Key Takeaways

  • Business development compensation plans must balance base pay, commission, and long-term incentives to match the extended sales cycle.
  • Commission structures should align with deal size, complexity, and company goals.
  • Common models include base + commission, tiered rates, and milestone-based payments.
  • Non-monetary incentives and clear role alignment enhance motivation and retention.
  • Team-based and hybrid plans help support collaboration and account for indirect contributions.

A business development commission agreement is an agreement between a company and a business development representative. A business development representative is a highly-skilled salesperson who can be difficult to recruit and will expect high pay rates and incentives due to the nature of an infrequent and inconsistent sales cycle.

Designing compensation plans for business development representatives can be difficult. These representatives can require six months to a year to cultivate relationships and close the deal, depending on the kind of business. The existence of a long period before they receive a payout will often cause the representatives to ask for higher base salaries.

Building a Business Commission Agreement

In order to build a business development commission agreement, the following should be considered, in order to benefit both the business and the business development representative:

  • Set realistic goals that focus on quality over quantity. The new business development representative is expected to cultivate the future client base of the company, and good clients are better for business.
  • Determine a target compensation level that is based on experience, seniority, and expected results.
  • Establish a base salary that will provide a level of security to the business development representative and will encourage the work ethic the employer expects.
  • Add performance incentives in the form of commissions and bonuses.
  • Include final considerations to balance risk and reward.

It should be noted that there are problems that come with a commission based agreement, including the following:

  • Business development representatives tend to focus on the percentage of the sale they will receive.
  • Recurring accounts that continue to produce will create a sense of entitlement.
  • Percentage commissions are difficult to change once they are established.
  • Performance improvement may decrease.

Types of Commission Structures for Business Development

When designing a business development compensation plan, choosing the right commission structure is critical. Common models include:

  • Base Salary Plus Commission: A guaranteed salary paired with commission for closed deals, ideal for roles with long sales cycles.
  • Tiered Commission Plans: Reps earn higher rates after hitting certain sales thresholds, encouraging high performance.
  • Milestone-Based Compensation: Payments are tied to deal stages (e.g., contract signed, product delivered), useful for complex B2B sales.
  • Flat-Rate Commission: A fixed amount per deal, typically used for uniform product or service offerings.
  • Profit-Based Commission: Commission is based on deal profitability, ensuring alignment with company margins.

The right model depends on your business's complexity, sales process length, and strategic goals.

Setting the Commission Rate

The business should review the current gross profit margin and net profit margin to determine the appropriate commission rate. The future margins should be considered as well. Growth and related expenditures should also be taken into account. As your company grows, so do overhead costs. Commission rates should be conservative at newer companies since it is likely that margins will decrease over time.

To protect the business and provide proper compensation to the business development representative who is tasked with bringing in new accounts, the plan should:

  • Meet the business goals set yearly.
  • Adjust to meet the changing market conditions.
  • Offer incentives for the representative to improve.
  • Be customizable to meet and grow the professional goals of the representative.
  • Keep the representatives focused on the goals of the business.
  • Allows for adjustment as the business experiences growth and gross profit and net margins change.

Performance Metrics and Commission Triggers

Clearly defined performance metrics help both the business and representative stay aligned. Common triggers for commissions include:

  • Closed-won deals or signed contracts
  • New customer acquisition
  • Deal size or revenue generated
  • Sales pipeline advancement (for milestone-based plans)

You may also consider incorporating non-revenue metrics like customer retention or upsell opportunities. Choose KPIs that reflect long-term value, not just short-term wins.

Factors to Consider

In the first year, hiring a new business development representative is an investment. The goal is to assess their ability to secure new clients while also retaining existing clients. The first year may not result in a huge change in your client base, but it will give a better picture of the rep's abilities and how the commission agreement will need to be adjusted for the next year.

Due to uncertain production, offering financial security gives the business development representative the ability to focus on the requirements of the position. For the first year, an eighty percent base pay is typical. Then, as the sales begin to close, the base rate can be reduced to sixty-five percent with an increase in commissions and incentives. For the employer, if after a year the sales pipeline is not producing as expected, they should reassess the abilities of the business development representative.

Milestone pay may be used in cases where sales take years to complete. Milestone pay recognizes an increase in the probability of a sale closing in the future. Milestones should be based on true measures of improvement and not on the number of meetings that have occurred. Initial contract signing, trials, or a business percentage being transferred to the business development representative's company are examples of milestones.

Aligning Compensation With Business Goals

Your business development compensation plan should support broader business objectives. Key alignment strategies include:

  • Forecasting Impact: Set commissions based on contribution to future revenue, not just closed sales.
  • Role Clarity: Clearly distinguish between lead generation (often SDRs or BDRs) and deal closing (sales reps or account executives).
  • Simple Design: Avoid overly complex formulas. Reps should easily understand how their pay is calculated.
  • Scalability: Ensure the plan can evolve as your business grows. Flexibility is especially important during rapid expansion or market shifts.

Team Compensation Plans

Creating a bonus for the sales team as a whole that is based on performance will help motivate the team to reach the specified goals. Each team has their own goals they want to achieve, but developing a plan that pulls them together will promote company-wide collaboration to reach the goals put in place.

This will also provide a way for the new business development representative to see how they can reach their own financial goals. The new representative's commission plan may provide a basic survival rate, but adding in a bonus that brings them to a higher preferred income rate will promote improved performance.

Non-Monetary Incentives and Benefits

Beyond commissions and bonuses, non-monetary rewards can enhance job satisfaction and performance:

  • Recognition Programs: Public acknowledgment for key wins or innovative strategies.
  • Professional Development: Access to leadership coaching, training, or industry events.
  • Equity or Profit Sharing: For startups or growth-stage companies, offering stock options can be highly motivating.
  • Flexible Work Options: Remote work or scheduling flexibility can be a competitive advantage.

These incentives complement financial compensation and help attract and retain top-tier business development talent.

Frequently Asked Questions

  1. What is a business development compensation plan?
    It’s a structured system for paying business development professionals, typically combining base salary, commissions, bonuses, and incentives to motivate performance.
  2. How is commission typically calculated in business development?
    Commission may be a flat rate, a percentage of deal value, or tiered based on performance thresholds. Some plans also use milestone payments.
  3. Should business development reps receive a high base salary?
    Yes, especially early in the role. A high base provides stability during the long relationship-building period before deals close.
  4. What’s the difference between sales and business development compensation?
    Sales compensation is often more commission-heavy, while business development compensation balances base pay with incentives for long-term, strategic deals.
  5. Can I change my compensation plan after hiring a rep?
    Yes, but do so transparently and with mutual agreement. Include flexibility clauses in your agreement to allow annual reviews and adjustments.

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