Renewal commission
A renewal commission is what a company pays when an existing customer signs on for another term. The rate is usually well below the new-business rate, often somewhere between a third and a half of it, and the hardest part of the design is deciding who earned it: the original seller, the account manager, or nobody.
Two arguments collide here and both are right. The first says a renewal is not selling. The customer was already there, the product was already working, and somebody countersigned a document. Paying a full new-business rate for that is paying twice for one acquisition. The second says the revenue is real, retention is harder than the first argument admits, and a customer who was going to churn and did not is a customer somebody saved. Most plans settle this by paying a reduced rate, which is a compromise rather than a resolution, and the compromise is why renewal rates sit where they do.
The reduced rate makes the crediting question sharper rather than softer. If a renewal pays 3%, that 3% still has to land somewhere: on the account executive who originally signed the customer, on the customer success manager who has held the relationship since, on both through a split, or on nobody because renewal is treated as a retention function paid by salary. Every one of those is defensible. What is indefensible is leaving it undecided until the first large renewal lands and then deciding it in favour of whoever complains.
Expansion is the part worth separating out. A customer renewing at $60,000 and adding $9,000 of new subscriptions has done two different things in one transaction, and paying the whole $69,000 at the renewal rate removes any reason for the account team to push for the extra. Splitting the transaction, so continuing revenue pays the renewal rate and incremental revenue pays something close to the new-business rate, costs very little and changes the conversation the account manager has in the room.
Renewal commission and residual commission get conflated and they behave differently. A residual arrives every month from a customer's ongoing activity with no event at all. A renewal is a discrete event on a date, which means it can be forecast, it can slip a quarter, and it can be credited to a specific person. Plans that treat one like the other tend to pay a renewal twelve times or a residual once.
A renewal with expansion inside it
A customer on $60,000 a year renews and adds $9,000 of new modules at the same time. The plan pays 10% on new business, 3% on renewed revenue, and 8% on expansion sold into an existing account.
- Renewed base at 3%
- $1,800
- Expansion of $9,000 at 8%
- $720
- The same $69,000 if it were new business at 10%
- $6,900
- Commission on the renewal
- $2,520
The transaction pays a little over a third of what the identical revenue would pay as a new logo. That ratio is the plan working as designed. It only becomes a problem when the same rep is chasing both, because a day spent on renewal paperwork is worth a third of a day spent prospecting, and reps price their own time accurately.
Auto-renewals pay commission for work nobody did
Plenty of contracts renew themselves unless somebody cancels. If the plan pays a renewal rate on every renewed dollar, the company writes cheques every year for transactions that consisted of a billing system incrementing a date. Some companies accept that as a retention cost. Others require evidence of a renewal conversation, or pay only on contracts that were actively renegotiated, or pay auto-renewals at a lower rate again. Whichever way it goes, the plan should say so explicitly, because the default when it is silent is to pay.
- Do salespeople get commission on renewals?
- Often, though usually at a reduced rate compared with new business. Some companies pay the original account executive, some pay a customer success or account management team, some split it, and some pay no renewal commission at all on the basis that retention is a salaried function. There is no default answer, so the plan document has to name one.
- What is a typical renewal commission rate?
- Renewal rates are commonly set at roughly a third to a half of the new-business rate, so a company paying 10% on new logos might pay 3% to 5% on renewals. That is a typical range rather than a standard, and it varies widely by industry and by how much work a renewal actually takes. Expansion revenue sold at the time of renewal is frequently paid at a higher rate than the renewed base.
Nearby terms
Knowing the word is
the easy half
Commish pays renewal commission the way your plan describes it, shows the arithmetic on every line, and traces each payment back to the deal that earned it.