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Commission Basis

The commission basis is the amount commission is calculated on: order, invoice, payment, ARR or gross margin. The choice changes both behaviour and cash flow.

Example

What is the commission basis?

The commission basis is the amount the commission rate is multiplied by. It is often the most important and most overlooked choice in a commission plan, because it decides what reps are really rewarded for, and when the money is paid.

The five common bases

BasisCommission triggers whenGood forWatch out
Order valueThe order is signedFast reward, short salesCancellations need clawback
Invoiced revenueThe invoice is sentProjects and phased deliveryLate delivery delays commission
Paid revenueThe customer has paidTight cash, risky customersReps wait a long time
ARR / MRRThe subscription startsSaaS and subscriptionFirst-year discounts, churn
Gross marginMargin is knownHardware, services, resellersCost must be trustworthy

Example: same deal, different bases

A rep closes a DKK 200,000 deal after discount. Gross margin is DKK 60,000. The customer pays half now and half in 6 months.

BasisRateCommission now
Order value (DKK 200,000)5%DKK 10,000
Paid revenue (DKK 100,000)5%DKK 5,000
Gross margin (DKK 60,000)16%DKK 9,600

With gross margin as the basis, the discount costs the rep directly. Had the rep given DKK 20,000 less discount, margin would be DKK 80,000 and commission DKK 12,800. See gross margin commission.

How to choose

  • What should reps optimise? Growth: order or ARR. Profitability: gross margin. Cash: payment.
  • Can the number be seen straight away? A basis reps cannot see does not motivate.
  • What happens on changes? Decide how credit notes, discounts and cancellations hit commission. Try the effect in the corrections calculator.

The basis must be stated precisely in the commission agreement. "Revenue" on its own is not enough.

Commission basis in Prowi

Prowi pulls the basis straight from your CRM and finance system, for example deal value from HubSpot and invoices from e-conomic, so commission is calculated on the right number. See commission models in Prowi.

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In Prowi

Every term on this page is a rule you can write into a commission model in Prowi. The model reads the deal from HubSpot the second it closes, applies the rule, and the rep sees the result on their phone before the day is over.