# Sales Management Concept Card: [Your name, course or company, and date] > An elective-level concept card for B2B sales management: how a sales leader turns a bookings target into a sales > process, a pipeline, a number of sellers, territories, quotas and a compensation plan, and how each choice changes > the cost of sales and the behaviour of the sales force. It is for MBA students in a sales management, B2B marketing > or go-to-market elective, for candidates preparing for revenue operations, product or startup roles, and for > founders hiring their first sellers. Worked example A builds the annual sales plan for Corvane Robotics from the > funnel to the pay plan, Worked example B is a half-solved commission statement with a clawback, and Exercise C tests > the plan against a lower win rate, attrition and a different pay mix. Source basis: Weitz (1981), Churchill, Ford, > Hartley and Walker (1985), Moncrief and Marshall (2005), Zoltners, Sinha and Lorimer (2008), Lodish (1971), Basu, > Lal, Srinivasan and Staelin (1985), Holmstrom and Milgrom (1991), Oyer (1998) and Chung, Steenburgh and Sudhir > (2014), written up in original words with fictional numbers. Replace every [bracketed] value and every row marked > *Example*. This is a learning aid, not legal, employment, accounting or tax advice. ## Document control | Field | Value | |---|---| | Learner | [Your name] | | Course or company | [Sales management elective, company name, plan year] | | Plan file and version | [File name, v0.1] | | Plan year | [YYYY] | | Reviewed by | [Learning team member, teaching assistant, sales operations or finance partner] | | Version | [0.1] | | Last updated | YYYY-MM-DD | ## Contents - [When to use it](#when-to-use-it) - [The idea in plain language](#the-idea-in-plain-language) - [Formulas and notation](#formulas-and-notation) - [Assumptions and limits](#assumptions-and-limits) - [How sales leaders use it](#how-sales-leaders-use-it) - [Worked example A (fully solved): Corvane Robotics plans its sales year](#worked-example-a-fully-solved-corvane-robotics-plans-its-sales-year) - [Worked example B (half solved): a commission statement with a clawback](#worked-example-b-half-solved-a-commission-statement-with-a-clawback) - [Exercise C (unsolved): stress-testing the plan](#exercise-c-unsolved-stress-testing-the-plan) - [Connections to other cards](#connections-to-other-cards) - [Common mistakes and misconceptions](#common-mistakes-and-misconceptions) - [Self-test questions](#self-test-questions) - [My notes and next steps](#my-notes-and-next-steps) - [Sources and further reading](#sources-and-further-reading) - [Answer key](#answer-key) ## When to use it Use this card when: - a board or an executive team has set a bookings or revenue target and you must say whether the current sales force can deliver it, and if not, how many sellers to hire and when; - you are designing or redrawing sales territories, because workload or potential is uneven and the best accounts are concentrated with a few sellers; - you must set individual quotas that add up to more than the company target without being impossible to reach; - you are writing or reviewing a sales compensation plan: pay mix, commission rate, accelerators, caps, clawbacks; - a case asks why sales are flat although marketing generates enough leads, or why the cost of sales keeps rising; - you are preparing for a product, strategy or revenue operations interview where funnel arithmetic is tested. Do not use it for consumer retail selling or for pure self-service software, where there is no field or inside sales force to size; the funnel arithmetic still applies, but capacity planning becomes a marketing budget question. ## The idea in plain language A B2B sales organisation converts effort into contracts. Prospects are found, qualified, met, given a proposal and, some of the time, signed. Each step converts a share of what enters it, and each step takes time. A sales leader who knows the target, the average deal size, the win rate and the cycle length can work backwards to the number of opportunities, meetings and sellers needed, and can see in advance whether the pipeline is large enough. That chain is the first half of this card. The selling process itself has a long history in the literature. The classic "seven steps" (prospecting, pre-approach, approach, presentation, handling objections, close, follow-up) were codified for transactional selling; Moncrief and Marshall (2005) describe how each step changed as selling became relationship-based and supported by technology. Weitz (1981) argued that no single selling style works everywhere: effectiveness depends on the fit between the seller's behaviour, the customer and the buying situation. Churchill, Ford, Hartley and Walker (1985) pooled many studies and found that no single class of predictor, whether aptitude, personal traits, skill, role perceptions or motivation, explained much of a seller's performance on its own; skill and role clarity mattered more than personal traits. The managerial message: hiring for "born salespeople" is weaker than clear roles, training and a well-designed process. The second half is the sales force system that Zoltners, Sinha and Lorimer (2008) describe as a set of linked decisions: size and structure of the force, territory and account assignment, hiring and development, pay and incentives, and performance management. Territories matter because sellers working uneven territories get uneven results that have little to do with their skill. Lodish (1971) showed that call effort can be allocated to accounts by estimating how each account responds to more calls, a response-function idea that still underlies territory and call planning tools. Pay is where economics enters. A seller's effort is hard to observe, so firms pay partly for results. Basu, Lal, Srinivasan and Staelin (1985) model this as an agency problem: the more uncertain sales are and the more risk-averse the seller, the larger the fixed salary share should be. Holmstrom and Milgrom (1991) add that strong pay on one measurable task pulls effort away from tasks that are hard to measure, such as customer success or data hygiene. Oyer (1998) found that sales and other activity bunch around fiscal year ends, consistent with sellers timing deals to annual quota targets. Chung, Steenburgh and Sudhir (2014) studied a firm's bonus plan and found that overachievement commissions and frequent (quarterly) bonuses can raise productivity by keeping sellers motivated through the year. ## Formulas and notation Deals, opportunities and meetings needed for a bookings target $B$ with average annual contract value $A$, win rate $w$ (opportunity to signed deal) and meeting-to-opportunity rate $m$: $$ D = \frac{B}{A}, \qquad O = \frac{D}{w}, \qquad M = \frac{O}{m} $$ Open pipeline at any time (Little's law: the stock of open opportunities equals the arrival rate times the time each spends in the pipeline) with monthly opportunity creation $\lambda$ and sales cycle $c$ months: $$ L = \lambda \, c $$ Sales velocity per month (the rate at which open pipeline turns into bookings): $$ V = \frac{L \, w \, A}{c} $$ Sales capacity from $n$ ramped sellers with annual productivity $p$ and $h$ new hires whose ramp factors by quarter are $r_1, \dots, r_4$: $$ K = n\,p + h\,p\,\frac{r_1+r_2+r_3+r_4}{4} $$ Commission for a seller with quota $Q$, bookings $b$, base rate $k$ and accelerated rate $k_a$ above quota: $$ C = k \min(b, Q) + k_a \max(0,\, b - Q), \qquad k = \frac{TI}{Q} $$ where $TI$ is the target incentive, the variable pay at 100% of quota. Cost of sales as a share of bookings is $(S + C)/b$, with $S$ the base salary. | Symbol | Meaning | Unit | |---|---|---| | $B$ | Bookings target (new annual contract value) | USD a year | | $A$ | Average annual contract value per deal | USD | | $w$ | Win rate, qualified opportunity to signed | share | | $m$ | Meeting to qualified opportunity rate | share | | $\lambda$ | New qualified opportunities per month | count a month | | $c$ | Average sales cycle, qualified to signed | months | | $p$ | Annual productivity of a ramped seller | USD a year | | $r_q$ | Ramp factor in quarter $q$ of a new hire's first year | share of $p$ | | $Q$, $b$ | Individual quota and bookings | USD a year | | $TI$, $S$ | Target incentive and base salary; $S + TI$ is on-target earnings (OTE) | USD a year | Excel: deals `=B/A`; opportunities `=B/A/w`; open pipeline `=lambda*c`; commission `=k*MIN(b,Q)+k_a*MAX(0,b-Q)`; hires needed `=ROUNDUP((B-n*p)/(p*AVERAGE(r1:r4)),0)`. ## Assumptions and limits - **One average deal size.** Real pipelines mix small and large deals; a few large deals make the plan fragile. Split the funnel by segment when deal sizes differ by more than about two times. - **Stable conversion rates.** Win rates fall when a seller's pipeline is stretched or when the team enters a new segment. Use the rate of the segment you will sell to, not last year's company average. - **Steady state.** Little's law holds on average over a period in which arrivals and cycle times are stable; a launch year or a seasonal business needs a month-by-month model. - **Productivity after ramp is reached and kept.** Attrition, vacancies and leave reduce capacity; Exercise C shows the effect of one departure. - **Pay is modelled as one plan.** Many plans add bonuses for products, margins, renewals or team targets. Each extra measure dilutes attention to the others, as Holmstrom and Milgrom (1991) predict. - **Dated legal and accounting facts** are given as examples only. Requirements for written commission plans, deductions and final pay differ by country and state. Under IFRS 15 (paragraphs 91 to 94) and the parallel US GAAP guidance (ASC 340-40), incremental costs of obtaining a contract, such as a commission, are generally capitalised and amortised over the period the related goods or services are delivered, with a practical expedient to expense them when that period is one year or less. Check the current standards, your auditor and an employment lawyer before you rely on any of this. ## How sales leaders use it | Reader | Question | Output they look at | |---|---|---| | Chief executive and board | Can the plan deliver the target, and what does it cost? | Capacity against target, hires, cost of sales | | Sales leader | Where will the deals come from, and who will close them? | Pipeline coverage, territories, quotas | | Finance | What is the commission expense and how is it accounted for? | Pay curve, expected payout, capitalised commissions | | Marketing | How many leads and meetings must we create each month? | Meetings and opportunities per month | | Sellers | Is my territory fair and my quota reachable? | Territory indices, quota, pay at different attainment levels | | Human resources | When must we hire, and what will attrition do? | Hiring calendar, ramp, vacancy assumptions | The plan is built in the same order every year and reviewed every quarter against actual pipeline and bookings (sales/pipeline-forecast-review). ```mermaid flowchart TD A["Bookings target and average deal size"] --> B["Deals, opportunities and meetings needed"] B --> C["Pipeline coverage and monthly creation"] A --> D["Seller productivity and ramp"] D --> E["Capacity and number of hires"] E --> F["Territories balanced on workload and potential"] F --> G["Individual quotas that sum above the target"] G --> H["Pay plan: mix, rate, accelerator, clawback"] H --> I["Cost of sales and commission accounting"] C --> J["Quarterly review against actuals"] I --> J ``` ## Worked example A (fully solved): Corvane Robotics plans its sales year *Example* inputs: Corvane Robotics sells its tote-picking robots to mid-size third-party logistics (3PL) warehouses on three-year robot-as-a-service contracts at USD 3,500 a month per robot. A typical first contract covers 10 robots, so the average annual contract value (ACV) is USD 420,000. The board's target for the plan year is USD 16.8m of new ACV. Last year's data: 40% of first meetings become qualified opportunities, 25% of qualified opportunities are won, and the average cycle from qualification to signature is 5 months. Four account executives (AEs) are fully ramped, each closing about 8 deals a year. A new AE produces nothing in the first quarter, half of full productivity in the second and full productivity from the third. ### Step 1: the funnel (deals, opportunities, meetings) | Item | Computation | Result | |---|---|---| | Deals needed | 16,800,000 / 420,000 | 40 | | Qualified opportunities needed | 40 / 0.25 | 160 | | First meetings needed | 160 / 0.40 | 400 | | Opportunities to create each month | 160 / 12 | 13.33 | | First meetings each month | 400 / 12 | 33.33 | | Pipeline coverage of the annual target | 160 x 420,000 / 16,800,000 | 4.0x | ### Step 2: open pipeline and velocity | Item | Computation | Result | |---|---|---| | Open opportunities at any time | 13.33 x 5 | 66.67 | | Open pipeline value | 66.67 x 420,000 | USD 28.0m | | Sales velocity per month | 66.67 x 0.25 x 420,000 / 5 | USD 1.40m | | Velocity per year | 1.40m x 12 | USD 16.8m | The velocity check closes the loop: with 66.67 open opportunities the funnel produces exactly the target. Because the cycle is 5 months, opportunities created after about the end of July cannot close in the plan year; the pipeline for the first five months must already exist on 1 January. ### Step 3: capacity and hires | Item | Computation | Result | |---|---|---| | Productivity of a ramped AE | 8 x 420,000 | USD 3.36m | | Capacity of the 4 ramped AEs | 4 x 3.36m | USD 13.44m | | Gap to target | 16.80m - 13.44m | USD 3.36m | | First-year productivity of a hire starting 1 January | 3.36m x (0 + 0.5 + 1 + 1) / 4 | USD 2.10m | | Hires needed | 3.36m / 2.10m = 1.6, rounded up | 2 | | Capacity with 2 hires | 13.44m + 2 x 2.10m | USD 17.64m (105% of target) | A buffer of 5% is thin. Exercise C asks what one departure does to it. ### Step 4: territories The four existing territories were drawn by geography. The team counts target 3PL sites (accounts) in each and estimates the potential ACV; the workload assumes 60 selling hours a year per target account. | Territory (4 today) | Accounts | Potential (USD m) | Workload (hours) | Workload index | Potential index | |---|---|---|---|---|---| | North | 38 | 7.2 | 2,280 | 105.6 | 107.5 | | Central | 52 | 9.6 | 3,120 | 144.4 | 143.3 | | South | 24 | 4.0 | 1,440 | 66.7 | 59.7 | | Coastal | 30 | 6.0 | 1,800 | 83.3 | 89.6 | | Total | 144 | 26.8 | 8,640 | | | Indices are each territory's value divided by the average (36 accounts, USD 6.7m) times 100. Central is overloaded by almost half and South is underloaded by a third: the Central AE cannot cover all accounts, and the South AE will miss quota for reasons that have nothing to do with skill. With six AEs, the team redraws six territories, moving whole accounts so that relationships are not broken mid-deal. | Territory (6 proposed) | Accounts | Potential (USD m) | Workload (hours) | Workload index | Potential index | |---|---|---|---|---|---| | North | 24 | 4.5 | 1,440 | 100.0 | 100.7 | | Lakes (14 from North, 8 from Central) | 22 | 4.2 | 1,320 | 91.7 | 94.0 | | Central East | 22 | 4.1 | 1,320 | 91.7 | 91.8 | | Central West | 22 | 4.0 | 1,320 | 91.7 | 89.6 | | South (4 from Coastal) | 28 | 5.0 | 1,680 | 116.7 | 111.9 | | Coastal | 26 | 5.0 | 1,560 | 108.3 | 111.9 | | Total | 144 | 26.8 | 8,640 | | | The new average is 24 accounts and USD 4.47m. Every territory now sits within about 12% of average potential. The two new AEs take Lakes and Central West, which have the fewest live deals to hand over. ### Step 5: quotas | Seller | Quota (USD m) | |---|---| | 4 ramped AEs | 4 x 3.36 = 13.44 | | 2 new AEs (first-year quota at ramp) | 2 x 2.10 = 4.20 | | Sum of quotas | 17.64 | | Over-assignment against the board target | 17.64 / 16.80 = 105% | Over-assignment protects the company target against some sellers missing. In this plan it equals capacity, so it is not a stretch on top of capacity; adding stretch would raise quotas above what the funnel data supports. ### Step 6: the compensation plan *Example* plan for a ramped AE: on-target earnings USD 240,000 with a 50/50 pay mix (base USD 120,000, target incentive USD 120,000). Commission is paid on new ACV from the first dollar at 3.5714% (`=120000/3360000`) up to quota, and at twice that rate, 7.1429%, above quota, with no cap. A deal cancelled within 90 days is clawed back. | Attainment | Bookings (USD) | Commission (USD) | Total pay (USD) | Pay as % of bookings | |---|---|---|---|---| | 50% | 1,680,000 | 60,000 | 180,000 | 10.71% | | 80% | 2,688,000 | 96,000 | 216,000 | 8.04% | | 100% | 3,360,000 | 120,000 | 240,000 | 7.14% | | 120% | 4,032,000 | 168,000 | 288,000 | 7.14% | | 150% | 5,040,000 | 240,000 | 360,000 | 7.14% | Above quota the cost of sales stays at 7.14% because the doubled rate exactly offsets the fixed base being spread over more bookings. Below quota the base makes each dollar of bookings more expensive. The commission on one average deal at the base rate is USD 15,000 (`=0.035714*420000`); if capitalised and amortised over the 36-month contract it is USD 416.67 a month of expense, subject to the accounting caveats above. ```vega-lite { "$schema": "https://vega.github.io/schema/vega-lite/v5.json", "description": "Corvane ramped AE: total pay (USD thousand) against quota attainment, 50/50 mix, 2x accelerator above quota", "width": 420, "height": 240, "data": { "values": [ {"attainment": 0, "pay": 120.0}, {"attainment": 25, "pay": 150.0}, {"attainment": 50, "pay": 180.0}, {"attainment": 75, "pay": 210.0}, {"attainment": 100, "pay": 240.0}, {"attainment": 125, "pay": 300.0}, {"attainment": 150, "pay": 360.0} ] }, "mark": {"type": "line", "point": true}, "encoding": { "x": {"field": "attainment", "type": "quantitative", "title": "Quota attainment (%)"}, "y": {"field": "pay", "type": "quantitative", "title": "Total pay (USD thousand)"} } } ``` The kink at 100% is the accelerator. It rewards overachievement, which Chung, Steenburgh and Sudhir (2014) found matters for productivity, but it also rewards moving a deal from one year into the next; Oyer (1998) is the warning. ## Worked example B (half solved): a commission statement with a clawback *Example*: three ramped AEs at year end, quota USD 3.36m each, rates as in Step 6. | Seller | Bookings (USD) | Attainment | Commission (USD) | Total pay (USD) | |---|---|---|---|---| | AE 1 | 2,520,000 | 75% | 90,000 (`=0.035714*2520000`) | 210,000 | | AE 2 | 3,360,000 | 100% | [ ] | [ ] | | AE 3 | 4,536,000 | [ ] | [ ] (`=120000+0.071429*(4536000-3360000)`) | [ ] | In February a customer of AE 3 cancels a USD 420,000 contract within the 90-day window. Recompute AE 3's commission on bookings of [ ] and state the clawback amount: [ ]. Is the clawback the base-rate commission on the deal (USD 15,000) or more? Why? [ ] ## Exercise C (unsolved): stress-testing the plan 1. **Lower win rate.** A new competitor cuts the win rate from 25% to 20%. How many qualified opportunities and first meetings are needed, how large must the open pipeline be, and what coverage ratio should the sales leader ask for? 2. **Attrition.** One ramped AE resigns at the end of the second quarter. A replacement starts on 1 July and follows the same ramp (nothing in the first quarter, half in the second). What is the new capacity, is the target still covered, and what would a third hire on 1 January have changed? 3. **Pay mix.** Finance proposes a 60/40 mix (base USD 144,000, target incentive USD 96,000) with the same accelerator structure. What are the new rates, what does AE 3 in Worked example B earn before the clawback, and what would Basu et al. (1985) say about when this mix is the better choice? 4. **Judgement.** Write three sentences to the chief executive on whether to hire two or three AEs. ## Connections to other cards | Card or template | Connection | |---|---| | mba/mba-marketing-guide, mba/mba-stp-positioning-card | Which segments the sales force should target, and with what positioning | | mba/mba-customer-lifetime-value-card | Whether the cost of acquiring a customer through the sales force is repaid over the contract | | mba/mba-pricing-card | Discount authority and how price concessions change the commission base | | mba/mba-queueing-card | Little's law, used here for the open pipeline | | mba/mba-motivation-card, mba/mba-performance-evaluation-card | Why incentives work, and when they crowd out other effort | | mba/mba-compensation-design-card | Pay design for the wider organisation, including equity and clawbacks | | mba/mba-negotiation-planner | Planning the close with a buyer's procurement team | | mba/mba-product-management-guide | How product and sales agree on what is sold and promised | | sales/territory-quota-plan, sales/sales-compensation-plan | The working documents built from Steps 4 to 6 | | sales/pipeline-forecast-review, sales/account-plan, sales/mutual-action-plan, sales/win-loss-analysis | The operating rhythm after the plan is set | | marketing/go-to-market-plan, marketing/ideal-customer-profile | Where the meetings in Step 1 come from | ## Common mistakes and misconceptions 1. **Dividing the target by the win rate and stopping there.** Coverage without cycle time hides the fact that pipeline created late in the year cannot close in it. 2. **Counting new hires at full productivity.** Ramp is the most common reason a capacity plan misses; in Worked example A it cuts a hire's first year by 37.5%. 3. **Setting quota equal to the company target divided by heads.** Quotas should reflect territory potential, and their sum should exceed the target by a stated margin. 4. **Drawing territories by geography alone.** Unbalanced territories make pay a lottery and drive good sellers away. 5. **Uncapped accelerators without a clawback or a payment timing rule.** They invite deals that cancel. 6. **Paying on bookings when the business earns on usage or renewal.** Sellers will sell what is paid, not what the company needs; the multitask problem of Holmstrom and Milgrom (1991). 7. **Too many measures in the plan.** More than three measures usually means none of them steers behaviour. 8. **Changing the plan in mid-year without notice.** It destroys trust; in some jurisdictions it may also breach the written plan. Take advice before you change a plan that is in force. 9. **Ignoring the accounting.** Commission expense may be capitalised and spread over the contract, so the income statement and the cash outflow differ. 10. **Blaming sellers for a funnel problem.** If meetings or qualification rates are short, more sellers will not fix it. ## Self-test questions 1. With a target of USD 10m, average ACV of USD 250,000 and a win rate of 20%, how many qualified opportunities are needed? 2. In Worked example A, why must part of the year's pipeline exist before 1 January? 3. State Little's law and use it to find the open pipeline in Worked example A. 4. Why is the first-year productivity of a hire USD 2.10m and not USD 3.36m? 5. What do the workload and potential indices tell you, and which territory in the four-territory design is most at risk of missing quota? 6. Why does the cost of sales stay at 7.14% above quota in Step 6? 7. Give one argument from agency theory for a higher fixed salary share. 8. What did Oyer (1998) find, and what does it imply for an annual accelerator? 9. What is over-assignment, and why is it not free? 10. When may a commission be expensed immediately rather than capitalised under IFRS 15? ## My notes and next steps | Date | Exercise | Time (minutes) | Errors found | Next step | |---|---|---|---|---| | *Example:* YYYY-MM-DD | Worked example A from blank sheet | 40 | Counted hires at full productivity | Add ramp row before hires row | | [YYYY-MM-DD] | [ ] | [ ] | [ ] | [ ] | ## Sources and further reading Primary works: - Weitz, B. A. (1981). Effectiveness in sales interactions: a contingency framework. *Journal of Marketing*, 45(1), 85-103. - Churchill, G. A., Ford, N. M., Hartley, S. W. and Walker, O. C. (1985). The determinants of salesperson performance: a meta-analysis. *Journal of Marketing Research*, 22(2), 103-118. - Moncrief, W. C. and Marshall, G. W. (2005). The evolution of the seven steps of selling. *Industrial Marketing Management*, 34(1), 13-22. - Zoltners, A. A., Sinha, P. and Lorimer, S. E. (2008). Sales force effectiveness: a framework for researchers and practitioners. *Journal of Personal Selling and Sales Management*, 28(2), 115-131. - Lodish, L. M. (1971). CALLPLAN: an interactive salesman's call planning system. *Management Science*, 18(4, Part II), P25-P40. - Basu, A. K., Lal, R., Srinivasan, V. and Staelin, R. (1985). Salesforce compensation plans: an agency theoretic perspective. *Marketing Science*, 4(4), 267-291. - Holmstrom, B. and Milgrom, P. (1991). Multitask principal-agent analyses: incentive contracts, asset ownership, and job design. *Journal of Law, Economics, and Organization*, 7 (special issue), 24-52. - Oyer, P. (1998). Fiscal year ends and nonlinear incentive contracts: the effect on business seasonality. *The Quarterly Journal of Economics*, 113(1), 149-185. - Chung, D. J., Steenburgh, T. and Sudhir, K. (2014). Do bonuses enhance sales productivity? A dynamic structural analysis of bonus-based compensation plans. *Marketing Science*, 33(2), 165-187. - Little, J. D. C. (1961). A proof for the queuing formula L = lambda W. *Operations Research*, 9(3), 383-387. Dated facts (checked 2026-10-30): IFRS 15 *Revenue from Contracts with Customers*, effective for annual periods beginning on or after 1 January 2018 (IFRS Foundation, https://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/); paragraph numbers for contract costs and ASC 340-40 are cited by number only. Official text: IFRS Foundation and FASB, licensed access through their websites. Books (further reading, by name only): Zoltners, Sinha and Lorimer, *Building a Winning Sales Force*; Rackham, *SPIN Selling*; Dixon and Adamson, *The Challenger Sale*. ## Answer key Worked example B: AE 2 commission 120,000, total pay 240,000. AE 3 attainment 135%, commission 204,000 (`=120000+0.071429*1176000`), total pay 324,000. After the cancellation AE 3's bookings are 4,116,000, commission 174,000, so the clawback is 30,000. It is twice the base-rate commission because the cancelled deal is the marginal deal and was paid at the accelerated rate. A fair note to the seller names the deal, the plan clause and the amount, and when it will be netted against future pay. Exercise C: - C1: 200 opportunities (`=40/0.2`), 500 first meetings, 16.67 opportunities a month, 83.33 open opportunities, 5.0x coverage. - C2: the leaver's second half is lost (1.68m) and the replacement adds 0.42m in the fourth quarter, so capacity is 16.38m, 97.5% of target, a shortfall of 0.42m. A third hire on 1 January would have added 2.10m, for 18.48m (110%). - C3: base rate 2.8571%, accelerated rate 5.7143%; AE 3 commission 163,200, total pay 307,200 against 324,000 in the 50/50 plan. Agency theory favours more salary when sales are noisy (long cycles, few large deals) and sellers are risk-averse, as in Corvane's case with about 8 deals per seller a year. - C4: one sound answer: hire three, because one departure removes the whole buffer and the cost of a third AE is small against USD 2.10m of capacity; reduce the risk by staggering the third hire until pipeline creation is on plan in the first quarter. Self-test: 1. 40 deals, 200 opportunities (`=10000000/250000/0.2`). 2. The cycle is 5 months, so deals closing from January to May were qualified in the previous year. 3. Open stock equals arrival rate times time in system; 13.33 x 5 = 66.67 opportunities. 4. Ramp: 0 + 0.5 + 1 + 1 quarters of productivity, average 62.5%. 5. They compare each territory with the average; South (workload 66.7, potential 59.7) is most at risk of missing quota, while Central cannot cover its accounts. 6. The accelerated rate (7.1429%) is the OTE-to-quota ratio, so the incremental cost equals the average cost at quota. 7. When output is noisy and the seller is risk-averse, the firm must pay a risk premium for variable pay; salary is cheaper insurance (Basu et al. 1985). 8. Activity bunches around fiscal year ends; an annual accelerator invites timing games, so add quarterly targets or payment rules. 9. Sum of quotas above the company target; it lowers expected attainment and can demotivate if quotas lose touch with territory potential. 10. When the amortisation period would be one year or less (the practical expedient); check the current text. ## Revision history | Version | Date | Author | Change summary | |---|---|---|---| | 0.1 | YYYY-MM-DD | [Your name] | First build of Worked example A from the inputs | | 0.2 | YYYY-MM-DD | [Your name] | *Example:* Added attrition case and 60/40 pay mix | ## Standard and licence note Based on standard sales force management practice and the primary works listed above, with the dated accounting fact taken from the IFRS Foundation page named in the sources and checked on 2026-10-30. The text, the model, the numbers and the exercises are original; no textbook, training course or published case is copied or paraphrased, and Corvane Robotics and every number in this card are fictional. The template is independent and not affiliated with or endorsed by any business school, publisher, standard setter or software vendor. Check current accounting standards and employment rules with qualified professionals before you rely on them. Template licence: MIT.