The first question about the multi-year maintenance contracts is whether the role for which you’re compensating is a new business role or an account management role. If its primary focus is gaining new business (new name accounts, or as some say “new logos”), and if there is a capable account/project manager to take the relationship once it’s established, then you’d like to pay the sales person relatively close to the time of the signing of the contract for the new business. A typical arrangement might be 50% paid once the contract is signed + 50% paid once the service is stable and the monthly/quarterly fees are coming in (perhaps 3 – 6 months later, or based on achievement of a specific milestone). The sales credit which forms the basis for the payment should take into account the annual value of the contract and the contract term. One common approach is to credit 100% of the first year value + 50% of the 2nd and 3rd years, with less or no credit for terms beyond 3 years. In addition, the expected profitability of the deal may also affect sales credit to the extent that the sales person controls pricing and the profit can be reliably predicted. This doesn’t address all the issues around upsells, renewals, contract extensions, etc., which would also have to be addressed.
If the role to which you refer is more of an account manager who lands the business only to manage the account and grow the relationship over time, then the ideal measure is recognized margin (the margin value of the revenue recognized). If margin is controversial or hard to measure or calculate on an account by account basis, then revenue may be the better measure (and it is certainly the more common measure for this reason). In this case, the person may be paid based on attainment of a quota customized for their book, or based on growth in the value of the assigned book over prior years (through more volume to existing accounts or addition of new accounts).
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.