The Early-Stage Play: Pay Full Commission on Prepaid Cash
Jason Lemkin paid 100% commission on all cash collected upfront for multi-year deals at EchoSign. A rep brings in $400k for three years prepaid? Full commission on $400k, not just year one.
Worth noting: fewer than 10% of SaaS startups use this structure. Most pay commissions only on year one, treating future years as renewals with lower or zero commission.
Lemkin's logic: cash was king. Getting $400k now instead of $150k annually over three years changed the business. Churn risk got pushed to year four. The company hit cash-flow positive around $5 million ARR.
The tradeoff: customers only prepay for meaningful discounts. You are trading future margin for current cash position. Works when you need runway more than you need perfect unit economics.
After $10 Million ARR: The Pullback
Once EchoSign crossed $10 million ARR, the structure changed. Multi-year commission dropped to 25% on years two and three, down from 100%.
The shift happened because:
- Cash position improved
- Renewal rates were high (near 100% at contract expiration)
- Risk of over-discounting increased
Multi-year bookings still did not count toward quota. Year two and three revenue does not hit this year's ARR, so it should not count as new bookings. But reps still got paid on the cash, just at a lower rate.
What Happens When You Get It Wrong
After Adobe acquired EchoSign, the new rev ops team made two changes:
- Paid 100% commission on multi-year deals even without cash upfront
- Removed guardrails on discounting
Result: One rep sold a lifetime enterprise deal for $200k. The customer got 10+ years of product. The rep made over $150k commission on a single deal.
That is not a win. That is a comp plan writing checks against future revenue with no controls.
The Structure That Works
Pre-$10M ARR:
- 100% commission on all years if cash paid upfront
- Zero commission on multi-year without prepayment
- Firm discount limits to protect margin
Post-$10M ARR:
- 25% commission on years two and three (prepaid only)
- Multi-year bookings do not count toward quota
- Maintain discount guardrails
The key variable: do you need cash now more than you need to protect future margin? Early stage, the answer is usually yes. Later stage, it flips.
What This Means for Sales Managers
If your reps are pushing multi-year deals hard, check:
- What commission rate applies to out-years?
- Is there a prepayment requirement?
- What discount limits exist?
- Do multi-year bookings count toward quota?
If reps get full commission on non-prepaid multi-year contracts, expect creative deals that optimize for their comp, not your cash position or ARR growth.
The EchoSign example: incentives drive behavior. A rep selling a $200k lifetime deal is not being greedy. They are responding rationally to a poorly designed comp plan.
SaaS commission structures on recurring revenue need to balance cash collection, renewal risk, and future margin. Get one variable wrong and reps will find it.