Organizations with sales teams often pay commissions to motivate and compensate sales agents. A commission is based on a percentage of sales and is typically paid to the sales agent monthly or quarterly. Commissions can be issued on top of a base pay, or may be the sole compensation.
Setting Sales Commission Structure and Parameters
There are many possible ways a commission structure can be set. The number of sales agents and types of products or services sold can be factors in how the commission plans are calculated. The company’s sales goals will play a large part in how the compensation program is defined. Is the company primarily interested in increasing the sales across the board? Or is there a product line or a service which management wants to emphasize?
A higher commission can be paid on some product lines to focus sales efforts there. Higher commissions also can be offered during promotional periods to drive concentrated sales efforts, such as during a product launch or a seasonal offering.
Determining Commission Rates
Flat Rates: Commissions can be based on a flat percentage of sales or can vary based on a product type. Some products may offer a higher percentage commission because they tend to involve more time-intensive presentations or require a longer sales cycle. Selling complex products can require sales agents to be highly trained, and commission levels tend to reward this expertise in hopes of retaining top agents.
Team Efforts: For complex products—like industrial equipment, commercial machinery, specialty vehicles, or medical devices—the sales cycles may involve several team members. Business analysts, engineers, and demo experts may all be involved in completing the sale and also deserve compensation. Team effort as well as individual performance can be recognized through the commission structure.
Tier Structure: Commissions can also be based on a graduated tier structure. This type of structure pays a higher commission percentage when certain milestones are reached or exceeded. These can be different goals or quotas for each sales agent, based on territory, maturity of the market, or sales history. With a tiered commission structure, percentages go up with each milestone. This type of structure recognizes that early sales may be low-hanging fruit and easy sales. But, sales that surpass the quota may be extremely hard to achieve, involving extra work—and, therefore, deserve a higher commission percentage.
Commission Management Challenges
Calculating commissions with a manual system can be tedious and time consuming. Multiple factors add to the headaches and frustrations.
Complexity
Some plans are complex, with multiple tiers, sliding scales, and product-specific promotions and limited-time sales contests. Plans can address individual quotas as well as goals for a team. Complexities can make calculating the commissions for each agent difficult and time consuming.
Administrative Burden
The accounting team often carries the weight of collecting input and calculating commissions. In some organizations, the HR team or the IT department can play a role. Sales management is always involved in reviewing reports, confirming qualifications, and approving reports. Administration of commissions typically involves a myriad of tasks, from communicating the status of pay-outs to answering team questions and ensuring the payroll checks properly reflect commission calculations.
Multiple Sources Of Data
Calculating commissions begins with collecting the data on qualified sales. This can be time-consuming. Numerous reports may need to be generated and gathered, with multiple managers signing off on totals. If reports were issued on different days, data discrepancies can plague the reports requiring hours of tracking down the source of confusion. When sales managers are heavily involved in closing sales, getting their reports or approvals can sometimes cause a bottleneck in the process.
Spreadsheet Limitations
An organization that relies on spreadsheets for managing commission management must contend with limitations. As soon as a static report is generated, it is out of date. Spreadsheets don’t have the ability to right-click and drill into source details to quickly search for sales details.
Accuracy
Commissions must be accurate. Unfortunately, manual processes that involve calculations and data entry are prone to errors. Humans make errors. When teams are working under time pressure and with multiple priorities, errors increase. Whether it’s transposing numbers or missing an email authorizing a customer credit to be made, simple mistakes can cascade into larger ones.
Technology Streamlines and Automates Processes
Modern commission management solutions, such as IncentViz from Single Source Systems, help organizations streamline and automate processes for calculating commissions, communicating with stakeholders, and tracking achievements. Commission management solutions offer many benefits, including:
Flexibility
Software can accommodate a wide variety of types of commissions plans and compensation structures. Advanced solutions can be tailored to reflect changing goals and adapt to evolving needs, scaling as the organization grows and types of compensation programs expand.
Streamlined
Accounting teams are often stretched beyond capacity. They need the help of technology to streamline and automate commission processes, replacing manual data entry and speeding tedious calculations. Technology saves valuable time. Calculating commissions due for each agent becomes as simple as generating a report.
One source of truth. When the commission management solution is directly tied to your ERP solution, there are no integration issues or discrepancies about sales amounts that qualify for a commission. Everyone operates from the same set of facts, making alignment easier.
Real-time data
A software solution for commission management will provide data in real-time with the ability to drill into details and search reports by date, products, and customers. Tied to the ERP solution, the commission management solution reflects sales and checks due in real-time.
Reliable
Software for calculating commissions is highly reliable. Because there is no manual data entry, there are far less chances for errors. Tasks are automated with best practices built in, so necessary steps are not forgotten or bypassed.
Low Risk
Software solutions for managing commissions take much of the risk out of the process. With built-in best practices and safeguards for calculation accuracy, managers can feel confident in the reports and the commission due. Salespeople will be confident in the report, too, reducing friction and time spent on questions.
Fast
A software solution for commission management can reduce the time needed to issue commission checks by days. With a simple click, reports are generated. This helps speed checks being issued and helps close the monthly reports.
Who Benefits from a Modern Commission Management Solution?
Multiple stakeholders in the organization will benefit from deployment of a smart commission management solution.
The C-Suite may see sales commission as a tactic for focusing growth and steering the organization in a certain direction, rewarding sales agents for their focus on priority product lines. The C-suite appreciates a commission management program that offers concise reporting for monitoring progress toward goals and understanding of cashflow. With a modern commission management solution, reporting is fast, easy, and provides a clear picture of sales trends.
Sales managers can turn to incentive programs to help motivate and reward specific tactics, such as maintaining contact with customers and encouraging repeat sales. Incentives can also be structured to promote certain behaviors, like teamwork. Rewarding agents who assist colleagues with demos or presentations can help build team camaraderie and create positive habits.
Product manager may suggest spiffs on certain products to help move slow-turning inventory or help sales teams focus on high-margin product lines or ones with a limited window of opportunity or a seasonal shelf-life.
Accounting resources must calculate commissions quickly, sending reports to sales for sign-off, then to payroll for issuing checks. The accounting team will appreciate the time savings and the ability to efficiently close the month’s ledger.
Sales teams want to access status reports to see their plans and when they can expect to receive checks. They want to see how a commission total was tallied and which sales contributed to the commission. Above all, they want to know when a check will be issued and for how much. By providing real-time visibility, many of the typical questions are answered, reducing the number of emails that can clog a commission cycle.
The IT team will appreciate easy integration and seamless connectivity with the Infor ERP solution.
How smart commission management works
Commission Management requires technology to ease the administrative burden, speed timeliness, increase visibility, and improve accuracy. Modern technology, such as IncentViz from Single Source Systems, makes smart commission management possible. No matter the type of commission program or number of sales agents, the process for calculating the commissions and payroll needs to be simple, flexible, and reliable. A commission management solution can turn complexity into streamlined processes, saving time and improving reliability.
Incentviz Helps Organizations Get the Most from Their Commission Strategy
Integration is seamless. Your IT team will appreciate that IncentViz tightly interfaces with your ERP solution (Infor CloudSuite Industrial, Infor CloudSuite Distribution, Infor Service Management and Infor VISUAL) and uses sales data to calculate commissions. Because Single Source is a long-time Infor Channel Partner, there are no issues with compatibility.
Easy Set Up
Sales leaders can enter goals for individuals and teams with the commission levels and any parameters to be followed. The highly flexible solution can be adapted for tiered incentive plans that offer a higher commission once milestones are achieved.
Adapt as Needed
Executives can quickly adapt incentive compensation programs to meet shifts in the business, tap into emerging sales opportunities, and create sprint efforts to boost quarter-end results.
Consolidated Input
Because IncentViz collects information from your ERP in real-time, there’s no hunting for reports, tracking down multiple people, or waiting for input. This feature saves days of work for some teams and prevents bottlenecks with sales management.
One-click, Error-free Calculations
When you’re ready to calculate commissions, it’s as simple as one click. The algorithms are already set up to do the work for you.
Accounting and sales can easily access commissions due, view, enter comments, and provide reports to payroll.
Reporting
Meaningful reports on commissions paid and due-to-pay can help identify sales progress toward goals, product strengths, or where there may be gaps in training. Timely easy-to-use reporting helps managers review commission status and financial impact.
Visibility
Sales agents can turn to a convenient online portal and dashboard for anytime-access to the status of their personal commission plans, progress toward goals, commissions paid and commissions due.
Adjustments.
In case of a change, such as a customer canceling a sale, adjustments can be made easily or even put on hold until the discrepancy is resolved. They are clearly documented in reports with the reason for the change and how the commission is impacted.
Collaboration
Cross-department collaboration is easier because of IncentViz. Members of the finance team, sales, HR, and business development can share real-time insights and reports that can be trusted for accuracy.
Focus
Sales managers can set very clear goals for their sales agents through individual and team quotas/targets that make priorities very clear and reward individuals who focus on tasks.
Team Building
HR and sales leaders can use data and benchmarks to focus discussion, reviews and larger discussion about compensation and long-term goals.
Next Steps for Smarter Execution of Your Commission Program
If you are managing your commissions using spreadsheets and manual calculations, you may be spending more time on tedious steps than needed. Sales and accounting teams may both be frustrated by the time commitment and uncertain if they are getting the optimal results from their commission and incentive plans. By deploying IncentViz, you will modernize your commission management program, saving time, increasing accuracy, and supporting real-time visibility.
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