Residual commissions come into play when there are products or services with ongoing subscriptions or contract renewals. They typically work so that the sales rep receives a commission at the time of the initial sale, and every time the customer renews their contract, they receive a commission rewarding them for maintaining the customer.
How can these incentives be used to improve customer retention efforts? In one word: Engagement.
A study by HubSpot showed that great customer service experiences increased the chance of renewals among customers by 82%. In fact, that same survey found that 60% of customers rate the speed at which account reps respond to their concerns as the number one customer service factor driving them to make repeat purchases.
What does this mean? Your customers want to feel cared for and to ensure that your customers are getting the level of support and engagement that makes their experience satisfactory, it is helpful to build incentives into your pay structures that reward reps for providing just that.
Advantages of Residual Commissions for Customer Retention
There are many ways that implementing a residual commission structure for your business can positively impact your relationship with your customers and improve retention efforts over time. Here are some of the primary advantages:
Align Sales Rep Incentives with Customer Success
As we mentioned above, customers are statistically more likely to remain with a brand that provides ample support and remains actively attentive to their needs. Customer success with the brand is unequivocally tied to the level of support they receive, meaning they need someone that can provide that support.
Incentives are the perfect conduit to spark rep motivation to engage regularly with each of their customer accounts. It encourages relationship-building with customers, which in turn promotes trust and loyalty.

Improves Quality of Initial Sales
With the focus on relationship-building, sales reps are encouraged to pursue customers who are considered a good fit for the service, rather than just pushing every lead through the door with the “quick sell” mentality.
While the goal is always to acquire the most customers as possible, the most sustainable customer acquisition strategy is to make sure that you are emphasizing the quality of your leads and not the quantity. A quality lead is a prospective customer who demonstrates a clear need for your solution, has the authority and budget for the ongoing subscription, and expresses genuine interest in moving forward in the buying process without hesitation. Sales reps that hone in on these prospect characteristics are more likely to engage with a buyer who will renew at the end of their contract.
On the other end, leads that are hard sells, that exhibit hesitation and reluctance are far less likely to continue to renew – even if they agree on the initial sale.
Opportunities for Upselling
By instilling trust and loyalty in your customers, you are creating additional opportunities for your reps to expand service offerings to them. The more you learn about your customers through active engagement, the more you can understand other potential pain points they may have and what types of offerings your company may have to alleviate them.
When customers have trust and loyalty already established with a business, they will be more interested in additional services that company provides – especially when it means potentially pursuing a separate company for the same service. Upselling is also an added perk for your sales reps, which allows them to not only continue earning commissions through residuals, but unlock extra earnings from current customers through increasing their recurring subscription fees.
Drive Long-Term Revenue Thinking
Focusing on renewals and product expansions allows reps to contribute to longer customer lifespans and lower churns, thereby shifting your sales team’s priority from transactional selling to lifecycle selling – which is mutually beneficial for both the rep and the business.
How to Bypass Common Challenges with Residual Commissions
Residual commissions can serve a valuable role in encouraging active engagement with your customers, but like many aspects of commission management, they can add complexity to your compensation plans.
Here are some of the ways residual commissions may add complexity, and how Core Commissions can help you navigate them before they become a problem:
Tracking Long-Term Payouts:
Even with good record-keeping, the longer an account is active, the more variables may come into play that will make it difficult to track how payment should be distributed.
With Core, customer account details are stored indefinitely, allowing you to track every stage of the customer lifecycle from activation to termination. Additionally, your reps can run reports at any time to see how long a customer has been active and how much commission they have generated from the customer.
Rep Turnover and Account Ownership:
As we have mentioned in our blog on hierarchies, changes to sales teams occur all of the time. Sales reps may get promoted, they may move teams, or they may even leave the company. If reps leave the company, or if accounts change hands, it can be difficult to track where the residual commissions should go.
Part of Core’s customer tracking features includes being able to maintain a history of who is in charge of each account and for what time period. When accounts change hands, it’s as simple as updating the sales rep tied to the account.
Changes to Subscription:
When a customer downgrades or cancels their subscription, these changes need to be accurately tracked to avoid overpayments to your reps.
Ensuring that your reps receive accurate residuals comes down to how your rules are processed. Building rules for tracking residual commissions is easy and intuitive in Core. You can literally set it and forget it, so all you have to worry about is making sure that the account details are accurate, while the system handles the calculation behind the scenes.
This also means that if a customer does cancel and clawbacks are built into your compensation policy, the system will include those in the calculations.
Payment Schedule:
Knowing when a residual payment needs to be issued to an employee can be another complicated matter. Customer renewals can occur at any time and probably don’t fit perfectly into your payroll cycle. Whether you pay your residuals on a monthly, quarterly, or annual basis, you need to be sure that all renewals within a given time period occur appropriately on each employee statement.
In Core, you set your commissions to process on whatever cycle you need. In fact, you can even create rules that calculate residuals based on when payments are received from the customer. Core integrates seamlessly with financial applications – like Sage, Quickbooks, Microsoft 360, Netsuite, and other commonly used applications – allowing you to sync your payment logs with Core automatically, so reps only receive commission once those payments are confirmed in the system.
Turn Customer Loyalty Into Lasting Revenue With Automated Residuals
A study by Bain & Company found that increasing customer retention rates by 5% resulted in a minimum increase of 25% in profit. This means that small efforts that ensure your customers feel supported and are happy with their service can go a long way in increasing the likelihood of renewal.
Your sales reps are the first point of contact for customers, and these first impressions can have a lasting impact on customer loyalty by establishing trust from the get-go. Ongoing nurturing of these relationships only continues to build trust – which is a key component to customer retention efforts – and should be built-in to your compensation model.
Core makes it easy to track and manage residual commissions by automating the calculations and simplifying reporting. Schedule a demo to see how Core’s tools help streamline these processes.