Discount Authority and Incentives for Sales Representatives

How to Structure Discount Authority and Incentives for Sales Representatives

We often get asked “how much discount authority should my sales team have?”  and “should we compensate on volume, profit, or something else?”

The way we see it is it depends.  Incentivizing sales teams and setting discount authority is a critical part of driving profitable growth. Companies across industries need a compensation and discounting structure that aligns with their business maturity, sales approach, and market position. A well-balanced system ensures that sales representatives are motivated to drive revenue while maintaining margins.

This blog explores how to determine discount authority and incentive structures based on industry, business maturity, sales focus, and account management type.

Key Factors Influencing Discount Authority & Sales Compensation

To create an effective incentive and discount structure, we consider four major factors:

• Industry: Different industries have varying competitive pressures, margin structures, and customer expectations.
• Business Maturity: Early-stage companies prioritize revenue growth, while mature companies focus on profitability and retention.
• Sales Focus: Hunters (new business acquisition) require incentives different from farmers (account management).
• Account Management Type: Direct sales, channel partners, and hybrid approaches impact incentive plans.

How Industry Impacts Discounting & Compensation

Industries with high margins (e.g., pharmaceuticals, software) often offer lower discount authority, while industries with competitive pricing (e.g., manufacturing, retail) provide higher flexibility.

• Manufacturing & Industrial: Higher discount authority (10–20%) due to price-sensitive customers. Compensation focuses on variable incentives.
• Technology & Software: Lower discount authority (5–20%) but higher bonuses to encourage high-margin SaaS sales.
• Pharmaceuticals: Market leaders limit discounting (3–8%) and focus on high base salaries due to regulatory constraints.
• Retail & Consumer: Competitive pricing requires moderate discount flexibility (15%) and balanced compensation.
• Professional Services: Custom pricing allows mid-range discount authority (10–15%) with strong variable incentives.

How Business Maturity Shapes Discount & Incentive Strategy

As businesses evolve, their approach to pricing and sales incentives changes.

Early-stage companies prioritize aggressive customer acquisition, while mature firms shift focus to protecting margins.

Aligning Sales Focus with Discounting & Incentives

Sales teams have different objectives based on their role:

• New Business Acquisition (Hunters): Higher commission (35–45%) to drive aggressive growth.
• Account Management (Farmers): Lower discounting authority (3–15%) with more balanced pay structures.
• Channel/Partner Sales: Moderate discount authority (15%) with shared incentives.
• Mixed Approach: Mid-range discounts and flexible compensation.

Hunters typically require more variable incentives and greater discounting authority to close new deals, while Farmers focus on long-term customer retention.

Practical Recommendations

• Start with industry benchmarks: Align discounting and compensation structures based on industry norms.
• Adjust based on business maturity: Scale back discounting authority as the business grows and profitability becomes a priority.
• Match incentives to sales strategy: Hunters need high commissions; Farmers benefit from long-term incentives.
• Monitor discounting trends: Regularly review discounting behavior to ensure pricing discipline.

Getting this right requires some self-awareness as to where you are in maturity and what your priorities are at any given time.  We recommend doing the hard work to get alignment as a team on these attributes and then review if your current system and processes align.

Setting the right discount authority and incentive structure ensures that sales teams drive growth without eroding margins. By aligning these elements with industry, maturity, and sales focus, companies can create a compensation system that motivates sales teams while optimizing pricing strategy.