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1. Key Considerations for Residual Commission Structure 💡

When drafting a residual commission contract, you must define the payment mechanism, the costs it covers, and the rules for termination.

A. Commission Mechanics​

ConsiderationDescriptionImplication for Your Consultancy
Proration/ClawbacksHow commissions are handled if a client cancels early. A clawback requires the rep to repay unearned commission.Crucial if you pay commissions upfront or if clients have short SCRUM sprint cycles but long contracts.
DurationThe time limit on residual payments (e.g., 1 year, 3 years, or lifetime).Lifetime residuals align perfectly with the concept of maximum Customer Lifetime Value (CLV) but are the highest long-term cost.
Rate StructureWhether the commission rate is flat (same percentage forever), tiered (increases at thresholds), or vested (decreases over time).A vested or decreasing rate encourages reps to focus on new logo acquisition while rewarding retention.
Eligible RevenueSpecify which revenue streams qualify (e.g., only monthly retainer fees, not one-time implementation fees).Ensure it only covers recurring revenue generated by the service/software they manage, aligning with your agile delivery model.

B. Account Management & Cost Allocation​

ConsiderationDescriptionImplication for Your Consultancy
Account OwnershipClearly define if the commission ends when the account is transferred to an Account Manager (AM) or Customer Success Manager (CSM).If a rep hands off an account, you must define the split between the original sales rep's residual and the AM/CSM's retention bonus.
Cost BasisDefine if the residual is paid on Gross Revenue (total paid by customer) or Net Profit/Margin (revenue minus variable costs, such as hosting or licensing).Paying on Net Profit/Margin provides a more accurate picture of the true contribution margin, aligning with core financial feasibility.
Upgrades/DowngradesDefine the commissionable event for client expansion (upsell) or reduction (downsell).You need clear rules for whether an upsell restarts the residual clock or is simply added to the existing base.

2. Defining "What Constitutes a Final Sale"​

For a residual commission contract, the concept of a "final sale" is more complex than a one-time transaction; it defines the point at which the clock starts on the recurring payments.

The "final sale" usually refers to the Commissionable Event, and it should be defined by three distinct criteria:

A. The Contractual Trigger (The "Close")​

A final sale is the moment the contract is legally binding and effective.

  • Definition: Executed Contract. The sales contract has been formally signed by both the client and the consultancy.
  • Best Practice: Do not consider the sale final until the contract is signed and any legally defined grace period or cancellation window has passed.

B. The Financial Trigger (The "Revenue Start")​

A final sale often requires money to change hands to ensure the rep is rewarded for actual revenue generated.

  • Definition: First Payment Received. The client has made their first non-refundable payment (e.g., the first monthly retainer or initial implementation fee).
  • Best Practice: Paying residuals based on cash collected (not booked revenue) protects your cash flow and provides a financial guardrail against non-paying clients.

C. The Delivery Trigger (The "Commitment")​

For services like consulting, the sale may not be final until delivery begins, signaling a true commitment from the client.

  • Definition: Project Commencement/Go-Live. The initial discovery session or the first SCRUM Sprint has been kicked off, or, for a software subscription, the service has officially gone "live" for the client.
  • Best Practice: Using this trigger ensures the commission is tied to the start of the relationship and value delivery, not just a signed piece of paper.

For your consultancy, the most rigorous definition of a "Final Sale" for the residual commission contract is:

"A Final Sale occurs when the client's Master Service Agreement (MSA) or Statement of Work (SOW) has been mutually executed, the first non-refundable payment has been successfully processed, and client onboarding/discovery work has officially commenced."