Clawback Commissions: A Key Component for B2B Sales Success

Clawback Commissions have emerged as a crucial tool for aligning sales team interests with the strategic goals of a company. These commissions, also known as recovery clauses, operate on the principle that salespeople should only be compensated for deals that close and generate sustainable revenue for the organization.

To better understand the context in which clawback commissions operate, it is essential to examine the findings of a survey conducted by Foccuz among B2B companies across various industries and sizes regarding their compensation strategies for sales teams:

Prevalent Sales Metrics:

  • Won sales closures (79%)
  • Business opportunities (55%)
  • Revenue (69%)
  • Average sale ticket (52%)
  • Average sales cycle (41%)

Commission Structures:

  • Simple goal-based scheme (65%) is the most used
  • Accelerators and multipliers scheme (14%), especially in companies with larger sales teams (43%)

Challenges and Solutions in Latin America:

  • Customer churn (44.8% of companies discount commissions)
  • Payment delays (41.4% opt for installment payments)

Let’s illustrate how this works:

Example: Company XYZ offers financial products through a mobile app designed to simplify the payment process. This company has a team of 17 salespeople with different roles, each having a commission plan of 10% per closed contract.

Once a contract is signed, the deal is closed, and by the end of the next month, it is included in the next payroll.

However, the commission payment can be tricky as the final payment depends on how much the app is used. Despite this, the agreed commission is initially paid to motivate the salesperson. When the final amount is billed, the difference between the closed deal and the billed amount is analyzed, and the salesperson’s commission is adjusted. This adjustment is what we call “clawback.”

How is the clawback implemented? The difference is usually deducted from the commission of the next confirmed deal by the salesperson, and so on.

Recommendations for Optimizing Commission Strategies:

  1. Customization: Tailor commission structures to the specific needs of each industry and team.
  2. Continuous Analysis: Constantly monitor sales metrics to identify areas for improvement and optimization.
  3. Diversity of Opportunities: Offer a variety of sales opportunities, including high and low tickets, long and short sales cycles, to maintain a diversified and robust sales funnel.
  4. Automation of Calculations: Implement tools to automate commission calculations, freeing up time and improving accuracy.

A Deeper Look into Clawback Commissions

Clawback commissions are applied in various situations, including:

  • Order Cancellations: If a customer cancels an order after the commission has been paid to the salesperson, the company can recover the corresponding commission.
  • Product Returns: If a customer returns a product, the company can recover the commission paid for the sale of that product.
  • Non-Payment: If a customer does not pay their invoice, the company can recover the commission paid for that sale.
  • Fraud: If a salesperson is found to have committed fraud, the company can recover all commissions paid to them.

Benefits of Clawback Commissions

Implementing clawback commissions offers various benefits to B2B companies:

  • Interest Alignment: Align the sales team’s interests with the company’s long-term goals, motivating salespeople to make high-quality sales that sustain over time and generate sustainable revenue.
  • Fraud Risk Reduction: Deter salespeople from engaging in fraudulent practices as they know they could lose their paid commissions.
  • Profitability Improvement: Recovering commissions from unsustained sales can improve overall profitability.
Recommendations for Effective Clawback Commission Implementation

To maximize the positive impact of clawback commissions, follow these steps:

  1. Develop a Clear Policy: Define a clear policy detailing the circumstances in which clawback commissions will be applied and how the recovery amount will be calculated.
  2. Transparent Communication: Communicate the policy clearly and transparently to all sales employees, ensuring they understand its implications.
  3. Fair and Consistent Implementation: Apply the policy fairly and consistently to all employees, without exceptions.
  4. Periodic Review and Update: Regularly review and update the policy to ensure it meets the changing needs of the company.

When used strategically and responsibly, clawback commissions can be an essential component for optimizing compensation strategies in B2B companies. By aligning the sales team’s goals with the organization’s long-term objectives, clawback commissions help drive performance, reduce risk, and improve overall profitability, laying the foundation for sustained success in the dynamic world of B2B sales.