Bad Commission Plans are Expensive: Designing Sales Incentives to Optimize LTV and CAC

This article examines how poorly designed sales commission plans waste money by overpaying underperforming reps relative to revenue generated, and provides a framework for structuring commissions around primary goals (ARR, cash flow, churn, ACV) and secondary goals (new logos, margins, discounts). The author covers seven key compensation design considerations including quota-setting, ramp periods, usage-based pricing structures, clawbacks, churn penalties, multi-year SPIFs, and accelerators, with emphasis on aligning incentives to customer acquisition cost and lifetime value metrics.