A rep discounts a deal 10 percent. Everybody understands this costs the company something. Almost nobody has run what it costs the rep.
$60k of ARR, discounted to $54k. First-year commission at 10 percent goes from $6,000 to $5,400.
The rep is out $600. You're out $6,000.
That's the whole mechanism, and once you've seen it you can't stop seeing it. You eat the entire discount. They eat their commission rate of it. 10 to 1, in the first year, before anything compounds.
This isn't a character problem
Worth saying early, because the reflex is to read this as reps being cavalier with money that isn't theirs.
They're not. They're responding correctly to a plan you designed. If you pay somebody on deal size, and a discount costs them a tenth of what it costs you, then discounting is a cheap way for them to buy speed. It closes deals, it shortens cycles, and it gets them to the next one.
The behavior is rational. The plan is the thing that's wrong.
Then it gets worse, because the clocks are different
The first asymmetry is the commission rate. The second one is time, and it's larger.
The rep's exposure ends when the comp period ends. Usually that's the first year. Whatever they gave up, they gave up once.
Your exposure ends when the customer leaves. That same 10 percent comes off every renewal, for as long as the account lives, and it comes off the base that every future price increase gets computed from.
Four years on that account and you're out $24,000 against their $600.
40 to 1.
Nothing in the rep's world contains that number. Not because they're hiding from it, because their compensation genuinely ends before the cost does. Discounting transfers value across a time boundary only one party is standing on.
And volume actually works, for them
Here's the part that makes it stable rather than a one-off mistake.
At those numbers, one additional closed deal covers 9 discounted ones. If shaving 10 percent lifts a rep's close rate by even a little, they come out ahead, every quarter, honestly.
That's not a rationalization. It's arithmetic, and it's correct.
You can't make it up in volume the same way. 9 discounted accounts are 9 multi-year annuities with a permanent 10 percent haircut, and the 10th deal doesn't repair the other 9. It just adds a 10th annuity. The rep's math resolves inside a quarter. Yours resolves over the life of the book, which is why the two of you can look at the identical decision and both be right.
Which is why discounting is under-deterred
People assume the discount is checked by the rep's own interest. It sort of is. It's just checked at a tenth of the strength you'd need, and the check expires at the end of the comp period.
So the discount happens, and it happens for a good reason, and it's the single most durable cap you can put on an account's lifetime value. Everything else on the sale can be repaired later. A price set at signature becomes the base, and every renewal is computed from it forever.
What to do about it
Two options and one of them is much easier.
Make the discount cost them what it costs you. Not their commission rate on the discount, the discount. If a rep takes $6,000 a year off the price, their commission drops by $6,000 rather than by $600. That aligns the two clocks immediately and it will feel violent the first time somebody reads the plan. It should. It's the actual number.
Or gate it rather than pricing it. Discounts stop being a rep decision and become an exception somebody with a multi-year view approves. Slower, and it works, and it tells you within a quarter how many of your discounts were closing deals versus buying speed.
Either way, stop treating a discount as a sales concession. It's a permanent reduction in the base you'll compute every future dollar from, authorized by somebody whose exposure to it ends in eleven months.
Lincoln Murphy formally named and popularized Customer Success starting in 2010 and has spent 15 years connecting it to expansion revenue and commercial outcomes. Read The Premise.