The sales team was hitting their numbers. The company was bleeding margin. Nobody had connected the two.
I was brought in as CFO of a $10M luxury menswear retailer. One of the first things I looked at was the sales compensation structure. On paper it looked clean: commission on every sale, tiered by volume. The team was motivated. Revenue was growing.
But gross margin was quietly eroding, and nobody could explain why.
The Problem Was in the Incentives
When we dug in, the answer was sitting in the commission structure. Full-price product and heavily discounted product paid exactly the same rate. Which means the team had a quiet incentive to move whatever was easiest to sell — and the easiest thing to sell is always the thing you can discount.
The reps weren't doing anything wrong. The system was pointing them in the wrong direction.
The Fix
The fix was straightforward once we saw it. We redesigned the structure to reward full-price sales first. Discounted product became an add-on category with a lower rate. We reframed it to the team not as a pay cut but as a way to earn more — because full-price volume was more achievable than chasing discounted transactions to hit the same commission number.
Getting buy-in required more than a spreadsheet. It required sitting with the sales team, understanding what they cared about, and showing them the math on their own earnings under the new structure. That conversation took longer than building the model.
The Result
Sales up 23%. Compensation expense down 9%. Gross margin recovered.
The best comp structures don't just pay for results. They create incentives that make the right behavior the path of least resistance.
Does your comp structure reward the behavior you actually want — or just the behavior that's easiest to measure?
Want to talk about this?
If your revenue is growing but your margin isn't keeping pace, the incentive structure might be the place to look.
Book a Call →