Your Team Doesn’t Care About Retention And It’s Your Fault

A fellow agency owner recently asked if he should pay his employees a commission on renewals or five-star reviews.

Five years ago, I would have said, "No, it's their job."

When I wrote Million Dollar Journey, I was light on structured incentive plans. I focused on getting the accounting and HR basics in place. Separate business and personal finances. Protect profit. Build a minimally viable benefits package. Offer comprehensive leave. Document policies. Avoid entitlement raises. I wrote, “Simply doing your job as you said you would does not entitle you to getting a big, fat raise.” That still stands.

But in the last five years, running multiple agencies, now doing $8 million per year, I have gone deep on incentives. Very deep.

Here is what I learned.

Perks are compensation. Raises are annual adjustments. Promotions reflect bigger responsibility.

Incentives are different. Incentives are designed to drive specific outcomes that move the agency forward.

If what you need is longer client lifetime value, higher retained ARR, stronger margin, or more for revenue to grow faster, then you must reward those outcomes. Not activity. Not effort. Concrete, verifiable outcomes.

Create incentives only for above and beyond results. The results must drive the agency forward. Formalize the plan in writing. Use data you can independently verify from your CRM, accounting system, KPIs, or wherever your "authoritative data" resides. Then, put the plan in motion.

Once the plan is running, it's up to you to enforce what you wrote in the plan. Resist paying bonuses when the result was not achieved, regardless of the rationale for why it's OK that the result wasn't achieved.

Design the incentive so it is hard to game. With incentives, you are explicitly stating what's important to you and you're putting your money where your mouth is. But if you design it poorly and people could play games to get the bonus without you getting what you want, then you're paying for dysfunction. Worse, you're reinforcing dysfunction and encouraging a culture where people bend the rules. Your rules. Not good.

There is one more principle most agency owners miss.

Incentives must be timely.

If someone receives an annual bonus in March for behavior they modeled the prior year, the connection is weak. Too much time has passed between action and consequence. The reinforcement fades.

The gap between behavior and reward should be as tight as practicable.

We used to pay executive bonuses quarterly. That is a long time between action and outcome. We shortened it to monthly, which directly aligns with our accounting cycle, making the program easier to run. We can calculate net profit monthly. Two weeks into the next month and bonuses are paid. That's a quick turnaround and clearly links decisions and actions to benefits.

The incentive worked so well with executives that we made the same change to owner distributions. Instead of paying ourselves quarterly, we pay ourselves monthly. If we had a good month, distributions are great. If the company didn't do as well financially, our next monthly distribution isn't as good. As owners, we too should feel the impact of the culmination of decisions and actions made within the company.

That short feedback loop reinforces the right behavior. Margin discipline improves. Scope stays tighter. Leaders start thinking like owners because the financial impact on them is immediate.

Monthly payouts also speed up the cycle. The end of the month is the end of the period. We can’t ignore a weak start to the quarter and assume we’ll fix it later to protect bonuses or distributions. Each month stands on its own. We either perform, or we feel it right away.

If you want your team to care about client renewals, give them skin in the game. Tie compensation to retained revenue, profitable renewals, or expansion. Pay it monthly. Make the signal clear and fast.

I hope that helps and gives you something to think about.

~ Erik