Your sales rep closed three new agreements last month.
On paper, it looks like a great month. MRR is up. The pipeline is moving. You send a congratulations message and cut the commission check.
Then, ninety days later, one of those three clients churns. The agreement was underpriced — the rep discounted to close. The scope was vague — the rep glossed over the details to avoid friction during the sale. The client’s expectations were misaligned from day one — the rep told them what they wanted to hear rather than what the agreement actually covered.
The rep did exactly what your compensation plan incentivized them to do. They closed. The plan rewarded the signature, not the outcome. And now your service team is absorbing the cost of an unprofitable agreement while you figure out whether to renegotiate or let the client walk.
This is not a sales rep problem. It is a compensation design problem. And it is one of the most expensive structural mistakes MSP owners make when building a sales function — not because it is complicated to fix, but because it is easy to overlook until the damage has already accumulated.
This post walks through how to build an MSP sales compensation plan that rewards the outcomes your business actually needs: profitable MRR, correctly scoped agreements, and clients who stay.
Why most MSP comp plans accidentally punish margin
The default MSP sales compensation structure looks something like this: the rep earns a percentage of MRR for every new agreement they close. Sometimes there is an accelerator for hitting quota. Sometimes there is a small bonus for one-time project revenue. The rep is focused on closing, and the plan focuses them on closing.
The problem is that not all MRR is equal — and a plan that treats it as if it is will consistently produce the wrong behavior.
An agreement priced at $8,000 per month with a COGS structure that delivers 45% gross profit is a good agreement. An agreement priced at $6,500 per month for the same scope — discounted 20% by a rep who wanted to close before the end of the quarter — delivers 28% gross profit and may not cover your fully-loaded service cost at peak utilization months. Both agreements generate MRR. Both pay commission under a flat percentage structure. One is building your business. The other is slowly eroding it.
The comp plan that pays the same commission on both agreements is not neutral. It is actively incentivizing margin destruction by treating the discount as costless from the rep’s perspective. The rep loses nothing by discounting. You lose margin on every invoice for the life of the agreement.
Fixing this requires building the comp plan around the two numbers that actually determine whether a new agreement is good for the business: blended rate and agreement gross profit.
The two numbers every MSP comp plan must start with
Before you can design a compensation structure that rewards profitable MRR, you need two baselines established with precision. If these numbers are unclear or inconsistent, the comp plan will be built on a foundation that shifts under it.
Blended rate. Your blended rate is the average revenue per hour your MSP generates across all billable work — calculated by dividing total service revenue by total hours worked in a period. It is the single most important number in your service pricing because it tells you what an hour of your team’s time needs to generate to cover costs and produce margin. A new agreement that cannot support your blended rate at normal utilization levels is a loss-leader from the moment it is signed, regardless of what the MRR number looks like on the pipeline report.
Your comp plan needs to make the blended rate visible to the rep — not as an abstract concept, but as a concrete floor that new agreements must be priced above. A rep who understands why a $6,500 agreement is actually worse for the business than a $5,000 agreement scoped correctly will make different decisions at the negotiating table than one who is simply chasing the highest MRR number they can close.
Target agreement gross profit. Agreement GP is the revenue from a specific managed services agreement minus the direct costs of delivering that agreement — labor, vendor tools, licenses, and any third-party costs allocated to that client. It is the number that tells you whether an individual agreement is profitable, independently of your overall P&L.
Your comp plan should be structured so that the rep’s commission rate is tied to the agreement GP of what they close — not the raw MRR. An agreement closed at full price with correctly scoped COGS earns a higher commission rate. An agreement closed at a discount that compresses GP below a defined floor earns a lower one — or in some structures, no accelerator at all.
This single structural change aligns the rep’s financial incentive with the business’s financial outcome. The rep who understands the model stops seeing the discount as a closing tool and starts seeing it as a commission reduction.
Structuring recurring vs. project commissions
Most MSP sales reps handle both types of revenue: recurring managed services agreements and one-time project work. Both need to be addressed in the comp plan, and they should be structured differently because they represent different types of value to the business.
Recurring MRR commissions should be the primary focus of the comp plan and should reflect the long-term value of what is being closed. A common structure is a percentage of the first year’s MRR paid at the point of agreement execution — typically between 8% and 15% depending on the MSP’s margins and growth stage. Some MSPs pay a smaller monthly trail commission instead, which has the advantage of keeping the rep financially invested in the client’s retention but creates administrative complexity as the portfolio grows.
Whichever structure you choose, the commission rate should vary based on agreement GP. A tiered structure works well here: agreements that hit the target GP threshold earn the full commission rate; agreements that fall below it earn a reduced rate. The threshold and the rate reduction should be defined explicitly in the plan document — not left to negotiation on a deal-by-deal basis.
Project commissions should be a smaller percentage of the total project value and should not be structured in a way that makes project work more attractive to close than recurring agreements. A rep who can close a $25,000 project and earn a 10% commission in a single transaction may rationally deprioritize an $8,000 MRR agreement that pays commission over time — even though the MRR agreement is significantly more valuable to the business over a 24-month horizon. The comp plan should reflect that value hierarchy clearly.
A common approach is to pay project commissions at 5% to 8% of total project revenue, with no accelerator, while building the accelerator structure exclusively around MRR performance.
Setting a margin floor: how to prevent discounting that destroys profit
The margin floor is the mechanism that stops a rep from closing agreements that are technically new MRR but are structurally unprofitable. It is one of the most important — and most frequently missing — elements of an MSP sales comp plan.
A margin floor defines the minimum agreement GP percentage that qualifies for full commission. Below that floor, one of three things happens depending on how the plan is structured: the commission rate drops to a lower tier, the deal requires sales manager approval before it can be priced and presented, or the deal is ineligible for commission entirely if it falls below the absolute cost floor.
Setting the right floor requires knowing your target agreement GP for each service tier — which comes back to the blended rate calculation above. If your target GP on a standard managed services agreement is 40%, your commission floor might be set at 35%, with a reduced commission rate between 30% and 35%, and no commission below 30%.
The floor also functions as a negotiation boundary that you can give to the rep explicitly: they know before they go into a pricing conversation what their discount authority is. This removes the ambiguity that produces deals that come back to you with “the client asked for 20% off and I said I’d check” — because the rep already knows the answer. Below a certain number, the deal doesn’t pencil, and the rep’s own commission statement makes that clear without requiring a manager conversation every time.
Clawback provisions: protecting the business from early churn
A clawback provision recovers commission from the rep when a client churns within a defined window after the agreement is signed — typically the first 90 to 180 days. It is the mechanism that makes the rep financially accountable for the quality of what they close, not just the fact that they closed it.
Without a clawback, the rep’s incentive ends at the signature. An agreement that churns in month two costs the business the onboarding investment, the first month of service delivery, the commission already paid, and the opportunity cost of time spent on a client who didn’t stay. The rep incurs none of those costs — which means the comp plan creates no financial signal against closing agreements with misaligned expectations, vague scope, or clients who were unlikely to stay.
A clawback doesn’t have to be punitive to be effective. A common structure is a full clawback on agreements that churn in the first 30 days, a 50% clawback for churn in days 31 through 90, and a 25% clawback for churn in days 91 through 180. Beyond 180 days, the agreement has demonstrated enough stability that the churn is more likely attributable to service delivery than to the sale itself.
The clawback provision should be documented clearly in the compensation plan and reviewed with the rep at onboarding. Its purpose is not to create anxiety — it is to align the rep’s definition of a good close with the business’s definition. A good close is not an agreement that is signed. It is an agreement that is signed, onboarded, and retained.
A simple comp plan template for a two-rep MSP sales team
The following is a starting structure — not a finished plan, since every MSP’s margins, growth stage, and market differ — but a framework that applies the principles above in a practical format.
Base salary. A meaningful base that covers the rep’s cost of living without requiring them to close every month to survive. Reps under financial pressure make short-term decisions. A reasonable base is the foundation of a plan that produces long-term behavior.
MRR commission. 10% of first-year MRR value on agreements that hit target GP. 6% on agreements between the margin floor and target GP. 0% accelerator on agreements below the margin floor, with full commission only on the base rate after manager approval.
Project commission. 6% of total project revenue, no accelerator, not included in quota attainment calculation.
Quota. Defined in new MRR dollars per month or quarter, not in number of deals. A rep who closes two large, well-scoped agreements is more valuable than one who closes five small, marginal ones — the quota structure should reflect that.
Accelerator. At 100% of MRR quota, the commission rate on new MRR increases to 13% for the remainder of the period. This rewards overperformance without creating a structure where the rep sandbaggs early in the quarter to hit the accelerator threshold cleanly.
Clawback. Full clawback within 30 days. 50% clawback, days 31 to 90. 25% clawback, days 91 to 180.
The comp plan is the sales manager’s instrument
A compensation plan is not an HR document. It is the primary management tool available to a sales manager for shaping the behavior of their team — more powerful, in most cases, than any amount of coaching or pipeline review, because it operates continuously and automatically rather than in discrete manager-rep interactions.
A sales manager who inherits a broken comp plan — one that rewards volume over margin, has no floor, and no clawback — is managing against the structure of the system they are operating in. Every coaching conversation about pricing discipline is fighting a plan that says discounting is costless. Every conversation about scoping correctly is undermined by a plan that pays the same commission on a vague agreement as a well-defined one.
Building the comp plan correctly is one of the first and most consequential things a sales manager can do. The BMK Sales Manager Certification covers compensation plan design as a core module — alongside quota architecture, rep coaching frameworks, pipeline management, and revenue forecasting — because all of those functions depend on having the right incentive structure underneath them.
If the plan is rewarding the wrong behavior, no amount of management will fully compensate for it. Fix the plan first.
Ready to build a sales compensation structure that rewards profitable MRR? Explore the BMK Sales Manager Certification or book a free consultation with our team to talk through where your sales function stands today.
BMK Community provides professional certification courses for MSP Dispatchers, Service Managers, Sales Professionals, and Sales Managers built exclusively for the managed services industry. Based in Washington, DC, serving MSPs across the United States.
