What it means
In a typical sales plan, a salesperson earns a base commission rate on sales up to a quota, which is the target set for the period. Once the quota is reached, the accelerator kicks in and a higher rate applies to every dollar above it.
Companies use accelerators to reward top performers and to keep strong sellers motivated after they have hit their number. Without one, a salesperson who has already reached quota might hold deals back until the next period, and a good accelerator discourages that behaviour.
The design needs care. Rates that climb too steeply can encourage heavy discounting, risky deals or neglect of existing customers, and they can make the cost of sales unpredictable when a few reps have exceptional results.
Many plans therefore cap the accelerator or tie it to margin as well as revenue. Finance teams model accelerators when budgeting the cost of sales.
They estimate how many reps will exceed quota and by how much, and they accrue the extra commission, since a plan that pays out far more than planned can distort profit. The second meaning, a business accelerator, is a time-limited programme that provides funding, mentoring and contacts to startups in return for a share of the equity.
The two meanings have nothing in common except the idea of speeding up growth. A third meaning comes from economics.
The accelerator effect says that a modest change in consumer demand can lead to a much bigger change in investment by firms, because they need to adjust their capacity by more than the change in sales.
In practice
Real-world examples
Example 1
A software company pays its account executives 6% of new contract value up to quota and 10% above it. One executive closes $1,200,000 against a quota of $1,000,000. She earns $60,000 plus $20,000, a total of $80,000, and the finance team accrues the commission as the contracts are signed. The sales manager checks that each contract is signed and not subject to cancellation before the payout is released.
Example 2
A founder joins a three-month startup accelerator programme. In return for a small investment and access to mentors, the programme takes a stake in the company. He uses the introduction to investors to raise a funding round of $1,500,000.
Example 3
An economist explains the accelerator effect to a retail chain's board. When sales rise by 10%, the chain's supplier of shop fittings sees orders rise by far more, because stores need new equipment to handle the growth. The board uses this to forecast demand from its own suppliers. It also sets a more cautious budget in case sales growth slows, since the effect works in reverse.
Think of it
An accelerator works like a video game bonus level. You clear the standard stage to finish the game, but if you keep playing and collect extra coins past that point, every single coin is worth double points.
Formula
Calculation
Commission = (Base rate x sales up to quota) + (Accelerated rate x sales above quota)
Suppose a salesperson has a quota of $500,000, a base commission rate of 5% and an accelerated rate of 8% on sales above quota. She sells $650,000. Commission on the quota = 500,000 x 0.05 = $25,000. Sales above quota = 650,000 - 500,000 = $150,000, so accelerated commission = 150,000 x 0.08 = $12,000. Total commission = 25,000 + 12,000 = $37,000, compared with 650,000 x 0.05 = $32,500 without an accelerator, a difference of $4,500.Case study
Seen in the real world
Ridgeway Software is an illustrative, fictional company that paid a flat 5% commission with no accelerator. At the end of each quarter its strongest sellers, who had already hit target in the first two months, delayed signing deals until the next quarter.
The sales director introduced an 8% rate for sales above quota, with a cap on total commission and a rule that discounts above 15% needed finance approval. Over the next year, the number of deals signed in the final month of each quarter rose by a quarter, and the three best sellers each closed an extra $250,000.
The extra commission cost was 3 x 250,000 x 0.08 = $60,000, against additional revenue of $750,000. The illustrative lesson is that a well-designed accelerator pays for itself by keeping strong performers selling, as long as the plan has caps and quality checks.
Watch out
Common mistakes
- Applying the accelerated rate to all sales instead of only those above quota, which greatly increases the cost of the plan.
- Setting quotas too low, so that most reps trigger the accelerator and the company pays more than it planned.
- Ignoring margin, which can reward deals that are large but unprofitable.
Questions
People also ask
Is an accelerator the same as a bonus?
Not exactly, because an accelerator raises the commission rate on additional sales, whereas a bonus is usually a fixed payment for reaching a goal.
Should every sales plan have an accelerator?
Not necessarily, as it works best where extra effort leads to extra sales and the company can afford the higher payout.
How do finance teams account for accelerators?
They estimate expected commission, including the accelerated element, and accrue it as the sales are made, so that profit is not overstated.