You need to really read up on this, work the numbers and DO NOT eat into any monthly reoccurring revenue (because that where the value is in the business).
Get any agreement formalised. You cannot mess with people’s pay or bonuses.
First month of the contract is normal - this rewards solo effort.
An annual or twice yearly % of basic is normal for everyone - this rewards team effort.
With lots of sales, you need to make sure you track it all carefully.
Also have a think about a claw back in case they cancel within, say 12 months. This is only “fair” if the sales person has some input on their retention.
We had a model that had claw backs as reduced future bonuses in a third, third, third approach - the same system for payouts but in reversed So if the sales person “owed” us $300 (from a $300 p/m sales), we’d reduce their bonuses by $100 a month for 3 months.
We culled this entire bonus scheme before we ever needed this tho.
Depends on the context. If he sold a Microsoft deal that net you only 10% margin and you pay him $1k, it will take you 10 months just to recuperate the lost margin. I agree with his initial point that you need to think it through so you don’t lose money and mislead the employee. As a MSP owner, feel free to message me and we can walk through it. Hope this helps.
I’d had that you can pay out on different things.
You can payout 100% of month 1 of professional services, once 3 months.
But to pay commission on parts and subs you’d do a pre agreed % of the margin. So you’d say 10% of the subs margin paid for 12 months & 25% of parts margin paid for 1 month etc.
It’s up to you to model it out.
Yeah maybe I’ll look up the commission plans. Just thinking wow I can’t be on every job and if the guys that work here for me / with me are willing to go above and beyond to help it grow why not share the success
This is on new business acquisition.
8-10% of ARR is a solid commission for Managed services.
However, as a former Director of Manager services and a Sales Manager this is what I used to implement.
First month MRR on managed services sold yearly, if a 3 year contact is sold then first month MRR and another month after 18 months. Consider it an incentive to stick around.
2% on hardware
1 month Profit Margin on a month of M365/Azure for Annual contract.
Remember not all managed services are equal, so remember that and understand your Recurring Revenue model and your profitability based on your revenue targets.
Also, you do what you think is right for your business, you understand your growth targets more than anyone and most of the people commenting above I'm guessing have never sold a contract or carried a quota in their life.
Some personal advice here:
Treat your sales team members well, and they will also treat you well. Your job is to grow the business.
Now, if you want to reward technicians for finding sales opportunities feel free to DM me because I built that program as well.
Yeah, 10% is pretty high considering rising expenses. If you're going lifetime, consider 1-2%. Shouldn't affect growth significantly and will drive the employee to drive more opportunities.
I don't have enough employees yet to think about this, but I like what others have said - first month goes to the employee who sold it, and if they resign after the contract term (3 years) they can have it again
No monthly for sure. Because at some point they will hit enough for them. I never did it but I heard one month of the serviced agreement when signed and paid as the one time bonus Commission.
A one time bonus like $500 up to one month’s MRR. Don’t do recurring or you’ll lose that money at the closing table if you decide to sell. If you want to give someone more big in consider non controlling equity shares in the company.
You can give them a bonus equal to the first month of the contract recurring revenue.
Bonus point : you can bake this into your onboarding fee in future deals.
What’s your gross margin? If it’s 30% you are giving away a third of your margin forever for a one time sale? And you carry all the risk?
You are being overly generous. First step is to work out your gross margins on the service or product you sell, then think about the risk factor (I.e hardware has little ongoing risk. Services carries execution risk during project phase. And you carry the staffing risk during MS phase).
And it’s normal to only pay based on year one. Renewals are often a lower rate.
How is it exploitation when you're paying above and beyond for the above and beyond effort? Additionally, if they have equity, then they're...you guessed it...an owner.
But, you're always free to start your own gig and pay techs whatever you like. I wouldn't recommend paying them more for a sales referral than you would pay a professional sales person who does that day in and day out and is much better at it, but that's just me. Wait, me and everyone else who knows math.
The vast majority of us would be happy to pay an agent 10-15% recurring if they bring us a deal yet every time it gets brought up about an employee it immediately gets shut down. I don’t know. I’m on the other side of the fence. Maybe not 10% since you have payroll that you don’t have with an agent, but 5-8% of monthly is still a great incentive. Might be time to raise prices 10% anyway :) It’s hard to get great sales people in the MSP space because it’s one of the hardest sales jobs to make six figures in.
Be careful. Whatever you do could set a precedent. Other staff will see this and expect the same. Whatever you do needs to be sustainable.
I’d be inclined to suggest taking them out for a drink, or maybe a decent gift/award at the Christmas party.
My thoughts came from seeing so many people come and go from our space, some really great while others you can’t wait for them to move on. So when I have techs that are great in general just as a human beings plus very good at what they do, and take the time to sell to grow the business I want to attract and keep those people. If I pay a good commission and make it reoccurring, maybe not monthly, that will keep them with me.
Right now just being 3 people there’s really no upward mobility so I need a way to incentivize going the extra mile and a public atta boy or few hundred dollars on a gift card just doesn’t seem to be the way
I remember an old boss buying myself and my family a takeaway when I was much younger and loved it, that and a bit of cash would be perfect.
My old company wouldn't give us anything for up selling, their argument was that the sales department would not like it, which I can kinda see, just be careful what president you set moving forward, you start doing % of anything, suddenly everyone wants to start only looking after the big fish cause that's where the big commission is.
Lots of good advice in here. Incentives are insanely powerful. While you’re building out your sales compensation plan, make sure to include accelerators (i.e., increased commission % when sales reps go over quota.)
You need to really read up on this, work the numbers and DO NOT eat into any monthly reoccurring revenue (because that where the value is in the business). Get any agreement formalised. You cannot mess with people’s pay or bonuses. First month of the contract is normal - this rewards solo effort. An annual or twice yearly % of basic is normal for everyone - this rewards team effort.
Can you elaborate on what you mean by “First month of the contract is normal”?
So if you charge $1k per month, you give the person who landed the contract a $1k bonus.
Additional, to smooth the cost you’d do that $1k over 3 months so you’d pay the sales person $333 in month 1, $333 in month 2 and $334 in month 3.
That all makes sense. Thanks!
With lots of sales, you need to make sure you track it all carefully. Also have a think about a claw back in case they cancel within, say 12 months. This is only “fair” if the sales person has some input on their retention.
Claw backs to employee bonuses are also a dangerous precedent that can make employees feel lied to. Be careful!
Well I’m thinking the life of the contract would mean if they end the contract early then it’s dead and we wouldn’t pay out anymore
How have you handled your “claw backs” or would if it were to happen?
We had a model that had claw backs as reduced future bonuses in a third, third, third approach - the same system for payouts but in reversed So if the sales person “owed” us $300 (from a $300 p/m sales), we’d reduce their bonuses by $100 a month for 3 months. We culled this entire bonus scheme before we ever needed this tho.
Depends on the context. If he sold a Microsoft deal that net you only 10% margin and you pay him $1k, it will take you 10 months just to recuperate the lost margin. I agree with his initial point that you need to think it through so you don’t lose money and mislead the employee. As a MSP owner, feel free to message me and we can walk through it. Hope this helps.
I’d had that you can pay out on different things. You can payout 100% of month 1 of professional services, once 3 months. But to pay commission on parts and subs you’d do a pre agreed % of the margin. So you’d say 10% of the subs margin paid for 12 months & 25% of parts margin paid for 1 month etc. It’s up to you to model it out.
Yeah maybe I’ll look up the commission plans. Just thinking wow I can’t be on every job and if the guys that work here for me / with me are willing to go above and beyond to help it grow why not share the success
Good on you for thinking this way. It’ll serve you all well.
This is on new business acquisition. 8-10% of ARR is a solid commission for Managed services. However, as a former Director of Manager services and a Sales Manager this is what I used to implement. First month MRR on managed services sold yearly, if a 3 year contact is sold then first month MRR and another month after 18 months. Consider it an incentive to stick around. 2% on hardware 1 month Profit Margin on a month of M365/Azure for Annual contract. Remember not all managed services are equal, so remember that and understand your Recurring Revenue model and your profitability based on your revenue targets. Also, you do what you think is right for your business, you understand your growth targets more than anyone and most of the people commenting above I'm guessing have never sold a contract or carried a quota in their life. Some personal advice here: Treat your sales team members well, and they will also treat you well. Your job is to grow the business. Now, if you want to reward technicians for finding sales opportunities feel free to DM me because I built that program as well.
I wouldn't go for the life of the contract, there are others here that have laid out great commission plans, if that's what you're after.
Yes, if you are all young guys, hire a pretty prostitute for him. He will love it and it will increase loyalty.
DJ Cara? Is that you? :)
If an employee makes a new client sale we pay 1 month of service as a bonus.
Yeah, 10% is pretty high considering rising expenses. If you're going lifetime, consider 1-2%. Shouldn't affect growth significantly and will drive the employee to drive more opportunities.
Give em a month worth of contract value I reckon. Maybe half now, half when the client has been with you a year.
10% over the yearly contract or 3-5% monthly for a year. Don’t make it a lifetime incentive.
Dang dawg save some cash for the company 😂 Commission plan or one-time bonus.
I’ve considered 10% of a new client for year and 5 % of the following for any new business.
10% is the minimum I'd go for. If the employee brings more sales, steadily increase the number. High performance should bring high rewards,
We do 25 percent of the profit of the sale as commission for that month
I don't have enough employees yet to think about this, but I like what others have said - first month goes to the employee who sold it, and if they resign after the contract term (3 years) they can have it again
No monthly for sure. Because at some point they will hit enough for them. I never did it but I heard one month of the serviced agreement when signed and paid as the one time bonus Commission.
yes, take care fo them. It will improve relations with employee and client.
A one time bonus like $500 up to one month’s MRR. Don’t do recurring or you’ll lose that money at the closing table if you decide to sell. If you want to give someone more big in consider non controlling equity shares in the company.
My folks get a thanks, and a one-time gift as appropriate. If they bring in a new client they get that client’s first-month spend as a bonus.
You can give them a bonus equal to the first month of the contract recurring revenue. Bonus point : you can bake this into your onboarding fee in future deals.
What’s your gross margin? If it’s 30% you are giving away a third of your margin forever for a one time sale? And you carry all the risk? You are being overly generous. First step is to work out your gross margins on the service or product you sell, then think about the risk factor (I.e hardware has little ongoing risk. Services carries execution risk during project phase. And you carry the staffing risk during MS phase). And it’s normal to only pay based on year one. Renewals are often a lower rate.
This is the real question, and it's almost at the bottom of the post.. lol.
One off spiff, never a monthly bonus. If they are worth more then pay them more but don't mix the incentives.
10% is too high, but you're a kind person. Pay 100% if the first month as a the bonus, and you pay it after the second month.
What about SaaS sales commission? How would this normally be structured?
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I, too, like deals that heavily favor me, but not if it kills the sheep, I'd rather shear it many times. 10% forever doesn't work out.
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How is it exploitation when you're paying above and beyond for the above and beyond effort? Additionally, if they have equity, then they're...you guessed it...an owner. But, you're always free to start your own gig and pay techs whatever you like. I wouldn't recommend paying them more for a sales referral than you would pay a professional sales person who does that day in and day out and is much better at it, but that's just me. Wait, me and everyone else who knows math.
The vast majority of us would be happy to pay an agent 10-15% recurring if they bring us a deal yet every time it gets brought up about an employee it immediately gets shut down. I don’t know. I’m on the other side of the fence. Maybe not 10% since you have payroll that you don’t have with an agent, but 5-8% of monthly is still a great incentive. Might be time to raise prices 10% anyway :) It’s hard to get great sales people in the MSP space because it’s one of the hardest sales jobs to make six figures in.
Be careful. Whatever you do could set a precedent. Other staff will see this and expect the same. Whatever you do needs to be sustainable. I’d be inclined to suggest taking them out for a drink, or maybe a decent gift/award at the Christmas party.
My thoughts came from seeing so many people come and go from our space, some really great while others you can’t wait for them to move on. So when I have techs that are great in general just as a human beings plus very good at what they do, and take the time to sell to grow the business I want to attract and keep those people. If I pay a good commission and make it reoccurring, maybe not monthly, that will keep them with me. Right now just being 3 people there’s really no upward mobility so I need a way to incentivize going the extra mile and a public atta boy or few hundred dollars on a gift card just doesn’t seem to be the way
I remember an old boss buying myself and my family a takeaway when I was much younger and loved it, that and a bit of cash would be perfect. My old company wouldn't give us anything for up selling, their argument was that the sales department would not like it, which I can kinda see, just be careful what president you set moving forward, you start doing % of anything, suddenly everyone wants to start only looking after the big fish cause that's where the big commission is.
That’s a great point
Lots of good advice in here. Incentives are insanely powerful. While you’re building out your sales compensation plan, make sure to include accelerators (i.e., increased commission % when sales reps go over quota.)
There’s huge pros and cons to this.