Residual commission is a compensation model where salespeople receive recurring commission payments over time, as long as the customers they sold to remain active and paying. Unlike one-time commission paid at deal close, residual commission creates an ongoing income stream for the salesperson.
This model is particularly common in SaaS, subscription-based businesses, insurance, and financial services, where customer value is realized over time through recurring payments.
Residual commission solves several challenges with traditional commission models:
Long-term customer focus: When salespeople only receive one-time commission, they may be tempted to close deals without regard for the customer's long-term success. With residual commission, the salesperson has a financial interest in keeping customers satisfied.
Reduced churn: Salespeople receiving residual commission are more likely to sell to the right customers and ensure good onboarding, as their future income depends on continued customer engagement.
Alignment with company goals: In subscription-based businesses, most value comes from customer lifetime (LTV), not the initial sale. Residual commission reflects this reality.
The salesperson receives a percentage of the customer's ongoing payment:
| Element | Value |
|---|---|
| Customer monthly payment | $1,500 |
| Residual commission rate | 5% |
| Monthly commission to salesperson | $75 |
| Annual residual commission | $900 |
A salesperson builds a customer portfolio over 12 months:
| Month | New Customers | MRR Added | Accumulated MRR | Residual (5%) |
|---|---|---|---|---|
| 1 | 3 | $4,500 | $4,500 | $225 |
| 3 | 4 | $6,000 | $15,000 | $750 |
| 6 | 3 | $5,250 | $29,250 | $1,463 |
| 12 | 5 | $7,500 | $57,000 | $2,850 |
After 12 months, the salesperson earns $2,850/month in residual commission—a stable income base independent of new sales.
The salesperson receives commission as long as the customer is active:
Commission is paid for a fixed period:
Commission rate decreases over time:
| Period | Commission Rate |
|---|---|
| Year 1 | 8% |
| Year 2 | 5% |
| Year 3 | 3% |
| Year 4+ | 0% |
Residual is earned gradually based on tenure:
| Aspect | One-Time Commission | Residual Commission |
|---|---|---|
| Payout timing | At sale | Ongoing |
| Typical rate | 10-20% of ACV | 3-8% of MRR |
| Salesperson focus | Closing deals | Customer success |
| Cash flow for rep | Variable | More stable |
| Churn risk | Company bears | Shared risk |
Combination of one-time commission at sale plus ongoing residual:
| Component | Rate | Example ($15K ACV) |
|---|---|---|
| Upfront commission | 5% of ACV | $750 |
| Residual commission | 3% of MRR | $37.50/month |
| Total year 1 | - | $1,200 |
Higher residual for higher customer satisfaction:
Specify what happens to residual upon:
Consider caps or time limits to control costs.
Give new reps one-time commission so they can build income while their portfolio grows.
Manual residual tracking is error-prone. Use a system like Prowi for automatic calculation.
Ideal for:
Less suitable for:
Residual commission is a powerful model for companies that want to align salesperson incentives with customer success and long-term value. By giving salespeople a financial interest in continued customer satisfaction, you create a sales culture focused on quality over quantity.
Want to implement residual commission? Prowi makes it easy to track customer portfolios and calculate residual commission automatically. Book a demo to see how we can optimize your commission structure.