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compensation

Commission is typically a term for compensation tied to a specific sales transaction, while Revenue Share is a broader arrangement tied to a sustained stream of top-line income generated by an individual, partner, or asset.

1. Commission (The "Get the Deal Done" Incentive)​

  • Best For: Roles focused on acquiring new clients or selling specific, one-time projects.
  • Alignment: Rewards high-velocity closing.
  • In Your Consultancy: If you brought on a contract Business Development representative, you would pay them a commission on the initial contract value they close. This is transactional and aligns with a single, clear objective.

2. Revenue Share (The "Lifetime Value" Incentive)​

  • Best For: Long-term partners, outsourced affiliates, or productized service resellers. It is ideal for recurring revenue models.
  • Alignment: Rewards finding clients with high Customer Lifetime Value (CLV), as the individual continues to get paid as long as the revenue stream is active.
  • In Your Consultancy: If you partner with another firm that integrates your custom software services into their offerings, you would give them a revenue share of the monthly licensing/support fee. This aligns their long-term interests with yours, which is a key component of the collaborative spirit in SAFe (Scaled Agile Framework).

The Overlap: "Commission on Revenue"​

It is important to note that the two terms frequently overlap and are often used interchangeably, especially in a simplified context. For example, a "commission" is almost always calculated based on the generated "revenue."

However, if you are negotiating a long-term agreement (a crucial artifact in an agile consultancy), defining the compensation as a Revenue Share often signals that the partner is vested in the ongoing success and maintenance of the customer relationship, reflecting a deeper, more strategic relationship than a one-time sales commission.

2. Setting Up the Revenue Share Mechanism​

The contract must be absolutely clear on what constitutes "revenue" and what performance triggers payment.

A. Define the Revenue (The "Pool")​

  • Gross vs. Net Revenue: Be extremely clear if the percentage is taken from Gross Revenue (total invoice value) or Net Revenue (Gross minus defined costs like payment processing fees, returns, or taxes). Gross is simpler and preferred for ICs, as it removes ambiguity.
  • Source of Revenue: The contract must narrowly define the revenue streams that qualify.
    • Example: "Revenue Share shall be calculated as a percentage of Gross Revenue actually received by the Company from new client contracts directly sourced, negotiated, and closed by the Independent Contractor, and explicitly exclude all revenue from pre-existing clients, equity investments, grants, or non-sales-related income."

B. Define the Performance (The "Trigger")​

  • Attribution: How will you track that the revenue is solely a result of the individual's efforts? You need a solid tracking and reporting mechanism.
  • Vesting/Clawbacks: Include terms for what happens if a client cancels or churns. Does the IC's share end immediately, or are there clawback provisions if the client refund the payment?
  • Payment Schedule: Establish a clear payment frequency (e.g., "within 15 days of the end of the month in which Company receives payment from the Client").

Sales Performance​

Measures of success: Find your Performance Objective, then achieve it!: brainstorm critical tasks for SALES, PROFITABILITY, & GROWTH

  • New customer acquisition rates
  • Renewal rates
  • Up-selling
  • Cross-selling
  • Customer satisfaction
  • Contributions to business success

Net sales commissions for a New Jersey LLC must be treated as wages under state law and are subject to strict regulation and payout requirements for employees.

The New Jersey Supreme Court ruled in March 2025 that all commissions earned for sales are legally defined as wages under the New Jersey Wage Payment Law (NJWPL). This includes commissions calculated on net sales, not just gross sales. The key factor is that the commission directly compensates an employee for performing a service, regardless of the product or whether the sales model is new or temporary.

LLC Employer Obligations​

  • LLCs must pay out net sales commissions in accordance with clearly established agreements regarding how commissions are calculated and earned.
  • Timely payment of net sales commissions is required, and employers who withhold or delay commissions may face severe penalties, including liquidated damages of up to 200% of the unpaid wages, plus attorneys’ fees and costs.

Implications for Agreements​

  • Sales commission agreements within a New Jersey LLC must specify how commissions (including those based on net sales) are earned, when they are payable, and how disputes will be handled.
  • Any change to commission plans – for example, switching to net revenue calculations from gross revenue – should be made clear in writing and agreed upon by both parties.

Employee Rights and Enforcement​

  • Employees can bring private claims under the Wage Payment Law for withheld net sales commissions and may recover double damages plus attorneys' fees if successful.
  • The right to commission payment applies regardless of whether commissions are for regular products, new product lines, or temporary campaigns.

Net sales commissions are strictly regulated as wages in New Jersey, and LLCs must establish clear, enforceable commission policies and pay earned commissions promptly to comply with the law.