For sales and customer success teams, closing multi-year deals represents both a revenue opportunity and a challenge. While one-year renewals are simple and predictable, multi-year contracts provide a strategic advantage by reducing churn, locking in future revenue, and stabilizing customer relationships.
However, if the compensation structure doesn’t reward the extra effort needed for multi-year negotiations, reps might default to single-year renewals. Here’s how to structure an effective incentive comp plan that motivates reps to prioritize multi-year deals.
Why multi-year deals are worth the extra effort
To secure a multi-year deal sales or CS reps must work closely with customers to map out growth trajectories, anticipate future needs, and coordinate with procurement teams to ensure the terms are favorable for both parties.
While a single-year renewal is straightforward—often a “renew and repeat” strategy—multi-year deals require extra time and negotiation. For reps to go the distance, the compensation plan should justify the extra work, as a flat one-year deal will always be easier to close.
Structuring incentives to drive multi-year deals
To understand how comp plans for multi-year deals, let’s consider a two-year renewal example.
A rep handling consecutive one-year renewals might earn $2,000 annually for each renewal, totaling $4,000 over two years.
However, a multi-year deal, with both years secured at once, could incentivize reps with an upfront payment of around $3,000, bridging the gap between one-year payouts without reaching the full $4,000.
This way in case the deal fall through in the second year, then you can clawback the $1000 you paid for the second year.
This structure acknowledges the extra effort and also ensures sales and CS continue to work on the deal and maintain a good relationship to get the remaining incentives.
Two critical points to reinforce with reps in this setup:
- Time value of money: By paying a portion of the second-year commission upfront, you recognize the value and effort put into a multi-year deal on securing instead of dealing it by a year.
- Future uncertainty: Comp plans, team structures, and assignments can change from year to year. Offering a multi-year incentive now reflects that future commissions or assignments are not guaranteed, giving reps a reason to lock in that value immediately.
Aligning compensation with customer success
Long-term deals shift the role of the CS team beyond mere renewal management to proactive relationship building and customer success. CS teams are incentivized not only to secure renewals but also to maintain ongoing customer satisfaction and uncover opportunities for revenue expansion. A strategic comp plan for multi-year deals could include:
- Quarterly Business Reviews (QBRs) or Net Promoter Score (NPS): Regular check-ins with customers help you understand customer satisfaction. Based on the satisfaction score, you can offer incentives that motivate customer success to ensure a longer commitment.
- Cross-sell and upsell: Rewarding CS reps for driving cross-sells and upsells during the contract term creates additional revenue and deepens the customer relationship.
- Customer advocacy: Encourage reps to build customer loyalty by securing case studies, client testimonials, or webinar participation. These advocacy efforts are valuable for brand building and can help convert other customers from single-year contracts to multi-year deals.
Aligning quotas with multi-year deals
Quotas can be a sticking point when structuring compensation for multi-year deals, especially if quota attainment is typically measured on an annual basis. Many companies apply only the first year of a multi-year contract toward the rep’s quota, focusing on immediate targets rather than the full contract value. While this aligns with annual goals, it doesn’t fully recognize the value of securing a multi-year commitment.
To address this, companies can implement a quota “kicker” that rewards reps with partial quota credit for the out-year values in a multi-year deal.
For instance, if a rep closes a three-year contract, they might receive 100% quota credit for the first year and a smaller percentage—say 50%—of the contract’s second and third years. This partial credit structure offers reps the potential to overachieve on their annual quota without fully retiring it with a single deal, encouraging them to pursue high-value, long-term contracts while still contributing toward immediate sales targets.
The cost-benefit analysis of multi-year deals
Some executives may see multi-year deals as less demanding, questioning whether a CS team is truly adding value. However, the cost of replacing a churned customer can be up to three times the effort of securing a new client, underscoring the value of retention.
Multi-year deals support stable, long-term growth that benefits valuation and fundraising goals. Repositioning customer success around these broader benefits highlights the strategic role of multi-year contracts in a company’s growth trajectory.
Conclusion: Make multi-year deals win-wins
The right compensation structure for multi-year contracts isn’t just about motivating the team—it’s about building a sustainable growth model.
Calculating incentives for multi-year deals is difficult on spreadsheets as the data is fragmented. You can automate incentive calculation for sales and CS teams using an incentive compensation management software. You can easily specify multi-year deals and adjust quota for the upcoming years.
