The Hidden Cost of Churn: Aligning Commission Structures
Customer churn is often treated as a problem for the customer success team to solve. When a client leaves, it’s seen as a service or product issue, not a sales issue. But what if the very structure of your sales incentives is part of the problem?
Most organizations are acutely aware of how churn impacts revenue. It reduces monthly recurring revenue, cuts into projected growth, and damages customer lifetime value metrics. But what’s often overlooked is how churn ripples into your commission structure, and by extension, your sales team’s behavior.
When commissions are calculated solely based on closed deals, with little or no attention paid to the longevity of those deals, organizations run the risk of overpaying for revenue that quickly disappears. Not only does this misallocate budget, it can also misalign your sales team’s efforts with your company’s long-term goals. In essence, you may be rewarding short-term wins at the expense of sustainable growth.
Overpaying on Short-Lived Deals
Let’s say a rep closes a big deal in Q1, and they receive a hefty commission check as a result. Three months later, that customer churns. The revenue is gone, but the commission remains paid. If this happens frequently, you end up with a compensation system that hemorrhages money on deals that don’t stick.
This is particularly problematic in subscription-based businesses, where customer retention is just as critical as customer acquisition. Paying out full commissions on deals that don’t last beyond the first quarter can turn a growth engine into a leaky bucket. The initial boost to your topline revenue is offset by long-term instability.
Over time, this approach fosters a culture that values volume over value. Reps may prioritize signing as many new deals as possible, regardless of fit or likelihood to renew. Without a mechanism to account for churn, your commission plan could unintentionally encourage sales behaviors that undermine your customer relationships.
Under-Incentivizing Retention
On the flip side, failing to account for customer retention in your commission model can also demotivate sales reps from caring about what happens post-sale. Once the contract is signed and the commission is paid, there’s no financial reason for them to stay involved.
This creates a disconnect between sales and customer success. Sales reps may overpromise features or ignore red flags during the sales process, leaving the onboarding and retention challenges to someone else. The downstream effect is higher churn, unhappy customers, and a fractured customer experience.
Retention should be everyone’s responsibility, especially in modern B2B models where the full value of a customer is realized over months or years. When sales reps are incentivized to not just close, but close well, you’re more likely to see durable customer relationships that contribute to long-term profitability.
Misaligned Incentives, Misaligned Behavior
Sales compensation is one of the most powerful levers for shaping behavior in any go-to-market team. If you want your reps to prioritize sustainable deals, you need to build incentives that support that goal. Otherwise, you’re effectively asking them to focus on one thing while paying them for another.
Commission plans that fail to consider churn are built on an incomplete picture of customer value. They measure success at the point of sale, not over the course of the customer journey. This leads to short-sighted behaviors that might juice this quarter’s numbers but erode next quarter’s foundation.
To address this, forward-thinking companies are evolving their commission structures to better align with long-term outcomes. That includes building in protections like clawbacks, offering retention bonuses, and using milestone-based payouts that reflect the full lifecycle of a customer relationship.
The Case for Clawbacks
Clawbacks are one way to guard against the risk of overpaying on short-lived deals. If a customer churns within a certain window—say, 90 or 180 days—a portion of the commission is reclaimed. This mechanism ties rep compensation more closely to customer satisfaction and retention, discouraging the pursuit of bad-fit deals.
While clawbacks can be effective, they need to be implemented thoughtfully. If they’re too aggressive, they can demoralize your team and create friction. The goal isn’t to punish reps, but to promote accountability and shared ownership of customer outcomes.
Ideally, clawbacks should be part of a broader strategy that includes better qualification processes, cross-functional alignment, and clear communication around expectations. When reps understand why clawbacks exist and how they contribute to company health, they’re more likely to embrace them as part of a fair and effective system.
Retention Bonuses: Rewarding the Right Outcomes
Another approach is to offer retention bonuses. These are additional payouts tied to a customer staying with the company for a defined period—six months, a year, or longer. Instead of penalizing churn, this model rewards longevity.
Retention bonuses shift the focus from simply closing deals to closing good deals. They encourage reps to consider fit, onboarding readiness, and long-term value during the sales process. This creates a natural alignment between sales and success, fostering better communication and shared goals.
Retention bonuses can also be a strong motivator in enterprise sales cycles where deals are complex and relationships matter. By reinforcing the importance of long-term outcomes, you help reps internalize the idea that their job doesn’t end at the handshake.
Milestone-Based Payouts: A Balanced Approach
Milestone-based payouts are a hybrid model that distributes commissions over time, based on predefined customer milestones. For example, a rep might receive a portion of their commission at contract signing, another when the customer completes onboarding, and a final payment after six months of usage.
This approach smooths out risk and ensures that compensation is tied to actual customer progress. It also promotes collaboration across departments, since reps are now more invested in onboarding and early success metrics.
While this model requires more operational complexity, the payoff can be substantial. It aligns incentives across the customer journey and encourages a more holistic view of value creation. Sales becomes a team sport, with reps playing an active role in setting customers up for success.
Designing for the Whole Journey
At the heart of this conversation is a simple truth: incentives shape outcomes. If your compensation plan only rewards contracts, you’ll get contracts. If it rewards sustainable growth, you’ll get sustainable growth.
To build a high-performing, customer-centric sales organization, you need to design commission structures that reflect the full arc of the customer journey. That means considering not just acquisition, but activation, adoption, and retention. It means treating reps as stewards of long-term value, not just closers of deals.
Start by asking the hard questions:
- How do we define a successful sale?
- What behaviors do we want to encourage?
- Where are our current incentives misaligned?
Then, experiment. Pilot new structures. Collect feedback. Measure impact. Commission plans don’t have to be static, and in fact, they shouldn’t be. As your business evolves, so should your approach to sales compensation.
Ultimately, addressing churn in your commission strategy isn’t just about protecting revenue. It’s about creating a culture where everyone is invested in the long-term success of your customers. That’s the kind of alignment that drives real, sustainable growth.
