MSP Sales Commission Structure: How to Build What Actually Works for Your Business

I see this question posted constantly in MSP forums, and the answers are always all over the place. "We do 5% of TCV." "We pay monthly residuals." "Commission-only works best."

The problem is that none of these answers help you figure out what structure actually makes sense for YOUR MSP. Trust me, I learned this the hard way when I copied a commission structure that a larger MSP was using, thinking it would work for my 20-person company. Six months later, my best sales rep quit because the structure didn't match how he actually worked, and I was stuck paying huge upfront commissions on deals that weren't bringing in cash for months.

After talking to about 20 different MSP owners about their commission disasters and successes (including some pretty painful stories about reps gaming systems and cash flow nightmares), I realized the real question isn't "What's normal?" It's "What structure fits my specific situation?" Most of us are running very different businesses even though we all call ourselves MSPs - a 15-person company focused on law firms needs completely different incentives than a 100-person operation serving manufacturers.

Here's the framework I wish someone had given me before I screwed up my first commission plan.

Step 1: Figure Out What Behavior You Actually Need

Before you start looking at commission percentages, you need to be honest about what you actually need your sales team to do. Most MSP owners skip this step and just copy whatever they see online.

Are You Primarily Hunting or Farming?

If you need hunters (new business focus):

• You're in growth mode
• Most revenue comes from new clients
• You can handle client onboarding efficiently
• You have strong delivery/technical teams

Structure that works: Front-loaded commission (5-8% of Total Contract Value paid upfront)

If you need farmers (account growth focus):

• You have solid existing client base
• Growth comes from expanding existing accounts
• Client retention is your biggest challenge
• You need sales reps talking to clients regularly

Structure that works: Residual commission (2-4% of monthly recurring revenue ongoing)

If you need both (most MSPs): You'll need a hybrid structure, but pick a primary focus or you'll end up with a plan that satisfies nobody.

What's Your Revenue Mix?

High-margin services (security, compliance, cloud): Pay higher commission rates (8-12%) to drive these sales

Standard managed services: Moderate rates (4-6%)

Low-margin/commodity services: Lower rates (2-3%) or consider not commissioning at all

Professional services: High rates (10-15%) since these are often one-time revenue boosts

Step 2: Match Your Structure to Your Business Model

This is where most MSPs mess up. They pick a commission structure without thinking about how it affects their cash flow and client relationships.

The Front-Loaded Reality Check

When it works:

• You have good cash flow to pay commissions before you've collected revenue
• Your contracts are solid (no easy termination clauses)
• You want sales reps focused on new business hunting

When it doesn't work:

• Tight cash flow (you're paying commission on 24-month contracts upfront)
• High client churn (you've paid commission but lost the client)
• Sales reps stop caring about client success after they get paid

Real example: MSP pays 6% of 24-month TCV upfront. Client cancels after 8 months. MSP paid $4,320 commission but only collected $24,000 of the $72,000 contract.

The Residual Reality Check

When it works:

• You want sales reps staying engaged with clients
• You have predictable monthly revenue
• You can wait 6-12 months for reps to build meaningful commission income

When it doesn't work:

• You need aggressive new business development
• You're competing against companies offering big upfront commission
• Your sales reps need immediate income (new hires, financial pressure)

Real example: Rep builds to $50K MRR in their territory. At 3% commission, that's $1,500/month ongoing. Takes 18 months to build, but then it's very sticky income.

Step 3: Set Your Numbers Based on Reality, Not Hope

Most MSP commission plans fail because the numbers don't actually work with the business model.

Base Salary Calculation

Simple formula: Can you afford this salary even if the rep doesn't sell anything for 6 months?

If the answer is no, you either need a lower base salary or a more experienced rep who will sell faster.

Market ranges I'm seeing:

• Small MSPs (under 50 employees): $40K-60K base
• Mid-size MSPs (50-150 employees): $55K-75K base
• Larger MSPs: $65K-85K base

Commission Rate Calculation

Work backwards from your margins:

If your gross margin is 40% and you want to pay 5% commission, that commission is actually 12.5% of your gross profit (5% ÷ 40%). Can you afford that? Most MSPs don't do this math and wonder why their profitability sucks.

Simple framework:

• Commission as % of gross profit should not exceed 20-25%
• If it does, either lower commission rates or improve margins

Total Compensation Reality Check

Good MSP sales reps expect $80K-120K total compensation. If your base + realistic commission doesn't get there, you'll struggle to attract decent talent.

Example structure that works:

• $50K base salary
• $40K realistic annual commission (hunter role)
• $90K total compensation = competitive

Step 4: Handle the Complicated Stuff Upfront

The commission structures that fail are usually the ones that didn't think through edge cases and complications.

Define Everything Clearly

Total Contract Value (TCV): Are you including one-time setup fees? Professional services? Hardware markups?

When commission is paid: At contract signature? First payment collection? Monthly as revenue comes in?

Termination clauses: What happens if the client cancels early? Do you claw back commission?

Renewals: Same rep gets credit? What if they've left the company?

Common Gotchas to Address

"Termination for convenience" clauses: If you allow these, calculate commission as 3-month contracts, not the full term.

Credit disputes: Who gets commission when an existing client signs a new service? The original rep or whoever sold the add-on?

Team selling: How do you split commission between multiple people involved in a deal?

Territory changes: What happens to ongoing residual commission when you reassign territories?

Step 5: Pick Your Structure Based on Your Answers

After going through the framework, most MSPs end up with one of these structures:

The Simple Hunter Structure

• $50K base + 5% of TCV for new business + 2% for renewals
• Best for: Growth-mode MSPs with strong delivery teams

The Residual Farmer Structure

• $60K base + 3% of monthly MRR ongoing
• Best for: Established MSPs focused on account growth

The Hybrid Structure

• $55K base + 4% Year 1 revenue + 2% Year 2+ revenue
• Best for: MSPs that need both hunting and farming

The Commission-Heavy Structure

• $40K base + 8% of TCV + accelerators for quota achievement
• Best for: MSPs with experienced reps and good cash flow

Step 6: Test and Adjust (Because You'll Get It Wrong the First Time)

Every MSP owner I talked to changed their commission structure at least once. Plan for it.

Red Flags to Watch For

Sales reps gaming the system: Pushing shorter contracts to get paid faster, avoiding difficult prospects, focusing only on high-commission services

Cash flow problems: You're paying more in commission than you're collecting in revenue

Wrong behavior: Reps are doing what gets them paid, not what's good for the business

Rep turnover: Good reps are leaving for better commission opportunities

When to Adjust

Give it at least 6 months before making major changes. It takes time for new structures to show results.

Make small adjustments first: Change rates by 1%, adjust timing, add small bonuses - don't rebuild the whole thing.

Communicate changes clearly: Explain why you're changing and how it benefits both the company and the reps.

The Bottom Line

There's no "standard" MSP commission structure because every MSP's situation is different. The key is matching your structure to your specific business model, cash flow, and growth needs.

Most important advice: Start simple, define everything clearly, and plan to adjust as you learn what actually drives the behavior you want.

Reality check: If you're spending more time managing commission disputes than celebrating closed deals, your structure is too complicated.

The MSPs with happy sales teams figured out their commission structure by thinking through their specific situation, not by copying what works for someone else.