Short answer: A commission plan for a key account manager who negotiates price with large customers should be based on gross margin rather than revenue. That way a discount costs the KAM something too. In this example OTE is DKK 780,000 a year with a 70/30 pay mix, commission is 3% of gross margin up to the quarterly target of DKK 1,950,000 and 4.5% above it, and orders with a margin below 20% pay no commission.
The example is illustrative, not a benchmark: the numbers show how the plan calculates, not what a key account manager should earn. Amounts are in Danish kroner (DKK) before pension. It is one of ten examples in commission plans by role.
Who is this plan for?
- KAMs in wholesale, manufacturing, IT resellers and other businesses where price is negotiated on large deals.
- Companies where gross margin per order is known in the ERP or accounting system when the order is invoiced.
- Books with a few large customers, where volume discounts and special prices are part of daily life.
If your KAMs are measured on subscription revenue and retention, see the NRR-based plan. Salary statistics and a bonus example for the role are in our key account manager salary guide.
The plan at a glance
| Element | Example |
|---|---|
| Base salary | DKK 45,500 a month (DKK 136,500 a quarter) |
| Variable pay at 100% | DKK 58,500 a quarter |
| OTE | DKK 780,000 a year |
| Pay mix | 70/30 |
| Metric | Gross margin on customers' invoiced orders. Target DKK 1,950,000 a quarter |
| Rate | 3% of gross margin up to target |
| Accelerator and threshold | 4.5% of gross margin above target (1.5x). Orders with a margin below 20% pay no commission |
| Payout | Quarterly, with the salary for the month after quarter end |
| Clawback | Credit notes and bad debts are deducted in the statement where they are booked |
Gross margin (dækningsbidrag in Danish) is the sales price minus the variable costs of the order, typically cost of goods and freight. Which costs count must be stated in the plan. Read more about gross margin commission.
Worked example: 70, 100 and 130% of target
| Attainment | 70% | 100% | 130% |
|---|---|---|---|
| Gross margin in the quarter | DKK 1,365,000 | DKK 1,950,000 | DKK 2,535,000 |
| Commission up to target (3%) | DKK 40,950 | DKK 58,500 | DKK 58,500 |
| Commission above target (4.5%) | DKK 0 | DKK 0 | DKK 26,325 |
| Total commission | DKK 40,950 | DKK 58,500 | DKK 84,825 |
| Base salary for the quarter | DKK 136,500 | DKK 136,500 | DKK 136,500 |
| Pay for the quarter | DKK 177,450 | DKK 195,000 | DKK 221,325 |
At 130%, commission is 3% of DKK 1,950,000 plus 4.5% of DKK 585,000 = DKK 58,500 + DKK 26,325 = DKK 84,825.
What does a discount cost?
An order of DKK 1,000,000 with variable costs of DKK 700,000 has a gross margin of DKK 300,000 (30% margin) and pays DKK 9,000 in commission. If the KAM gives a 5% discount, the price falls to DKK 950,000 and gross margin to DKK 250,000 (26.32% margin). Commission falls to DKK 7,500, a drop of 16.67%. With 1% commission on revenue, commission would only fall from DKK 10,000 to DKK 9,500, or 5%.
Pitfalls
- Margin the KAM cannot see. If the KAM does not know the margin while negotiating, the plan does not work. Show margin in the quoting tool or CRM.
- Costs that change afterwards. If cost prices are adjusted weeks after invoicing, the KAM stops trusting the number. Lock costs at the invoice date.
- A margin floor set too high. Some strategic orders have low margin on purpose. Let the sales manager approve exceptions.
- Large one-off orders. A single large order can trigger the accelerator in one quarter. Consider an annual target with quarterly advance payments.
- Revenue commission with a discount limit. It is a compromise, but it still rewards revenue over profit. See the gross margin model.
Danish rules to know
Short and general, not legal advice. Check your collective agreement and employment contract, and ask your lawyer or employers' association if in doubt.
- Holiday pay on commission: The employee is entitled to compensation for commission lost because of holiday (Danish Holiday Act, ferieloven, sections 17 and 19). Orders from regular customers may come in while the KAM is on holiday, so the loss can be smaller than in new business. Describe the method. See holiday pay on commission.
- Sickness and parental leave: For salaried employees paid commission, pay during sickness and maternity leave must include the commission they would presumably have earned (Salaried Employees Act, funktionærloven, section 9(3)). Reduce the quarterly target pro rata for longer absence. See commission during sick leave.
- Bonus when someone leaves: A salaried employee who leaves during the financial year is entitled to a proportional share of profit shares, gratuities and similar payments (funktionærloven section 17 a). This plan pays quarterly commission. If the KAM also has an annual bonus, the rule applies to that. See commission after resignation.
- Changing the plan: A material change, such as a lower rate or a higher threshold, must be notified with the employee's individual notice period. New targets that the agreement expects to be set each period do not, as a rule, require notice. Moving from commission on revenue to commission on gross margin is often a material change. Put the change rules in your commission agreement.
How to put the plan in writing
Use the commission plan template and the commission agreement template. Write down at least:
- How gross margin is calculated and which costs are included.
- Which customers the KAM earns commission on, and what happens to orders from other channels.
- The margin floor and who can approve exceptions.
- How credit notes and bad debts are offset.
Try the numbers
Calculate commission on gross margin with your own rates in the commission calculator, and see the accelerator in the commission accelerator calculator.
Related plans
- All ten commission plans by role
- NRR-based account manager plan
- Account executive commission plan
- Partner manager commission plan
Terms and models used in this plan: gross margin commission, gross margin, accelerator, clawback.
How Prowi helps
Prowi calculates the plan live from your CRM data, reps follow their earnings in the app, and once the period is approved the amount goes on to payroll. Book a demo to see your own plan calculated.
FAQ
Why pay commission on gross margin instead of revenue?
Because discounts then hit both the company and the rep. In the example, a 5% discount costs the KAM 16.67% of the commission on the order.
What is a typical commission rate on gross margin?
The rate depends on OTE and target: variable pay divided by the gross margin target. In the example that is DKK 58,500 / DKK 1,950,000 = 3%.
Do key account managers earn commission or a bonus?
Both are used. If the KAM sells orders at negotiated prices, commission on gross margin works well. If the role is mostly about retention, a bonus fits better. See the key account manager salary guide.
Sources
- Danish Salaried Employees Act (funktionærloven), consolidated act no. 1002 of 24/08/2017, sections 9 and 17 a. retsinformation.dk
- Danish Holiday Act (ferieloven), consolidated act no. 152 of 20/02/2024, sections 17 and 19. retsinformation.dk
This article is general information, not legal advice. The worked examples are illustrative.