Commission Structure for Sales Reps at a Small MSP

Tell the Rep What the Job Pays For

The model keeps new-business hunting separate from account management. Keep the compensation plan aligned with that job. Name who takes over the relationship and who owns the service after the sale, so a retained-client condition doesn't silently turn the hunter into the account manager.

Here's how I'd open the conversation: We are hiring you to win suitable new managed clients. We will show you the recurring revenue that counts, the deal approval rules, and the events that earn payment. Existing-account service and relationship work have named owners.

On a podcast, Ray J. Green recommends simple compensation that the salesperson can understand and inspect through the relevant activity and reporting. He cautions against a core incentive depending on an opaque business measure. That's his design preference, and it gives you a useful test: can the rep reproduce the payout from the same deal record finance uses?

If the answer needs a private spreadsheet only the owner can explain, simplify the calculation or make the inputs available. You don't need to make every employee's pay public to give the rep visibility into their own plan.

Split the Target Pay Without Adding Commission Twice

On-target earnings, or OTE, means base salary plus variable pay at the intended performance level. The MSP model budgets $110,000 of annual OTE for its US sales rep. It doesn't specify a universal base-to-variable split or commission rate.

Choose the base from the job and hiring plan. Subtract that base from $110,000 if you're using the model's OTE allowance. The remainder is the variable pay the proposed plan must produce at target. It isn't an additional payment on top of $110,000.

Write the calculation plainly: base pay plus expected signing payouts plus expected retention payouts equals target OTE. If you offer other incentives, include them in the compensation forecast. Have payroll and finance check the calculation and the written terms before making the offer.

In his compensation-planning advice, Green recommends checking whether advertised OTE is attainable in the employer's actual sales environment. Where the result hasn't been achieved, he works backward through the sales assumptions. Don't call a figure on-target merely because the budget can afford it if someone reaches it.

Define the Recurring Revenue That Counts

Use the new agreement's qualifying managed-services MRR, meaning monthly recurring revenue, as the starting record. State which products and services are included in the commission basis. Keep one-time hardware, projects, taxes, and other excluded lines identifiable rather than letting the invoice total decide the payout.

Have the service lead approve the scope and delivery assumptions before the deal qualifies. The model never discounts MRR to win the client. Keep that pricing rule in the approval process, with concessions on an approved bonus item such as quoted-then-waived onboarding.

You can tell the rep: Your payout uses the qualifying monthly managed fee recorded on the approved agreement. Finance will show the eligible lines and any exclusions. A larger hardware order doesn't change that recurring fee.

If the offer bundles recurring products with delivery, define how the plan treats them before selling starts. Don't change the commission basis after a win because the bundle was harder to classify than expected. A readable agreement needs a readable compensation record behind it.

Write the Signing and Retention Events

For the signing component, define the event precisely. For example, require an approved client agreement, the agreed recurring fee, delivery acceptance, and a recorded service start. Decide separately when the qualifying event occurs and when payroll processes the resulting amount.

For the retention component, state the agreed review event, the qualifying continuing revenue, and the evidence finance will check. Use a period your actual commercial plan supports. The model provides no universal waiting period or split between signing and retention pay.

Set down how cancellations, delayed starts, fee changes, split sales credit, and departures from the sales team are handled. Have the relevant payroll and employment advisers review those terms before use. Don't improvise a repayment or forfeiture rule when the first exception arrives.

Give the rep this explanation: The plan shows the signing event and the later retention event separately. You can see each amount pending, earned under the agreed conditions, and paid. If a deal changes, the statement will show the adjustment and the rule behind it.

Green also cautions against recruiting with a generous long-running residual arrangement while privately planning to remove it later. His point is about alignment and candor. If a continuing residual doesn't fit the role or budget, choose another design before you promise it.

Fit the Plan Inside the Whole Sales Budget

Apply the model's general 1.25 burden multiplier to the $110,000 OTE allowance. That gives $137,500 in annual burdened pay at target. The stable US example spends $218,077 on sales and marketing, or 6% of its $3,634,615 revenue.

The $137,500 rep cost sits inside that $218,077. Subtract it and $80,577 remains for programs. Don't add the rep to the full sales budget again, and don't use the program remainder as another commission allowance without changing the plan.

The model's $25,000 customer acquisition cost is total sales and marketing spending divided by new clients won. It isn't the salesperson's payout per contract. Test compensation and programs together rather than treating each as independently affordable.

Model payouts below, at, and above the intended result. Include when clients start, when commission becomes payable, and when receipts arrive. A compensation plan can fit an annual allowance while still requiring cash before the new agreements produce enough contribution.

Give Finance a Statement the Rep Can Check

Keep the commission statement tied to the agreement and its payment events. I would have these responsibilities agreed before the first payout.

• The sales lead owns deal credit and confirms the recurring fee proposed for the plan.
• The service lead accepts scope and delivery assumptions before the deal qualifies.
• Finance applies the written eligibility and payment conditions, showing the inputs and adjustments.
• The rep checks the statement and has a named route for querying a discrepancy.
• The owner reviews forecast compensation and the remaining program budget when the sales plan changes.

Run a proposed deal through the statement with the candidate before finalizing the offer. Ask them to explain what it earns and when. If finance gives a different answer, fix the plan while it is still a proposal.