Short answer: To reward multi-year contracts without paying commission on the full contract value, multiply the commission by a factor based on contract length. In this example the base rate is 8% of ACV, multiplied by 1 for 1 year, 1.25 for 2 years and 1.5 for 3 years or more. Quota is measured on ACV without the multiplier, and with the expected deal mix the plan pays exactly OTE at 100%.
The example is illustrative, not a benchmark: the numbers show how the plan calculates, not what an account executive 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?
- SaaS and services companies where customers can choose a 1, 2 or 3-year commitment.
- Companies where a longer commitment is worth more than a discount, for example because it lowers churn and makes revenue more predictable.
- AEs already on a rate-and-quota plan who need an extra incentive, not a whole new plan.
The plan is a variant of the account executive plan and uses the same base salary and OTE.
The plan at a glance
| Element | Example |
|---|---|
| Base salary | DKK 42,000 a month |
| Variable pay at 100% | DKK 84,000 a quarter |
| OTE | DKK 840,000 a year |
| Pay mix | 60/40 |
| Metric | ACV (first-year contract value). Quota DKK 840,000 a quarter, measured without the multiplier |
| Rate | 8% of ACV x multiplier |
| Multiplier | 1 for 1 year, 1.25 for 2 years, 1.5 for 3 years or more. Only committed years count |
| Budgeted mix | 25% 1-year, 50% 2-year, 25% 3-year. Average multiplier 1.25, effective rate 10% |
| Payout | Quarterly, with the salary for the month after quarter end |
| Clawback | If a multi-year contract is terminated early, the multiplier part is reversed |
The base rate is set so that the expected deal mix pays OTE: 8% x 1.25 = 10%, and 10% of the DKK 840,000 quota is DKK 84,000.
Worked example: 70, 100 and 130% of quota
The deal mix is the same as the budget in all three columns. The plan has no accelerator, so the multiplier effect is easy to see.
| Quota attainment | 70% | 100% | 130% |
|---|---|---|---|
| ACV, 1 year (x 1) | DKK 147,000 | DKK 210,000 | DKK 273,000 |
| ACV, 2 years (x 1.25) | DKK 294,000 | DKK 420,000 | DKK 546,000 |
| ACV, 3 years or more (x 1.5) | DKK 147,000 | DKK 210,000 | DKK 273,000 |
| Commission, 1 year | DKK 11,760 | DKK 16,800 | DKK 21,840 |
| Commission, 2 years | DKK 29,400 | DKK 42,000 | DKK 54,600 |
| Commission, 3 years or more | DKK 17,640 | DKK 25,200 | DKK 32,760 |
| Total commission | DKK 58,800 | DKK 84,000 | DKK 109,200 |
| Base salary for the quarter | DKK 126,000 | DKK 126,000 | DKK 126,000 |
| Pay for the quarter | DKK 184,800 | DKK 210,000 | DKK 235,200 |
The mix matters a lot. With the same DKK 840,000 of ACV, the AE earns DKK 67,200 in commission if every deal is 1-year and DKK 100,800 if every deal is 3-year. That is the point: the AE has a reason to sell the longer commitment.
A single deal with DKK 200,000 ACV and a 3-year commitment pays 8% x DKK 200,000 x 1.5 = DKK 24,000. As a 1-year deal it pays DKK 16,000.
Pitfalls
- Commission on the whole contract value. Paying the full rate on TCV means paying for years the customer may not stay. A multiplier on ACV limits the risk.
- Multiplier on years without commitment. If the customer can cancel after year one, it is really a 1-year deal. State that only committed years count.
- Discount for commitment. If the AE gives a big discount to get 3 years, ACV falls. Set a discount limit, or make the multiplier depend on price.
- Quota on the multiplied value. If quota is measured with the multiplier, AEs hit it faster and accelerators get expensive. Measure quota on ACV.
- The wrong budget mix. If the team sells more 3-year deals than budgeted, cost goes up. Track the mix every quarter.
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). Commission depends on selling, so holiday usually causes a loss. 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 quota 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 commission per deal. Describe in the agreement what happens to a clawback of the multiplier part if the AE has left. 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. Lower multipliers are a lower rate and usually 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 ACV is calculated, for example excluding one-off fees such as onboarding.
- The multiplier for each contract length, and that only committed years count.
- That quota is measured without the multiplier.
- What happens if the contract ends early. See the commission clawback policy template.
Try the numbers
Work out the rate for your own deal mix in the commission calculator, and add an accelerator in the commission accelerator calculator.
Related plans
- All ten commission plans by role
- Account executive commission plan
- NRR-based account manager plan
- Renewal commission plan
Terms and models used in this plan: contract-term multiplier, multiplier, ACV, TCV, 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
How do you pay commission on multi-year deals?
There are three common ways: commission on first-year value (ACV), commission on total contract value (TCV), or commission on ACV multiplied by a factor for contract length. The example uses the last, with 1, 1.25 and 1.5.
Why not just pay commission on total contract value?
Because you then pay for revenue you have not received yet, and which disappears if the customer goes bankrupt or the contract is terminated. A multiplier gives a clear incentive for longer commitments at a lower cost.
Should quota be measured with or without the multiplier?
Without. Otherwise the AE hits quota faster on paper, and the quota stops measuring sales.
What about renewals of multi-year deals?
Renewals usually belong to the account manager role. See the renewal commission plan.
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.