For people selling IT outsourcing services (the primary offering), the sales people would normally earn variable pay based on bringing in deals. The question revolves around both the right measure to be used and payment timing, so I’ll address those separately:
The right measure(s):
The ideal measure for this type of business is the margin on the deal. Margin rewards sales people for selling profitable business. However, very few companies use this as it is hard to agree on the deal margin, and if cost overruns are frequent you can end up with sales people “helping” you manage the cost side of profitability rather than the price and value side. For these reasons, most use deal value, either total contract value (often abbreviated TCV) or annual contract value (ACV) to measure sales productivity. And generally you do want to pay more for larger deals, which would argue for a payout rate table (typically communicated as a commission). The actual amount of the payout per deal is a function of how much compensation you intend to deliver for at-goal performance and how big the goal is (comp / goal = rate).
Sales credit trigger (timing):
The principle here is that you want to finish paying the sales person for a deal at the point at which you want them to disengage and move on to focus on the next opportunity. So if you just want closed deals, you’d pay after signing. If you want closed deals with nurturing and attention through initial implementation, you might pay 50% at signing and 50% after the first check comes in for under-way monthly service. If you want the sales person staying in touch, finding ways to grow the relationship, etc., then you could pay some (20-25%?) at signing, and the rest over the life of the contract based on recognized revenue.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.