In Part 1 of this 2-part blog, we examined how to drive sales behavior through a well-aligned compensation plan. In Part 2, we will determine how to extend your Series A runway by mastering the balance between capital efficiency and commission payout schedules. How you structure your commission payouts will not only align sales behavior it can significantly impact your cash runway, affecting everything from upfront cash outflows to your overall cash burn rate. Understanding these dynamics is essential to maintaining financial stability while driving revenue growth.

This blog will examine key considerations and strategies for effectively managing commission payouts.

Download Companyon’s Sales Compensation Framework HERE.

Commission Payout Considerations

The commission payout schedule can significantly impact your startup’s cash runway in several ways:

1. Upfront Cash Outflow: If the commission payout schedule requires upfront payment upon closing a sale, it can lead to a significant cash imbalance, especially if the sales cycle is long or if multiple sales are closed simultaneously. This immediate cash expenditure and the rest of the customer acquisition costs can strain your startup’s financial resources, particularly if it’s operating on a tight budget or during periods of limited cash flow. What’s more, it does not align sales behavior to the business benefit of cash collections—your sales team should be motivated to accelerate cash collection whenever possible.
2. High Variable Cash Flow: High commission payouts based solely on sales performance introduce variability into your startup’s cash flow. This variability makes it challenging to predict and manage cash flow effectively, leading to potential cash shortages during low-sales periods.
3. Impact on Working Capital: Large commission payouts ahead of collections tie up working capital, limiting the funds available for essential operational expenses such as salaries, marketing, product development, and overhead costs. This will hinder your ability to invest in growth initiatives or respond to unforeseen expenses.
4. Cash Burn Rate: High commission payouts accelerate cash burn, reducing your cash runway and increasing the urgency to secure additional funding. To make matters worse, a high cash burn is unattractive to many investors in this climate.

How can you design a balanced commission plan from the start? 

1. Adjust Payment Terms: Stagger commission payments over time or tie them to specific milestones rather than upfront. A typical approach is to pay a portion of commissions immediately (50%) on bookings, preferably at quarter end, and pay the balance on collection (50%). 
2. Optimize Sales Cycle: Streamline your sales process to reduce the time between closing a sale and receiving payment, improving cash flow predictability. Incentivize annual pre-pays to accelerate collections and offset commissions that are paid upfront.
3. Forecast Cash Flow: Develop robust cashflow forecasting models to anticipate commission payouts and identify potential cash shortfalls in advance.
4. Explore Financing Options: To support cash flow during commission payout periods, consider alternative financing options such as lines of credit, invoice financing, or revenue-based financing.

By understanding the key considerations and following a structured, risk-balanced approach to designing the compensation plan, you can empower your sales teams to thrive in the new playbook-led environment—driving sustainable revenue growth and market expansion.

Check out our blog for more expert guidance. We cover everything from marketing and sales execution to data modeling, fundraising, and recruiting. 

Download Companyon’s Sales Compensation Framework HERE.