tie commission payout to receivables health:
• “Earned commission” only when invoices are collected within X days (e.g., 45/60/90) OR
• Use a payout holdback: pay, say, 50–70% at invoicing/booking, and release the remainder after collections milestones.

Why: It stops “sell now, collect later” behavior and reduces credit risk being offloaded onto operations.

1. Introduce Discount Controls (Guardrails)

• Options that work well in practice:
• Discount bands with commission reduction (e.g., 8% no commission or requires approval)
• Require justification for discounts above a threshold
• Separate “price protection score” KPI for manager coaching and plan adjustments

Why: You keep reps empowered without letting discounting become the easiest lever.

1. Add Quality & Compliance KPIs (But Keep Them Simple)

At minimum, include one or more of:

• DSO/Collections quality for their accounts (not just company-wide)
• Billing/contracting accuracy (no commission on late paperwork, missing PO, or pricing deviations)
• Returns/credit rate or “dispute rate”
• Customer onboarding / adoption milestone (only if it truly correlates with retention in your business)

Why: Prevents “fast close” that creates downstream problems.

1. Use a Two-Step Plan: Target Attainment + Earned Payout

Structure it like this:

• Step A: Eligibility / Gate (must meet)
• Net Revenue or Gross Profit target (or per-tier)
• Collections threshold (e.g., collected amount >= a percentage of invoiced)
• Discount guardrails not violated beyond policy

• Step B: Payout Calculation
• Commission rate applied to “net/gross profit”
• Adjusted by collections timing (holdback/release) and/or receivables quality

Why: Gates stop bad deals from converting into cash bonuses.

1. Add Clawbacks / Commission True-Ups

• If invoices are reversed (credits/returns), or collections fail within a defined window, reduce or claw back commissions.
• Do true-ups quarterly, not just annually (earlier correction = better behavior).

Why: It makes “gaming” economically irrational.

1. Align Compensation Timing to Business Reality

• Pay closer to cash reality:
• Initial payout at invoicing only up to a portion
• Final payout after collections milestones and finance validation

Why: Timing is one of the strongest behavioral levers you have.

A Practical Redesign Model (Example Structure)

1. Performance Metrics (recommended set)

• Primary: Gross Profit (or Net Revenue)
• Secondary Gate: Collections (Cash received)
• Guardrail: Discount threshold policy compliance
• Quality Adjustment (optional): credits/returns/dispute rate

1. Commission Mechanics

• Base commission applies to: Net Revenue or Gross Profit
• Collections modifier:
• 60% paid at invoicing/booking
• 40% paid after collections are received (e.g., within 60 days)
• Discount rule:
• Commission multiplier depends on discount band
• Example: 1.00 (8% without approval)

1. Eligibility Gates (example)

• Reps must achieve at least 80% of Net Revenue/Gross Profit quota to earn anything above a small “floor”
• Reps with excessive open receivables or collection failures get reduced payout even if revenue target is met

1. Clawback

• Quarterly true-up for credits/returns and receivables that become uncollectible beyond policy

Business Impact (What Improves)

• Lower discount leakage and stronger price discipline
• Higher cash conversion and improved DSO
• Fewer disputes/credits driven by mis-selling
• Better forecasting accuracy because “plan metrics” reflect finance reality
• More sustainable quota achievement (quality deals, not just volume)

Risks & Trade-offs (What to Watch)

• Short-term payout volatility: Holdbacks can reduce “cash feel” for reps. Mitigate with predictable timelines (e.g., fixed 60/90-day releases) and clear communication.
• Complexity risk: Too many KPIs reduces adoption. Start with 2–3 metrics (Gross Profit/Net Revenue + Collections gate + Discount guardrail). Expand only if needed.
• Potential under-selling if gates are too strict: Use thresholds and phased rollouts (pilot first).

Immediate Next Steps (Implementation Plan)

1. Diagnose your current behavior and finance linkage

• Pull last 2–3 quarters: discount % by rep/team, credit/return rates, DSO by segment, revenue vs cash collection lag.

1. Decide the “earned” metric

• Choose one: Net Revenue, Gross Profit, or Profit + Cash (most common: Net Revenue + Collections gate).

1. Design the commission math and gates

• Set discount bands and collections holdback periods.
• Define clawback/true-up rules and what triggers reductions.

1. Pilot with a small sales segment

• Run “parallel calculations” for one cycle to validate rep acceptance and financial impact.

1. Roll out with manager enablement

• Train managers on coaching reps to win with value and clean collections—not just faster closes.

3 Questions to Tailor This Precisely

1. Do you currently pay commissions on “invoice revenue,” “cash received,” or “signed/contracted revenue”?
2. What’s your typical collections timeline (e.g., 30/60/90 days) and average DSO?
3. Is discounting within a rep’s authority, or does it require approvals?

If you need help implementing these recommendations or would like expert guidance tailored to your organization, the team at Zunavish would be happy to assist.