If you have been in this business long enough, you have seen a sale that looked great on the day it was booked and became a problem everyone else had to carry. It does not have to be a large project. It might be a service agreement, an equipment replacement, a quoted material package or an everyday order. The contract or purchase order comes in. Revenue hits the board. The commission is earned. Everyone calls it a win.

Then the real cost begins.

For a contractor, that might mean an unclear scope, a poor handoff, rework, callbacks, margin fade and a project or service team forced to defend promises it never made.

For a supplier or manufacturer’s representative, that might include special pricing that never produces the expected volume, emergency freight, split deliveries, returns, credits, warranty claims, slow-moving inventory or lead-time promises the branch or factory cannot keep.

The salesperson wins the order. Everyone else inherits the risk. Whether the work takes a day or 18 months, the consequences can last much longer. Was that a successful sale? Or did the compensation plan pay one person to move cost, stress and risk downstream? That is the question every leader responsible for setting the plan or cutting the check needs to confront.

I have sat on both sides of this relationship. I built a book of business for a supplier, then moved to a contractor and sold projects and services. The same truth followed me: What looks like a sale from one seat can become a problem for everyone else if the promise and its long-term impact are ignored.

A compensation plan is an operating system

A compensation plan is not merely a way to calculate pay. It is one of the clearest instructions leadership gives people about what a win looks like.

If you compensate people primarily on revenue, expect them to pursue revenue. If you compensate them on booked gross profit, expect them to pursue booked gross profit. If you pay the full commission when the contract or order is signed, the signature becomes the finish line.

But that finish line is the beginning of a promise other people must deliver. For a contractor, that promise moves to estimating, project management, service, accounting and the field. For a supplier, it moves to inside sales, purchasing, credit, the warehouse, delivery, customer service and sometimes the factory.

Revenue is easy to measure. That is one reason companies use it.

It is also incomplete.

For a contractor, it may disappear through missed scope, rework, callbacks, change-order disputes and labor spent fulfilling expectations no one priced. For a supplier, the quoted margin may disappear through absorbed freight, expedited shipments, returns, credits and the cost of serving an account that buys only when your price is lowest. 

Revenue without margin is activity. Revenue without collection is paperwork. Revenue without a satisfied customer is temporary. Revenue that exhausts your people may cost more than it contributes.

Gross profit matters. But booked gross profit is still a forecast. CFMA’s 2024 Financial Benchmarker shows typical contractor pretax net margins of approximately 5% to 6%, depending on the work. At that level, a few points of margin fade can erase most of the expected profit.

Was the margin still there at completion? Did the customer pay as agreed and return? Did the sale strengthen the company and the people serving the account or weaken both?

Four questions

The strongest plans consider four questions. Before putting any measure into a compensation plan, ask the following:

Does it matter to the health of the business?

Can the salesperson meaningfully influence it?

Can the company measure it consistently and fairly?

Can the salesperson understand exactly how to win?

If the answer to any of those questions is no, the measure probably does not belong in the compensation formula.

Profitable growth: Measure the financial quality of the business being created, not simply the volume.

That may include gross profit dollars, minimum margin thresholds, actual versus estimated margin, payment performance and costs created by freight, returns, warranty claims, rework or callbacks.

A large project or order at an unhealthy margin should not automatically outrank smaller business that produces healthy profit, pays on time and creates years of additional opportunity.

Customer continuity: Measure whether the salesperson helps create a customer your company can continue serving profitably. Look at retention, repeat work, renewals, profitable account expansion, referrals and whether the customer involves your company earlier next time.

The question is not only, “What did this customer buy?” It is, “What did this sale make possible next?”

Quality of the promise: The best plan does not make sales responsible for every operational result. It makes sales responsible for the quality of what they put into operations.

Was the opportunity qualified? Were scope, exclusions, application, availability and lead time communicated accurately? Were the terms reasonable, the right people involved and the handoff complete? Could the company support what was promised?

If sales receives the full reward while the people delivering the promise spend months paying for it, the plan is not creating teamwork. It is creating resentment. Your people notice who receives the reward and who lives with the consequences. That threatens internal loyalty.

Consistent selling behaviors: Results matter, but leaders should also examine the behaviors that make positive results repeatable.

Is the salesperson maintaining a qualified pipeline, pursuing right-fit customers, building relationships, following up, forecasting accurately, collaborating internally and staying connected after the sale?

Behavior should not replace outcomes. A salesperson cannot miss every goal and expect to be rewarded for being busy. But outcomes without the right behaviors are rarely sustainable.

The right long-term perspective

The right review point depends on the transaction. A service call, counter sale or equipment replacement may reveal its value at completion, collection or the next reorder. A project, service agreement, stocking commitment or strategic account may require a six-, 12- or 18-month view.

At six months, ask:

Was the opportunity qualified correctly and the handoff complete?

Were scope, application, availability and expectations accurate?

Did the sold margin survive the early exceptions?

At 12 months, ask:

Is the realized margin holding and is the customer paying?

Are rework, callbacks, returns, claims and service demands reasonable?

Is trust growing between the customer and your team?

At 18 months, ask:

Did the customer return, reorder, renew, expand or refer?

Do your people want to serve this customer again?

Was this an isolated order or the beginning of a profitable relationship?

This does not mean withholding every commission for 18 months. Salespeople deserve clarity, reasonable payout timing and protection from factors outside their control.

It may mean using paying one portion when qualified business is booked, another after required handoffs and another when expected value is realized. Any staged structure should be clearly documented and reviewed for applicable wage and commission laws.

The structure will vary. The principle does not: Do not declare victory before the company has experienced the consequences.

The advantage is in the alignment

Most companies do not have a commission-percentage problem. They have not reached agreement on what good business looks like across sales, operations, finance and the customer.

Do not begin by changing the percentage. Begin by defining a sale worth rewarding. Bring together the people who sell, price and deliver the promise, collect the money and hear from the customer afterward. Ask what a good sale looks like from each seat. Decide which outcomes matter, which behaviors make them repeatable and what the salesperson can reasonably influence. Then build a plan simple enough to explain on one page.

That process often uncovers more than a compensation issue. It exposes unclear pricing guardrails, poor opportunity qualification, weak handoffs, inconsistent customer feedback, competing departmental goals and a lack of agreement about the customers your company should be trying to earn.

The gap between what your plan rewarded and what your company actually experienced is where hidden cost lives. It may also be where your next competitive advantage is hiding.

The three-sale wake review

Choose three sales your company once celebrated: one large, one ordinary and one your team would rather not repeat. Put sales, operations or the branch, finance or credit and the people who served the customer in the same room.

For each sale, ask the following:

What exactly did our compensation plan reward?

Did the expected margin survive the full cost of delivery?

Did the promise made by sales match what the customer received?

Did the customer pay as agreed?

Did the customer return, renew, reorder, expand or refer?

What did the sale do to the people responsible for delivering it?

Knowing what we know now, would we write the same commission check again?

If the answer to that final question is no, do not begin by blaming the salesperson. Look at the plan. Your people may be doing exactly what you are paying them to do.

I believe in goals. I believe people should be rewarded for creating meaningful results. I believe companies need compensation plans that differentiate high contribution from simply going through the motions.

But a sales compensation plan should never reward behavior that is good for the salesperson today and damaging to the customer, the company or fellow employees tomorrow.

A good sale creates value all the way around. The customer receives an outcome worth paying for. The company earns an appropriate profit. The people delivering the work receive clarity and support. The salesperson is rewarded. The relationship becomes stronger, and the next opportunity becomes easier to earn.

That is not anti-commission. That is a higher standard for commission. The goal is not to pay someone for getting the customer to say yes. The goal is to reward the creation of business that the customer, the company and your people will still consider a good decision long after the commission check has been cashed.

Contractors and suppliers who get this right will not simply sell more. They will protect more margin, keep better people, earn more trust and make the next opportunity easier to win.

A strong compensation plan does more than pay for an order. It teaches people to create value that lasts. That is more than a compensation plan. That is a competitive advantage.