• Are your tiers cumulative or non-cumulative?
• What is the attainment period? Is it the same as the paid period?
• What is the attainment metric? Do all deals retire quota?
• Do you want to use blended rates for deals crossing tiers?

Why those strange questions? Well, even an apparently basic 2-tier commission structure can have subtle variants. In this post, we cover some of those nuances to help you choose the right tier structure. This will also help you communicate more precisely to your reps how your commission structure works.

How Many Tiers?

You could choose to have:

• No Tiers
  • This option makes sense if you have a flat commission rate. For example, you pay 5% on all deals. It also makes sense if commission rates are based on individual deal sizes (not overall attainment). For example, if you pay 5% for deals whose value is under $5,000, and 10% for deals over $10,000, you have tiers. Note that such tiers are NOT based on overall sales attainment (in a given period) – they are only based on individual deal amounts. One key benefit of this approach is that you don’t have to think about quotas, since rules are per-deal. However, the major downside is that it does not allow you to reward reps based on sales volume.
• Two Tiers
  • This option is a bit binary, but it can work if you want to keep things simple. It helps focus your reps on a simple goal – advance to the second tier. For example, you could pay 0% commissions under 80% attainment, but 5% once a rep exceeds 80% attainment (retroactive). Your 2 tier structure may not be exciting, but it will really motivate your reps to meet 80% of quota.
• Three Tiers
  • This option allows you to introduce more nuance. For example, you could have a tier for 0-80% attainment, another for 80%-100% attainment, and another above 100% attainment. Each tier can have different rates / accelerators. This allows you to discriminate between poor, average, and high performers.
• Four+ Tiers
  • This option allows you to introduce additional tiers to capture extraordinary performance. For example, you could have a tier for 0%-80% attainment, another for 80%-100% attainment, another for 100%-150% attainment – plus one final tier above 150% attainment, intended to reward exceptional performers.

Here is an example of a commission structure with 4 tiers:

• < 80% attainment = no payout!
• 80%-100% attainment = 5% rate
• 100%-150% attainment = 7% rate
• > 150% attainment = 8% rate + $1500 special bonus!

Should Your Tiers Be Cumulative?

Tiers can be cumulative or non-cumulative:

• Non-cumulative = only the highest attained tier matters. This tier typically pays over all transactions in a retroactive manner.
• Cumulative = each tier is “stacked” on top of another. Each tier only pays over those transactions which fell within the tier.

Using the same example (above), if a rep attains 80%-100% of quota, you could say that you want to pay:

• 5% over all sold deals. In this case, the tier should be non-cumulative / retroactive. Basically, once reps reach 80% of quota, they get a payout on everything they sold.
• 5% over those deals which fell within the 80%-100% tier. In this In this case, the tier should be cumulative / non-retroactive. This could make sense if base pay already covers sales from 0-80% of attainment. In this case, you only want to pay a commission over those deals in excess of 80% attainment.

Many companies ignore this important nuance. They draft unclear commission agreements, which leads to disputes. For example, using the same example (above), if all tiers are non-cumulative, then a rep who reaches 150% attainment may expect to receive 8% over all sold deals! However, if tiers are in fact cumulative, then this rep should only receive 8% only over those deals in excess of 150% attainment. Other deals will be paid at a lower rate (5%, 7% respectively). This can make a big difference!

How Is Attainment Calculated?

To have tiers, you need an attainment period. The attainment period is the timeframe given to reps to meet certain goals / reach certain tiers. The attainment period could be different from the pay period.

• Ex: pay commissions monthly – and the goal is also monthly
• Ex: pay commissions monthly – but the goal is quarterly (QTD)
• Ex: pay commissions monthly – but the goal is annual (YTD)
• Ex: pay commissions quarterly – and the goal is also quarterly
• Ex: pay commissions quarterly – but the goal is annual (YTD)

Also, you need an attainment metric. Typically, the attainment metric is the same as the payment metric. For example, both attainment and payouts could be based on revenue. But those two metrics could also be different.

For example, let’s say your payout metric is revenue. You could decide to pay commissions over revenue from Renewal deals (at the applicable tier), but without giving credits (= quota retirement) for Renewals. In other words, Renewal deals will NOT help reps advance towards higher tiers (they do not retire quota / provide attainment), even though commissions will be paid normally based on whichever tier was attained. In this case, the attainment metric is different from the payment metric.

In the example below, we can see that $0 is given in attainment for Renewal deals, while still paying 5% over revenue.

Do You Want To Use Blended Rates?

Skip ahead if your tiers are non-cumulative (= only the highest attained tier matters). Otherwise, if your tiers are cumulative (= each tier pays over transactions which fell into the tier), you have to think about blended rates.

You could certainly represent payouts this way:

• You received $1,000 in Tier 1 commissions, with a 5% rate
• You received $2,000 in Tier 2 commissions, with a 10% rate

However, it’s much nicer to show to your reps how much they earned on each deal. Here lies the problem. Visualize a sequence of deals, and how they each fell within each tier. Some deals may cross tiers. So, a portion of a deal may be paid at a 5% rate (because partially still in Tier 1), but another portion may be paid at a 10% rate (because partially in Tier 2).

In the example below, we can see that deal #4 will be partially paid at a 5% rate and partially at a 10% rate. You have the option to use a blended rate – or to count deal #4 fully towards Tier 2. This is a decision you have to make. Typically blended rates make sense are are more correct.

More Impacts of Tier-Based Commissions

Please consider the following:

• Reps should not be able to game the system. If a rep artificially inflates sales during one period, they may reach higher attainment tiers, which could impact all deals. Even if commissions are clawed back later, all deals may have benefited from a higher commission rate, which is unfair.
• To have tiers, you must have attainment / quotas / goals. Setting quotas correctly can require significant effort to ensure they are neither too high nor too low. If you are not ready to define realistic quotas, don’t use tiers.

In Conclusion

In this article, we explained how to construct tiers for your incentive program. Sales Cookie can easily automate all variants (cumulative vs. non-cumulative, custom attainment metric, QTD / YTD plans, etc.). Please visit us online to learn more.

Sales reps thrive on commission-driven motivation. However, is there a point where too much commission is, well… too much? In this post, we’ll explore the concept of unlimited earning potential. We’ll discover how unlimited commissions can supercharge your sales organization and elevate company profitability.

What Are Uncapped Commissions?

Are you ready to unleash your reps’ earning potential and take your commissions to the next level? Uncapped commissions means breaking free from limits. As long as sales happen, reps get paid. It’s the opportunity for your reps to dream big and earn without boundaries. Whether your team is made of sales pros or just aspiring reps, they will embrace the thrill of unlimited earning potential. They will watch their efforts translate into rewards – without artificial throttling of earnings.

Comparing Capped vs. Uncapped Earnings

The main reason for capped commissions is to ensure that your division doesn’t go above budget. Often, caps are also used to prevent reps from receiving “abnormal” commissions when certain large deals are closed (for example because you feel their contribution wasn’t sufficient or proportional). 

With capped commissions, reps stop getting paid on deals once they reach a specific sales threshold or quota. In some cases, they may still earn some commissions, but their commission rate is reduced once a certain sales threshold has been reached (example below).

Instead applying earning limits based on overall attainment / tiers / rates, some organizations apply earning limits (caps) on a per-deal basis – examples:

• Commissions cannot exceed $5,000 per deal
• Commissions are calculated per-deal based on the following
  • 10% commission over first $10,000 of each deal’s amount
  • 5% commission over the deal amount in excess of $10,000

However, capping commissions presents a fundamental challenge. It reduces the incentive for salespeople to actively pursue more or larger deals. This explains why commission caps are uncommon. Uncapped earnings is the “gold standard” across modern sales organizations. The prospect of unlimited earnings serves as a key motivating factor for sales pros.

Why Uncapped Earnings?

In the world of sales, limiting a team’s earning potential might seem like a cost-saving or cost-control move in the short term. However, it comes with some serious issues. Embracing uncapped earnings can ignite sales performance and ultimate boost long-term revenue. Equipped with ambitious quotas and accelerators (aligned with reasonable business targets), unlimited earning potential empowers teams to strive for consistent sales success. This drives greater ROI for your business. Let’s make a case for uncapped commissions.

1. Generate Strong Sales Motivation

The potential to earn more with each sale enables your reps to remain focus on selling. Otherwise, they will reach a point of diminishing returns and lose motivation. Plus, it’s only fair to pay reps for better results. Also, uncapped earnings make it much more exciting for reps to work on large deals!

2. Avoid Silly Deal Timing Games

Some reps may artificially delay deals so that they appear in the next period (ex: next quarter), when their cap has been reset / replenished. Or they may split deals into 2 so they can get more commissions. This is obviously not good for business and it’s also distracting. Your reps should not have to “pace” or “throttle” the influx of deals to get paid more.

3. Promote “Pay For Results”

Your commission structure directly expresses how you value rep contributions. Imposing an artificial limit on payouts can convey the wrong message to sales representatives. It implies that their efforts is only be valued up to a certain extent. On the other hand, offering unlimited earning potential makes it clear that efforts are highly valued, and that they will be fully rewarded for results.

4. Extra Spend May Be Low

Your reps are subject to many real-world constraints. Switching from a capped to an uncapped earning model will typically only affect a few top performers. Those reps are the ones who will leave if frustrated because their commissions were capped. Hiring new reps is expensive, so you may find that uncapped commissions are actually less expensive overall than capped ones.

Handling Uncapped Earning Potential

You probably capped commissions because you did not want to exceed a budget. For uncapped commissions to work effectively, you need an effective commission structure and tools.

• You need to be able to understand and track commission spend
• You need the ability to evaluate different commission structures / plans
• You need to make sure the right reps are credited on the right deals (ex: splits for large deals)
• You need forecasting tools to estimate what payouts might be under different scenarios
• You need to set quotas which are ambitious but also attainable
• You need to make sure earnings are aligned with business goals

Sales Cookie provides you with the ability to accomplish all of the following. Here are a few examples.

Using Revenue Analytics, you can forecast revenue and analyze churn. This helps you predict how much business you may close and what your commission spend may look like.

Sales Cookie offers advanced commission capabilities, such as weighted commission splits, the ability to run spend simulations, generate detailed quota attainment reports, manage changes to quotas, etc. In the example below, we’re running a simulation to see what our spend may be at the end of the month.

Sales Cookie makes it easy to clone plans and manage multiple plan versions. For example, you could run one plan version with capped earnings, and another plan version without caps, to understand what the difference would have been for different past periods.

Whether you choose capped or uncapped earnings, we support all scenarios and can help you automate every aspect of your commission program. Visit us online to learn more.

Typical Technology Sales Commission Structure – Overview

Commissions in the Technology industry are often based on Closed Won deals. Commissions are usually paid on the Annual Recurring Revenue (ARR) of each deal. However, commissions can include extra benefits to boost motivation. Some of these benefits include multi-year deal bonuses and accelerators once the reps have hit quarterly, half-yearly, and/or annual quotas. Renewals are also a common component in the Technology industry, usually paid at lower rates. However, they also keep motivation high for “farmers” as well as “hunters”.

Account Executives

Some key components we see include:

• A typical commission rate of 10% to 20% on Annual Recurring Revenue (ARR) over newly closed won deals.
• A commission bonus on multi-year deals. This can be calculated as a multiplier factor over the base rate. Usually, the multiplier factor is calculated based on the total years after the 1st year. For 3 years, it could be (36 – 12) / 12 = 2x.
  • Sometimes, commissions will be over the contract value instead of the ARR.
  • Sometimes, commissions will be paid in installments instead of just upfront.
• Accelerators to boost motivation. Typically those are based on quarterly, semi-annual, or annual targets. Accelerators incentivize reps to close more deals. Accelerators typically increase the commission rate by a calculated factor from 1.2x (under this, it’s not meaningful) to 2x the base commission rate.
• To keep reps engaged with existing customers, most companies offer incentives on renewals, usually at a lower commission rate (ex: 50% rate), and over the ARR (without accelerators).
• Some Technology companies also offer additional commission amount over professional services.

Here is an example of commission rules:

Business Development Representatives (BDRs)

A BDR is responsible for outbound lead prospecting.

• BDRs are usually compensated for discovering or qualifying opportunities.
• Most technology companies pay a flat cash rate per opportunity. Often this is different for discovery vs. qualification.
• Rules can get complex fast. For example, BDRs can receive accelerators for hitting monthly and/or quarterly quotas. This usually represents 1.2x to 2x the base commission rate.
• However, most companies do not pay a commission if a deal gets downgraded within the same period.
• Some companies will not double-pay over deals getting qualified and discovered in the same period.

Here is an example of commission rules:

Inbound Sales/Sales Development Representatives (SDRs)

An SDR is responsible for inbound lead prospecting.

• SDRs are compensated for helping identify and close high-quality customers.
• Tech companies pay a flat cash rate per opportunity and there are typically accelerators as well.
• If a customer churns within the same month, the commission is clawed back.

Sales Managers and Vice Presidents of Sales (VPs)

Usually, sales managers and VPs will receive commissions based on the performance of their team(s). This is called an “override” or “rollup” commission. Generally, this commission will be over all managed employees and/or independent agents. Additional incentives may also be offered depending on their teams exceeding performance. Sometimes, there are soft targets or management by objectives (MBO), such as customer satisfaction scores or churn rates.

Solution Engineers (SEs)

To keep the SEs engaged in projects they work on, Technology companies will also pay a commission to them. These rates generally range from 0.5% to 2% of the ARR. SEs actively support multiple deals, and this increases their motivation.

Challenges Associated With Manually Calculating Commissions and Bonuses

• Incorrect calculations – Calculating commissions correctly can be difficult if they depend on the ARR in conjunction with accelerators. Closed won deals can upgrade, downgrade, or change status to lost in subsequent periods. This requires tracking and accounting for frequent data changes, including potentially calculating year-to-date (YTD) ARR and only paying a delta and/or clawing back commissions. Implementing complex rules manually becomes a nightmare, e.g., SPIFFs based on overachievement for only one quarter, comparison of year-over-year performance, etc.
• Double-payment of commissions – If a company is unable to track whether a deal is moving back and forth across stages (from e.g. from lost to discovered or vice versa), it might cause the company to double pay and allow BDRs to “game” the system.
• Incorrect rollups – If a company is unable to stay abreast of individual role and/or team changes, override commissions can be tricky to calculate, especially if there are multiple layers of management.
• Delayed payments – Many companies only pay commissions when they get paid and depending on the business, this requires the reps to wait several months to be paid, which negatively impacts morale.
• Real-time visibility to commissions – If a company is manually generating, updating, and distributing commission spreadsheets, the risk of costly mistakes increases exposing the company to irate reps and potential lawsuits. Commission statements are not only static but also delayed. More reps are demanding ongoing visibility and transparency.
• Capping Commissions – Some companies cap commissions which discourages the top performers from exceeding their quotas.
• Single Point of Failure – Normally, only one person within the smaller companies handles all the intricacies of the commission calculations and statement generation. This person becomes a single point of failure and is hard to replace in case of an unexpected departure or illness or vacation.

Using An Automated Solution Such as Sales Cookie, Companies Can:

• Automate complex crediting, attainment, and payout rules.
• Reduce the time and effort required to calculate and process commissions significantly.
• Increase agility to easily adjust commission structure to match market conditions;
• Make the incentive program more exciting than the competition by being able to offer spiffs, contests, gamification, etc.
• Eliminate the need to manually generate, email, and archive commission spreadsheets.
• Provide real-time visibility and increase rep morale.
• Provide access to online and real-time commission statements.
• Track rep terms and conditions and inquiries in a centralized repository.
• Reduce the risk of a single point of failure.
• Reduce the risk of under/overpaying commissions.
• Reduce shadow accounting and legal exposure; and
• Become compliant with accounting standards.

Please visit us online to learn more. We look forward to helping you automate your incentives quickly and cost-effectively!

Burnout certainly isn’t confined to sales. About 60% of employees across various roles report negative effects of work-related stress. This includes a lack of energy (~25%), emotional exhaustion (~30%), staggering physical fatigue (~45%), reduced work efforts (~20%), etc. In response to this widespread discontent, movements like “The Great Resignation” have emerged.

Yet, as burnout escalates to alarming levels, a definitive solution remains elusive. Is there really no remedy to sales burnout? Why are wellness programs not working? Can we choose intervention over prevention?

Understanding Sales Burnout and its Pervasiveness

Let’s first establish a framework. Burnout, though it manifests differently for each individual, fundamentally represents a/ emotional, b/ mental, or c/ physical exhaustion induced by prolonged or recurrent workplace stress.

Harvard University identifies some key factors across industries:

1. Lack of control
2. Excessive workload
3. Poor alignment with values
4. Insufficient rewards
5. No community
6. Unfair environment / rules

Salespeople are particularly susceptible to burnout due to:

1. Unrealistic goals: commissions depend on hitting quotas, a challenge for most sales managers. This sets the stage for burnout when quotas are unrealistic.
2. Pay for performance: rep earnings fluctuate with performance, making it difficult for reps to pace themselves. Limited visibility into sales commissions also hurts.
3. ABC (“Always Be Closing”): Sales teams often prioritize customer needs over the well-being of reps, resulting in 24/7 commitments.
4. Nowhere to hide: Sales’ immediate impact on an organization’s success intensifies pressure, as successes and failures are more visible than in other roles.

Sales leaders may wonder, “How do I identify or prevent burnout?” Unfortunately, prevention alone is insufficient in eradicating existing burnout. A significant portion of your team is likely already grappling with burnout, considering that 90% of B2B salespeople report burnout!

This underscores the importance of prioritizing intervention over prevention. Many organizations claim to combat burnout – with many offering wellness and burnout programs. However, the disconnect lies in the focus on prevention alone. Intervention is imperative due to consequences of burnout – lost of productivity, employee disengagement, absenteeism, lower organizational commitment, turnover, hiring costs and challenges, etc.

Solving Sales Burnout Using Technology

Without redesigning what the sales profession is about, organizations can take steps to alleviate burnout through technology – using automation. Below, we discuss key burnout causes and examine how automation can effectively mitigate them.

Addressing a Perceived Lack of Control

Job autonomy significantly influences job satisfaction, motivation, and performance. When reps feel they have no control / visibility, job satisfaction decreases, and turnover risk rises significantly.

How? Employ automation to develop and distribute comprehensive dashboards and reports. Automated reporting empowers reps with essential context for independent decision-making. This grants sales leaders the confidence to release or loosen control, knowing they can easily identify and react to performance issues. Implementing a commission automation platform with real-time visibility can instill a sense of control and reduce stress. This also fosters trust and eliminates “shadow accounting” where reps manually calculate their commissions.

Unraveling Excessive Workloads

A recent study reveals that 3/4th of salespeople spend most of their work time on non-selling activities. And the average rep dedicates about half of their hours to non-revenue generating tasks! In a profession demanding more work than there are hours in a day, burnout becomes inevitable. Automation can alleviate workloads and enhance productivity during working hours, diminishing after hours work.

How? Identify where reps spend the most time and leverage automation to reduce non-revenue generating activities. This allows reps to focus on meaningful work during the day, reducing administrative burdens. For example, if reps spend substantial time manually calculating their commissions, invest in a commission solution. If reps spend manually booking demos, install a self-service meeting booking tool on your website. This frees up time for additional rep prospecting and outreach.

Aligning Work Contributions with the Organization’s Mission

Aligning personal values with the organization’s mission is crucial for employee engagement. Automation can effectively communicate organizational values and tie individual and team contributions to these values.

How? Choose tools that allow tying individual and team contributions to organizational values, fostering engagement. Implement a feedback platform that associates each piece of feedback with company values. This helps in recognizing and reinforcing values during both positive and constructive feedback sessions.

Balancing Effort and Reward

Burnout often stems from a disproportionate effort-reward ratio. Reps investing substantial time in non-revenue generating tasks see delayed returns, making job satisfaction (and sales commissions) elusive.

How? Automate manual tasks to grant teams more time for meaningful selling activities. Additionally, use automation to enhance visibility into rewards, whether tangible (ex: bonus) or not (ex: praise). Automate company-wide notifications when deals are closed, highlighting the rep’s name and deal details. Reps can see the tangible impact of their efforts, fostering a more rewarding experience.

Building Community in a Remote Work Environment

Remote work’s rise challenges the creation of team unity. Establishing a sense of community is crucial, not through superficial team-building activities but by fostering shared purpose.

How? Leverage automation to break down silos within the organization. Enable teams to connect their work to that of their peers and other departments. Implement a company-wide email notification for win/loss reports after each closed deal facilitates knowledge sharing, enhancing the sense of purpose. Reps feel valued (whether winning or losing) and this encourages connections within the organization.

Ensuring Fairness in Decisions

Perceived unfairness in decisions, goals, or commissions contributes to burnout. Reps can be affected by numerous potential fairness challenges – from lead routing to commission structures.

Use technology to automate tasks requiring human discretion, such as lead routing, territory management, or automated commission calculation. This ensures fairness and allows reps to trust an impartial system. Utilize a tool that leverages sales data and automation to set fair quotas addresses past challenges. With reasonable quotas, reps experience less discouragement, leading to increased engagement and productivity.

In Conclusion

B2B sales is currently facing a profound crisis. Representatives and managers are experiencing intense burnout, leaving them exhausted. It may feel overwhelming, but there are strategies and approaches that can make a meaningful difference. Instead of solely relying on corporate wellness programs, organizations should carefully analyze sales-related issues that contribute to overwhelming workloads. By taking gradual steps, we can alleviate stress on the team, benefiting both the well-being of the individuals and the financial results of the organization. Your team’s health and success matter.

A Few Words About Sandra

At Sales Cookie, we automate commissions for companies with billions in sales. In this blog post, we interview Sandra Rowe, a veteran and proven sales leader with over 20 years of experience in B2B SaaS sales.

Sandra has a proven track record of building and leading Enterprise sales teams for established and emerging companies such as Salesforce, Everbridge, Berkshire Grey Robotics, and Cloud Compliance. She recently founded Winnersrowe, serving as the Chief Sales Officer and specializing in helping Revenue leaders take the guesswork out of scaling success.

If you’re looking for additional insights about SaaS and sales compensation, we encourage you to reach out to Sandra directly through her LinkedIn profile. Sandra, thank you for sharing such practical and valuable tips with us!

Which Commission Structure Do You Recommend?

The context

Sandra has experience with SaaS-specific patterns (ex: recurring sales, customer churn, or multi-year contracts) and how they influence sales commissions. Using the same fundamental key building blocks (tiers, bonuses, accelerators, quotas, credits, guarantees, attainment, etc.), it’s possible to create thousands of different commission structures. Given the number of permutations, it can be difficult to choose a structure which is manageable, motivating, and “makes sense” to reps.

Sandra’s take

Sandra recommends building a structure that aligns with the company’s business objectives and motivates your sales team to achieve those goals. This typically requires some experimentation and fine-tuning over time.

Sandra recommends starting with a basic structure that includes fundamental building blocks like tiers, bonuses, and quotas and then customizing it based on your specific needs. For example, offer accelerators for reps who exceed their quota or provide guarantees for deals that take longer to close.

Companies often offer a balanced 50%/50% base salary vs. a variable model because it provides a fair and stable income for sales reps while incentivizing them to perform at a high level.

Spiffs or special incentives are another way to help sales reps achieve specific goals or behaviors. For example, if a goal is to increase annual recurring revenue (ARR), then your sales compensation plan should reward reps for closing new deals and upselling existing customers. On the other hand, if you focus on reducing churn, you should incentivize reps to renew contracts.

Caution: Spiffs may not be effective in all situations. For example, if the spiff is too small or difficult to achieve, it may not motivate sales reps to put in the extra effort. Additionally, if spiffs are used too frequently or inconsistently, they may lose effectiveness and become expected rather than motivating.

How Often Should Commission Structures Be Refreshed?

The context

At Sales Cookie, we often deal with unstable commission structures. For example, a customer starts the year with a profit-based incentive plan. However, they realize mid-year that deals fall through because reps refuse to grant discounts. Mid-year structure changes can have a negative impact on sales reps. They feel the payout structure is unstable or management is artificially trying to limit compensation. We asked Sandra how companies can limit incentive plan churn.

Sandra’s take

It’s important to regularly evaluate and refine your plan based on your business objectives, market conditions, and team performance. Periodically analyzing your sales data helps to ensure that your sales compensation plan continues to align with your business objectives and motivates your team to drive revenue growth.

Sandra recommends an annual refresh of commission plans to adjust to internal and external market changes. Mid-year changes can be necessary but remain disruptive, leading to trust issues with reps.

Do You See Comp Structures Being Benchmarked?

The context

With so many possible commission structures and fierce competition, does it make sense to use benchmarks when designing sales compensation? Benchmarks allow organizations to compare their sales compensation with others in the same industry, for example to ensure their compensation model is “within range”. From our experience, only a handful of companies use benchmarks when designing sales compensation, but is this a missed opportunity?

Sandra’s take

Benchmarks often provide valuable insights into what other companies in the industry are doing and can help ensure that the company’s compensation packages are competitive in attracting and retaining top talent. Using benchmarks can be a helpful tool for ensuring that the company’s compensation packages are competitive and aligned with industry standards. However, benchmarking can be a time-consuming and resource-intensive process.

What Causes Commission Errors?

The context

At Sales Cookie, we see ~5-10% of payouts identified as overpayment before automation is deployed. Unfortunately, commission errors can cause cascading problems. First, it’s an accounting and compliance nightmare. Second, it’s difficult to reverse already made (incorrect) payments so money is lost. Third, data corrections can generate negative feelings of distrust, disappointment, etc.

Sandra’s take

High-quality sales data is fundamental. Bad data is the most common cause of errors. If the data is correct, then commission calculations will always be accurate.

Complex structures can also cause errors and be challenging to audit (think accelerators and splits).

It is also likely that overworked sales ops teams make mistakes. They need sufficient lead time and bandwidth to carefully review numbers to avoid impacting a sales rep’s motivation and trust in their employer.

Sandra has worked with compensation teams under a high degree of stress. Those teams spend 70+% of their time figuring out how to implement overly complex comp plans or resolving rep-initiated disputes. Not only is sales compensation a challenging role, but a constant focus on rep dissatisfaction/disputes does not help the business move forward. Unfortunately, when it comes to commissions, the rules of engagement often need to be clarified. Also, the execution of some plans has some ambiguity (ex: shared territories, split with partners, etc.). It’s best to think about those problems ahead of deployment.

Who Owns (Should Own) Sales Compensation?

The context

At Sales Cookie, we see many different roles being responsible for commissions. Sometimes, the person in charge of commissions is the VP or sales, an external accountant, a payroll administrator, the finance department, etc. We asked Sandra who she thinks is best equipped to own commissions.

Sandra’s take

Ultimately, the best approach depends on the specific needs and structure of the organization. A successful process often requires a cross-functional team that includes sales, HR, and sales operations, representatives. These types of groups often help to ensure that the compensation plan is effective and meets the needs of all stakeholders.

Can You Provide Additional Tips?

Sandra had the following very useful recommendations.

Keep it as simple as possible!

It’s a red flag if reps ask mid-period how they get paid. People need clarity.

The more complex a plan, the more subjective it can be, which reduces trust.

Avoid internal competition.

Include multi-year deal incentives.

Recognize and celebrate success throughout the year

Ongoing awards and recognition are a huge missed opportunity in most companies.

Advertise big wins to show your appreciation. Highlight role models for the reps to emulate.

Besides money, reps are motivated by different things (ex: an extra day off).

Bring in some fun (morning coffees, informal get-togethers)!

Encourage teamwork: offering bonuses for achieving team-based goals

Set realistic targets: unrealistic sales targets can create a sense of frustration or resentment among sales reps, especially if they feel that they are being set up to fail. Work with reps to set realistic targets that are achievable but still challenging.

Align with customer value.

Sandra, thank you for sharing your thoughts on sales compensation. Here at Sales Cookie, we live and breathe commissions, and your findings resonate with us very much! To automate your commissions, click here. To reach out to Sandra, click here.

At Sales Cookie, we automate commissions for companies with billions in sales. In this blog post, we interview Kristin Gutierrez. Kristin has18 years of experience in technology sales. She is a highly accomplished Vice President of Sales at United Language Group and is a champion for Outcomes-Based Leadership. She won a Stevie Award in 2023 on Thought Leadership for her Outcomes-Based Framework to Drive Complex Sales.  She has served in a variety of roles at NetApp, Vista, Lionbridge Technologies, Translations.com, SDL International, etc. You can find her LinkedIn profile here. For more sales compensation wisdom, don’t hesitate to reach out to Kristin. Kristin, thank you for giving us an opportunity to learn about sales compensation from you.

What is your preferred commission structure? Why?

The context

Kristin has extensive work experience working in technology companies and is a champion for outcome-based leadership. In most companies, commission structures can be assembled using the same basic components (ex: accelerators, tiers, quotas, bonuses, guarantees, etc.). However, with so many options, designing a commission program that is efficient, inspiring, and comprehensible presents many challenges. Below, Kristin provides some useful best practices you can use when designing a sales compensation program.

Kristin’s take

• Use an equal-weight 50% / 50% base vs. variable compensation model.
  • The base component should match the industry, selling experience, and current role.
  • Quotas should be fair and based on length of experience within the current company. They should be proportional to the book of business assigned to each rep.
  • It does make sense to reward hunters (for new business) higher than farmers (for renewals), because the former is often harder.
• Create plans with multiple tiers and no caps.
  • Tier-based accelerators make sense because many reps “dream big” and want to exceed quotas.
  • Artificial caps can throttle rep enthusiasm and penalizes hard work. Caps are counterproductive and reduce motivation, so avoid them if you can.
• Pay commission based on money received.
  • Use paid invoices as a basis for commissions (not hypothetical revenue from “closed won” deals).
  • This also reduces the chance of commission claw-back (ex: vs. paying commissions over deals closed with unrealistic amounts).
• Pay commissions based on revenue (not profit).
  • Outside of discounts (which can be granted case-by-case), profit is largely outside their control. Reps usually do not control base costs.
  • Plans based on profit are much more complicated to manage, and harder to understand because more calculation logic goes into them.

How Often Should Commission Structures Be Refreshed?

The context

Talking to many of our customers, we often encounter fluctuating commission structures. For instance, a company may begin the year with a profit-oriented incentive plan, but discover mid-year that sales reps are reluctant to offer discounts, leading to lost revenue. Sudden changes to the structure can harm sales rep morale, causing feelings of instability, or the perception that management is trying to restrict compensation. We spoke to Kristin about ways companies can best manage changes made to incentive plans to avoid those issues.

Kristin’s take

• Kristin wishes compensation was not revisited within the year.
  • A solid commission structure should not have to change every year.
  • In some cases, there are enough pertinent changes (ex: economy, market, competition, product changes) to justify a redesign.
• Reps appreciate it when quotas and plans are 100% ready before the year starts.
  • Unfortunately, many companies have a bad habit of re-designing incentive plans during the first 1-3 months of the year.

• If plans need to change, then it is important to plan ahead and prepare ahead of the next fiscal year.    

• And always release the current year comp plan before commissions take effect for that year. i.e., if you are paying 2 months in arrears then the 2023 comp plan should be finalized no later than March so that January commissions can be paid end of March.

Do You Think It’s Useful To Benchmark Inventive Plans?

The context

Given the abundance of commission structures and intense competition, is it useful to leverage some type of benchmark when creating new commission structures? Benchmarking empowers organizations to compare their sales compensation with similar ones (ex: within the same segment) to ensure theirs is “in line”. From our observation, only a small number of companies utilize benchmarks when designing sales compensation programs. Is this an overlooked opportunity to build better commission programs?

Kristin’s take

• Benchmarking against your industry is imperative.
  • There is a fight for sales talent. This fight can only be won if top talent can be attracted.
• Benchmarking makes it possible to at least match the competition, and then offer something different.
  • To avoid a 1:1 money-only comparison with competitors, add peripheral benefits such as SPIFFs, benefits, sabbaticals, etc.

What Causes Commission Errors?

The context

At Sales Cookie, we find that approximately 10% of past payouts were in excess once we deploy automation. Commission mistakes and overpayment especially can have serious consequences. One obvious problem is that commission errors create accounting and compliance issues. Also, reversing already released payments is often difficult, leading to financial loss. Finally, having to “fix” payouts can trigger negative emotions, such as rep distrust and dissatisfaction.

Kristin’s take on what causes commission errors

• Overly complex plans
  • Plans tend to be more complex than truly required. Exceptions and one-off rules often obscure the main goal of the plan.
  • Many sales organizations embed unnecessary “bells and whistles” or “special treatment” logic in their commission structures.
• Ambiguous sales data
  • Bad data will always prevent commission calculations from being correct, but it can be identified and corrected.
  • However, ambiguous data is worse because it requires more effort to resolve and clarify.
  • A good example would be a sales record which does not clearly specify the rep, but rather a team as the owner. This requires some effort to clarify.
• Different interpretations of the plan’s terminology
  • Sometimes, standard commission terminology is not well-understood by rep (ex: What is a “recoverable draw”? What do you mean by “quota retirement”? What are “sunsetting commissions”? What is a referral?).
  • It is easy for reps to misunderstand important concepts, such as how credits are calculated for the purpose of quota attainment, or whether tiers are cumulative vs. non-cumulative.
  • Providing a clear description, including examples for different scenarios and concise definitions      can help reps better understand the terminology and calculation mechanics.
• Incorrect inputs
  • Human errors are of course common (ex: incorrect rate, quota, etc.)
  • Programming the automation solution correctly is equally important.
  • There needs to be a focused effort on testing and validating outputs.

Kristin feels that some of these problems are easier to identify and fix as compared to others. This is aggravated by the fact that sales reps don’t always know who to ask or talk to regarding compensation plans. Having a designated person who can explain plans and commission logic can help a lot.

Who Owns (Should Own) Sales Compensation?

The context

Commission management is a responsibility assumed by different personnel depending on the organization. It could be the Vice President of Sales, the Chief Financial Officer, a hired accountant, the payroll department, etc. We sought Kristin’s opinion on who would be the ideal owner(s) to assume this role.

Kristin’s take

• Commission management should be a shared service between Finance & Sales Operations.
  • Finance should be involved due to the large amount of money involved.
  • Sales Operation should hold people accountable (ex: data quality is good, quotas are locked and loaded, etc.).
• Organizations are maturing from a Sales Operations perspective.
  • Although there has been progress, Sales Ops is a hard role to recruit for and train for.
  • Many SaaS companies have grown up organically and cobbled together a bunch of technologies and processes that work for their business.
  • When they bring in an experienced Sales Operations hire, this person cannot understand the company’s business, how things are tracked, credited or commissioned on, etc.

What’s the real-world impact of commission errors on businesses and individuals (ex: morale, liability, attrition, etc.)

The context

We created Sales Cookie to solve commission headaches. We started working on commission automation because some top reps in our previous organizations quit over commission issues. We knew that only automation could provide the transparency, accuracy, and real-time access reps were looking for. So, we asked Kristin about her own experience with commission errors, and their impact on business and morale.

Kristin’s take

• Reps get frustrated when there are repeat errors.
  • Reps understand there will be occasional commission errors.
  • Frustration starts when errors are repeated but are not getting fixed.
• It is easier to lure new sales talent than to make commissions work.
  • When reps don’t have confidence in the company’s ability to correctly calculate and pay their commissions, they leave.
  • To keep attrition low, proper execution of commissions is very important.
  • Losing good reps is expensive due to hiring & training costs, a disrupted pipeline, morale impact on others, etc.

Can You Provide Additional Tips?

Kristin advises organizations to:

1. Reduce the number of commission plans
   1. Avoid one-off variations.
   1. Keep the number of plans to the minimum possible.
2. Simplify and streamline commission structures
   1. Eliminate ambiguity.
      1. Define all key terms and ensure that all leaders in Sales Leaders, RevOps and Finance as well as sales reps are on the same page regarding what the plan entails and how it is measured.
      1. People change roles often and roles and responsibilities can be ambiguous. Account for that in the plan.
   1. Eliminate conflict.
      1. Eliminating exceptions is in everyone’s best interest!
      1. Eliminate all special treatment from compensation plans.
      1. If you want to compensate top talent or compensate fast starters differently, do it outside mainline plans. For example, give them an extra bonus mid-year – this avoids creating ambiguity and exceptions within mainline plan.
      1. Sales reps talk to peers about compensation, so it is important to avoid miscommunication and reduce the chances of them harboring negative opinions.
3. Ask for feedback from the field
   1. Ask reps what motivates them and if there a feature or component missing in the plan that is important to them – ex: referral bonus?
   1. Maintain early and ongoing communication.
      1. Have a meeting with the entire Sales organization so that everybody can ask questions.
      1. Reinforce with lot of upfront calls with the Sales teams.
      1. Have an open-door policy.

Kristin, thank you for talking to us about sales compensation. Here at Sales Cookie, we live and breathe commissions, so we are familiar with some of the pain points you shared with us! To automate your commissions, click here. To reach out to Kristin, click here.

Examples of Commission Rates for Delivery Services

Here at Sales Cookie, we automate commissions for many companies (from publicly traded manufacturing organizations to small businesses). While commissions vary significantly from business to business, a typical range for delivery services is from 1% to 5%. Please note that there is a higher concentration towards lower rates (ex: 1.5%, 2%). We were unable to find an organization paying more than 8% in commissions over delivery services.

Here are some examples of commission rates paid to AEs for delivery services:

1. Client #1 in the software SaaS space = 1.00% to 1.50%
2. Client #2 in the software delivery space = 1.50% to 2.50%
3. Client #3 in the software implementation space = 5.00%

Rates often vary within each organization depending on factors such as:

1. Quota attainment (ex: +1% after exceeding quota, etc.)
2. Payee seniority (ex: 1% for junior AEs, 2% for senior AEs, etc.)
3. Contract duration (ex: 1% for 1-year contracts, 2% for 2-year contracts, etc.)
4. Service type (ex: 1% for setup, 2% for customization, 3% for consulting)

Should Delivery Service Rates be Higher or Lower Than Other Commissions?

Let’s compare service delivery commissions with ARR commissions. There are two main reasons why service delivery commission rates are typically lower than ARR commissions (Annual Recurring Revenue):

1. One-time implementation service revenue is often considered less “valuable” than recurring ARR revenue. For example, $1000 in repeatable ARR is worth more than $1000 in one-time fees. However, this logic may not apply to maintenance service contracts (since there is some expectation they will be renewed).
2. Margins are often lower for implementation services than ARR because of higher costs. First, legal costs may be incurred when negotiating service agreements. Second, service delivery is more labor-intensive because human resources must be assigned to a project.

On the other hand, service delivery commission rates are often higher than physical product commissions. Indeed, with services, there is an opportunity for higher margins. You are selling some unique domain expertise. Most physical products come with (somewhat firm) price expectations which limit profit.

So Which Commission Rate for Delivery Services?

A good starting point is to review your existing commission rates and review relative profitability. If service delivery margins are higher than for other commissionable product/services, then higher commission rates make sense. Conversely, if service delivery margins are lower than for other commissionable product/services, then lower commission rates make sense.

Another key factor is whether you want to promote service delivery or not. If service delivery is a drag on your business (ex: you’d rather have your team work on other things, and delivering services mostly as a favor to your clients), then lower commission rates. On the other hand, if your business model is based primarily on consulting fees, then increase commission rate to encourage associated sales behaviors.

Finally, once you’ve established the appropriate rate, consider automating your commissions. Sales Cookie can help you make sure your commissions are always accurate, easy to calculate, and transparent to each payee. Visit us online to learn more!

1. Who is eligible?
   • This plan is for senior AEs
   • This plan is for junior BDRs
2. Which deals are eligible?
   • Closed won opportunities for AEs
   • Completed appointments for BDRs
3. Which attainment metric?
   • Total revenue for AEs
   • A count of appointments for BDRs
4. Which attainment goals?
   • Progression towards a YTD quota, with tiers (0-100%, 100-150%, 150%+ of quota) for AEs
   • Monthly appointment goals, with milestones (15+, 25+ appointments) for BDRs
5. Which commission rules?
   • All tiers are cumulative
   • Commissions for services is 5%
   • There is a $1000 bonus at 25+ appointments
   • Blended rates are applied when crossing tiers
6. Which payment frequency?
   • Monthly (with YTD progression towards goals) for AEs
   • Quarterly (performance bonus) for BDRs
7. Any special conditions?
   • Any cap or exclusion?
   • Any manager override?
   • Any team-based goal?
   • Any draw for new hires?
   • How are refunds handled?
8. Deploy and measure
   • What is our communication plan?
   • Who owns calculating commissions?
   • Do reps need to sign an agreement?
   • How are quotas set and updated?
   • Can managers adjust commissions?
   • Is the projected cost reasonable?

Besides those “mechanics”, we also need to make sure our commission structure makes sense. The following 4 questions may help you reflect whether your incentive program has meaning.

Is It Motivating?

If incentives are insufficient (or indistinguishable – i.e. attainment has no real impact), your reps won’t care, and your commission plan just becomes overhead. The reason you are paying commissions is for measurable results. For this reason, they need to be somehow exciting and correlated with performance.

Does It Provide Direction?

If your structure is too complex, or includes too many concurrent goals, your reps won’t know which specific behaviors or actions are expected from them. A good question to ask yourself is – if I was in their feet, would this commission structure tell me what I should do to earn more money?

Is It Attainable?

If goals are unattainable, they become annoying (or even ridiculed). Well-designed sales performance goals should empower 15% of reps to exceed them, 15% to fail completely, and 70% to attain them. Goals should be hard but not impossible to attain. There should be something for middle-of-the-pack reps.

Is It Well Aligned With Business Objectives?

Are your commissions just a tax on your business? Or do your commissions promote and support key business goals? Whether your priority is closing new customers, reducing churn, or increasing revenue, your commission structure should be aligned with business goals and advertise them loud and clear.

In Conclusion

We hope you found this post useful! For additional help with commission plan design, check out this more detailed article or our in-depth commission design guide. To automate your incentive program and increase your commission agility, visit us online.

When Should Insurance Commissions Be Paid?

First, let’s talk about the timing of commissions. Most insurance providers only issue actual commissions when policies become active (not when just submitted or approved). Using an automated system, insurance providers can show an estimated (potential) commission amount as soon as policies are submitted or approved. This allows agents to track how much commission they could earn on policies before conversion. This is an excellent way to motivate agents and improve retention.

Other insurance providers prefer to issue commissions earlier – for example, as soon as policies are submitted or approved. This is less common because policies often fail to convert to active policies. When policies fail to convert, previously issued commissions must be clawed back, which increases complexity. This is the main reason why insurance providers typically only pay commissions when policies become active, as there is degree of confidence that the policy will go through.

Other providers may choose to pay commissions incrementally based on actual payments received from customers. Keep in mind that new agents need time to build a pipeline, so if they have to wait for actual payment, they may be left starving. You can always provide commission draws (commission guarantees) to help them while ramping up.

To recap, the following three choices are available in terms of commission timing:

• Issue commissions only when a policy becomes active
  • Show an estimated (potential) amount when a policy is submitted or approved
• Issue commissions early when a policy is submitted or approved, based on its annualized premium
  • However, there will be a claw-back (chargeback) if the policy fails to convert
• Issue commissions incrementally when each payment is received
  • Based on received payment amounts

How Should Failed Conversions Impact Commissions?

In the insurance business, many policies will either:

• Be submitted, but won’t be approved
• Be approved, but won’t convert to active
• Be active, but won’t remain active (ex: policy cancelled, policy suspended, failed payment, etc.)

Such state transitions may happen multiple times. A single policy may be approved, then fail to receive approval. After re-submission, the same policy may become active. Later, it may be suspended due to payment issues. Finally, it may go back to active because payment issues have been resolved. To properly handle state changes and their impact on commissions, insurance providers use one of two main strategies described below.

The first strategy uses claw-backs (aka chargebacks) and repayments. When a policy goes active, an initial commission amount is issued. If the policy is no longer active, the previously issued commission amount is clawed-back. When the policy becomes active once again, the original commission amount is repaid. This dance may happen multiple times during the lifetime of a single policy. Note that claw-backs and repayments may be for the full amount, or only for a pro-rated portion. One benefit of automation is that it can provide a commission “memory”, which can be used to correctly calculate and issue commissions, claw-backs, and repayments.

The second strategy is escrow with periodic adjustments. Using this model, commissions are paid upfront, but a portion of the commission amount is held in escrow. Occasionally (ex: every quarter), the insurance provider re-examines policies, and makes adjustments to commissions. If a policy is still active, the amount held in escrow is released. If the policy is no longer active, the entire amount paid in commissions is clawed back.

One question remains however. How much to hold in escrow? Most insurance providers use a flat rate of 10-30%. Other providers may calculate a per-agent percentage, based on performance. For example, if an agent has a proven and consistent high conversion (retention) rate, then this agent’s escrow rate may be reduced, for example from 20% to 5%. There are many possible ways to calculate an agent’s retention rate and so determine their escrow percentage. This retention rate could be calculated from policies sold over the prior months, either using policy counts or premiums.

Which Goals Make Sense For Insurance Commissions?

Most insurance providers set performance goals based on a/ the total count of policies sold or b/ the total premium sold. Some insurance providers use non-cumulative tiers. Using this model, only the highest attained tier matters, and all the policies are paid at the same rate. Other providers use cumulative tiers. Using this model, policies which fall within the first tier (ex: 1-10 policies) are paid at a certain tier, policies which fall within the next tier (ex: 11-20 policies) are paid at a different tier, etc.

In the insurance business, some periods may see a lot more activity than others. For example, for healthcare insurance policies, seasonal enrollment periods experience much higher volume. Therefore, policy goals (such as quotas) may need to be adjusted over time, depending on the calculation period.

Now, which policies should count towards attainment and so drive commission rates? You may choose one of the following:

• Attainment is based on policies which become active during the calculation period. Commissions are then paid on those active policies, within the same period.
• Attainment is based on policies which are submitted or approved during the calculation period. Commissions are then paid on those policies, within the same period.
• Attainment is based on policies which are submitted or approved during the calculation period. However, commissions are delayed until those policies become active, which could be in a different period.

If the timeline used for attainment is different from the timeline used for issuance of commissions, you need a way to calculated estimated commission amounts based on attainment, and delay payment of those estimated commissions until the appropriate condition is met.

How Much To Pay In Commissions For Insurance Policies?

Here are some typical numbers in the insurance business:

• Fixed per-policy amounts. Typical amounts range from $10 to $250 per policy.
• Percentage of annual premium. Typical amounts range from 5% to 15% of annual premium.

When an escrow-based system is used, typical percentages held range from 5% to 30%.

Often, the amount paid depends on the type of policy sold, agent seniority level, and insurance carrier.

How To Automate Insurance Commissions?

Here are some advantages an automated solution can bring to your business.

First, using a solution such as Sales Cookie, your incentive program will become more agile. Because you can visually configure incentive plans, it’s much easier to change tiers, thresholds, goals, quotas, rates, etc.

Second, using a solution such as Sales Cookie, it’s much easier to manage policy state transitions. Because a system properly tracks commission amounts, it becomes possible to reverse them and implement claw-backs correctly.

Third, you can motivate your agents by providing real-time visibility on their commissions. Instead of searching for and opening multiple spreadsheets, agents have access to their commission history (plus all pertinent details) online.

Visit us online to lean how you can automate your insurance commissions!

We’ll cover the following:

• Recognizing Revenue
• The Reason For ASC 606
• ASC 606 A New Standard
• ASC 606 Applicability
• ASC 606 Implementation
• ASC 606 Amortization
• ASC 606 Differences
• ASC 606 FAQs

Recognizing Revenue

As per Generally Accepted Accounting Principles (GAAP), there are 4 criteria for revenue recognition.

1. It’s reasonably easy to collect payment
2. There is some type of financial agreement
3. A product / service is being delivered
4. The cost of the product / service can be quantified

As per Generally Accepted Accounting Principles (GAAP), different rules (accounting methods) can be used to determine the timing of revenue recognition. The key point is that you should recognize revenue when each customer-facing obligation is met.

• Cost – revenue recognition occurs upon completion of a project / service
• Sales – revenue recognition occurs upon delivery of a project / service
• Contract – recognition occurs upon completion of a project / service
• Payment – recognition occurs upon each payment / installment
• Etc.

Within the same GAAP framework, additional accounting methods are available to identify the timing of revenue recognition. Other methods exist which are based on asset appreciation, customer deposits, accruals, percentage completed, etc. Each accounting method is designed to fit a specific business scenario. A different accounting method may be more advantageous to you (in terms of financial reporting), or simply more natural based on your business model. Once you select an accounting method, make sure to use it consistently.

The Reason For ASC 606

First, some definitions. The non-profit organization known as FASB (Financial Accounting Standards Board) is responsible for defining normalizing rules used by most accounting professionals. Within their naming convention, ASC means “Accounting Standard Codification”. ASC 606 establishes a new set of rules used to recognize revenue. ASC 606 focuses on revenue recognition from contracts with customers.

ASC 606 ensures that financial reporting obligations are clearly described and implemented in a consistent way. Note that “contract” just means an “obligation” or “commitment” to a customer. It does not have to be a traditional paper contract. For example, if you sell online subscriptions, this is considered a contract even if no contract was negotiated.

ASC 606 – A New Standard

Previous revenue recognition standards were somehow inconsistent and subject to interpretation. ASC 606 offers improved normalization and some clarity. ASC 606 makes it easier to prepare financial statements, track historical financial performance, and comply with tax requirements. Companies can now recognize revenue in a more logical and consistent way.

ASC 606 – Applicability

It’s very simple. If you sell any type of products or services, ASC 606 applies to you. The new standard was created in 2014, first deployed in 2017, and now applies to all private and public organizations. This includes both for-profit and charitable organizations. Virtually all organizations are subject to ASC 606.

ASC 606 – Implementation

Here are the 5 steps required to implement ASC 606. Each step comes with specific rules beyond the scope of this blog post. This step-by-step approach allows companies to methodically analyze revenue, and generate a logical revenue recognition schedule.

ASC 606 – Amortization

Once revenue has been recognized (i.e. you have clear timelines regarding each obligation, and the timing of revenue recognition), you may need to amortize revenue based on contract durations. For example, if you sell appliance repair services for 2 years, you may need to progressively recognize revenue (ex: half now, half later).

ASC 606 – Differences

Let’s contrast ASC 606 with the previous standard. There is more transparency with ASC 606. For example, if an organization receives revenue from different sources, additional disclosures are required. Also, it’s easier to “follow the money”. For example, let’s say that you signed a contract with a customer. As this contracts converts into actual revenue, there is more traceability regarding when the obligation started vs. when revenue was realized.

In addition, with ASC 606, organizations have to provide more concrete details about their contracts and more generally performance obligations to customers. Although ASC 606 is clearer than its predecessor, it remains subject to interpretation when it comes to specific business models, such as cloud-based applications or subscription-based businesses. There are still different subtle ways to interpret ASC 606.

In Conclusion

After reading this post, ASC 606 should be clearer to you. ASC 606 has significant impact on accounting and book-keeping. Sometimes, the calculations required to recognize and amortize revenue can be complex. That’s why you should use an incentive compensation management solution to automate this process.

Sales Cookie makes it possible to calculate sales commissions, choose an amortization strategy, and generate an ASC 606 revenue recognition schedule. Visit us online to lean more about how you can automate your sales commissions and remain compliant with ASC 606.

==== ASC 606 FAQ ====

What Is ASC 606?

ASC 606 is a new accounting standard used to consistently identify when revenue from contracts with customers should be realized.

Why Was ASC 606 Created?

ASC 606 was created to normalize the timing of revenue recognition across companies, and therefore improve financial reporting.

What Is A Contract Under ASC 606?

ASC 606 has a concept of contracts, which more generally are “performance obligations” to customers. A contract means that there is an agreed upon price in exchange for delivery of a product or service – i.e. an “obligation” to perform.

How Do I Implement ASC 606?

To ensure ASC 606 compliance:

1. Choose an accounting method to realize revenue
2. Follow the following 5 steps for your chosen method
   1. Identify each contract with a customer
   2. Identify your performance obligations
   3. Determine each transaction price
   4. Allocate the transaction price
   5. Recognize revenue when each obligation is met
3. Use tools to help you automate the process

What Changed With ASC 606?

ASC 606 requires additional disclosures regarding contracts with customers, and more accuracy as to the timing of realized revenue. This results in:

1. Increased transparency
2. Increased traceability
3. Improved normalization

Does ASC 606 Apply To My Business?

ASC 606 now applies to all organizations:

1. Private companies
2. Public companies
3. For-profit companies
4. Non-profit organizations

When Was ASC 606 Codified?

The Financial Accounting Standards Board introduced ASC 606 in 2014, as a way to improve Generally Accepted Accounting Principles.

What Does ASC 606 Mean?

The meaning of ASC 606 is “Accounting Standard Codification”, and is a set of guidelines proposed by the Financial Accounting Standards Board to improve Generally Accepted Accounting Principles.

What Does Revenue Recognition Mean?

Let’s say you sell some type of hardware for $2000. Customers pay you $1000 upfront, and another $1000 upon installation (which could be months later). You can recognize revenue in two parts (i.e. at different points of time). The timing is based on how you deliver products or services.

Which Criteria Apply To Revenue Recognition?

There are 4 criteria for revenue recognition:

1. It’s reasonably easy to collect payment
2. There is some type of financial agreement
3. A product / service is being delivered
4. The cost of the product / service can be quantified

When Should Revenue Be Recognized?

A contract with a customer represents a form of obligation. When some event indicates that the obligation will be fulfilled (with agreed upon payment incoming), revenue can be recognized. Different accounting methods can be used depending on the business scenario to determine the appropriate timing.

What Are Revenue Recognition Accounting Methods?

Different accounting methods clarify when revenue should be recognized, depending on the business scenario, such as:

• Cost Completed – revenue recognition occurs upon completion of a project / service
• Sales Completed – revenue recognition occurs upon delivery of a project / service
• Contract Completed – recognition occurs upon completion of a project / service
• Payment Completed – recognition occurs upon each payment / installment

How Can I Recognize Revenue Collected Over Longer Periods Of Time?

There is a standard accounting method called the “percentage of completion method”, which allows you to recognize revenue progressively. This means you can recognize revenue based on progress made towards delivery of a service or product. This assumes your contracts have a clear timeline of deliverables.

What Is Unrecognized Revenue?

Unrecognized revenue is also known as unearned revenue. It represents revenue received before obligations to your customers have been met. For example, this could be an advance payment (with the expectation that a performance obligation will be met later).

Here are some of the new videos we produced recently. We’re just getting started and would love to hear your feedback.

• Automating Commissions – Key Concepts – learn about some key concepts behind automating commissions, and how you can eliminate commission spreadsheets.
• Configuring Commission Formulas – learn how to configure formulas to calculate payouts, or even customize crediting rules or dynamically set quotas.
• Managing Rates and Quotas – learn how to manage inputs affecting commissions, such as commission rates, individual quotas, team goals, etc.
• Uploading Transaction Sales Data – learn how to manually upload sales data, map fields to different categories, and calculate commissions from this data.
• Implementing Commission Clawbacks – learn about different strategies to claw back commissions when a deal doesn’t get paid or is cancelled.
• Configuring Tiers And Payouts – learn about cumulative vs. non-cumulative tiers, how to apply tiers to deals, and how to calculate blended commission rates.
• Ready For Commission Automation? – learn whether you are ready to automate your own sales commissions, and determine how quickly automation will pay for itself.
• ASC 606 Amortization of Commissions – learn how to remain compliant with accounting standards, and properly amortize the cost of commissions.
• Inviting Your Reps to Login – learn how you can invite your sales representatives to login and view all their commission statements online.
• Connecting to SalesForce – learn how to automatically retrieve data from SalesForce to accurately calculate sales commissions fo all your payees.
• Automatically Crediting Reps – learn about different strategies to credit deals to your reps, including assignment rules and splits.
• Sales Roles and Commissions – learn about which type of commission structure makes the most sense depending on each sales role and key responsibilities.
• Customizing Payee Dashboards – learn how to apply widgets and other customizations to online commission statements for all your payees.
• Creating Excel Commission Reports – learn how to use Excel to create powerful commission reports which span across multiple periods and payees.
• Manually Adjusting Commissions – learn about different ways you can adjust commissions, such as per-transaction adjustments, lump-sum adjustments, etc.
• Advanced Incentive Dashboard Features – learn about advanced payee dashboard customizations, such as manager approval, rep surveys, and more.
• Running Commission Calculations – learn how to run commission calculations manually, and then automatically to deliver real-time visibility on commissions to your reps.
• Auditing Commission Calculations – learn how to audit calculations to make sure they are 100% accurate and match your commission structure.
• Sales Cookie Review vs. Other Solutions – learn about key differences between sales commission automation solutions, and things to look for such as pricing or flexibility.
• Your Online Commission Statements – learn how to access online commission statements, view pending payouts, access calculation periods, check attainment, submit disputes, etc.
• Manual Commission Spreadsheets Don’t Scale – lean why manually generating commission spreadsheets does not scale, and why it creates so many issues.

Here is a direct link to our more recent videos. Reach out for suggestions or if you’d like us to cover specific topics related to sales commissions.

Next, assume that one payee had $1000 in total sales.

It’s quite easy to calculate the commissions from this $1000 total amount:

• From $0 to $100, apply 0% over the first $100 portion = $0
• From $100 to $200, apply 5% over the next $100 portion = $5
• From $200 to $500, apply 7% over the next $300 portion = $21
• From $500 to $1000, apply 9% over the next $500 portion = $45

The commission over the entire $1000 amount is $76, and it was not particularly difficult to calculate. Here is how we sliced the $1000 total amount based on the tiers above:

This gets a lot harder if you have multiple deals. For example, consider the following 4 deals (in chronological order).

• Deal #1 is worth $30
• Deal #2 is worth $550
• Deal #3 is worth $150
• Deal #4 is worth $300

Now, suppose that you want to show to your reps what commission they earned on each deal.

Intuitively, Deal #2 will cross multiple tiers. A portion of its $550 will be paid at 0%, a portion at 5%, a portion at 7%, a portion at 9%. This means a blended commission rate. This is very difficult to calculate, especially if you have a lot of deals. Enter our free calculator which does this automatically for you. Internally, our calculator knows how to split the single $550 amount into portions, and apply the relevant tier percentage to each portion.

Let’s enter our deals like this:

Next, click on “Calculate Commissions”:

Awesome! We get correct commission amounts for each deal, and even blended commission rates. We’ll walk you through the math for Deal #2. Deal #2 is worth $550, and follows a $30 deal just before it. Therefore, it should be split into the following portions:

• A $70 portion at 0% = $0
• A $100 portion at 5% = $5
• A $300 portion at 7% = $21
• A $80 portion at 9% = $7.2

If we sum all this, we get $33.20 in commissions, with an effective rate of 6.04%. Our calculator is correct!

In Conclusion

Our free calculator lets you calculate per-deal commission amounts using cumulative tiers. Now, you can show your payees what they earned on each deal and progression towards higher tiers. Note that our calculator only works one payee at a time. And it doesn’t handle scenarios such as non-cumulative tiers, variable rates, quotas, splits, etc. All these capabilities and much more can be found within Sales Cookie. Generating commission spreadsheet manually is difficult and time-consuming. Using Sales Cookie, you can automate all this slicing and dicing, and pay your reps accurately and on-time. Visit us online to learn more!

1. SDRs – Sales Development Representatives
2. AMs – Account Managers
3. AEs – Account Executives
4. TSMs – Territory Sales Managers

If we can clearly understand expectations associated with each role, then we can design successful incentive programs which promote the right sales behaviors and incentivize payees correctly. Watch this 1 minute video to learn more about each role, and how to structure each commission! Our goal should be to promote specific behaviors and pay for performance (vs. paying commissions as a “tax” on the business). That’s also how we can increase motivation and transparency.

Responsibilities

First, let’s recap expectations for each role. This is our first step towards aligning commissions with roles and responsibilities.

SDRs are responsible for generating and processing leads. To generate leads, SDRs may use cold calling, telemarketing, emails, internet inquiries, etc. SDRs frequently also book demos and appointments. They have a “produce leads” function.

AMs are responsible for maintaining good relationships with existing customers. Their goal is to increase sales volume for accounts they manage, facilitate renewals, and reduce churn. They have an “account maintenance” function.

AEs are responsible for assessing needs, closing opportunities, answering questions from customers, and facilitating the sales process. They represent the bulk of the workforce. They have a “close deals” function.

TSMs own either a region (ex: South East) or a vertical (ex: all government sales). They are responsible for growing their territory and facilitating sales (ex: shipment, fulfillment, etc.). They have a “grow territory” function.

Desired Behaviors & Commissions

Now that responsibilities are clear, we can identify specific sales behaviors to promote via sales incentives.

SDRs should be paid commissions for generating many high-quality leads or appointments. SDRs should have count-based goals, such as 10 qualified leads per month, or 25 booked demos per quarter. They can have accelerators and bonuses for reaching certain milestones. Often, the amount paid in commission per lead is fixed (i.e. $50 per lead, not a percentage of revenue). Some SDRs may receive commissions across multiple components, such as a/ their number of leads generated, b/ their number of qualified leads generated and c/ their number of demos booked. In some cases, SDRs may receive a small percentage of revenue from opportunities they generated. Finally, payouts may be larger when a lead originates from a new customer / new logo, because those represent expansion.

AMs should be paid commissions based on key metrics such as renewals, churn, and account growth. Indeed, those metrics best measure customer health. For example, if a customer under AM oversight renews a contract, this AM may be eligible for a commission. This helps ensure AMs are motivated to encourage renewals. AMs are also responsible for NOT losing customers. Therefore, penalties or bonuses may be applied based on calculated churn rates. Note that calculating churn can be difficult because one has to decide after how much time a customer is expected to renew. Revenue growth over a large customer base is another way to measure AM performance. Finally, growth can be measured using quotas, which increase over time, or by comparing a current period’s revenue with a previous one. All AMs should have quotas or milestones, so they know what is acceptable performance vs. great performance.

AEs should be paid commissions for closing opportunities. The opportunity count typically doesn’t matter, but potential revenue does. Note that marking an opportunity as “closed won” does not guarantee that you will receive actual payment from customers. For this reason, many organizations use a “pay when you get paid” approach, where closing deals drives attainment & accelerators, but commissions are only paid when payment is received from customers. Many AEs have quarter-to-date or year-to-date attainment. Indeed, it’s often difficult to set a quota for a single month (ex: December can be slow, a rep may need to take time off, etc.). This helps smoothen things and better measure AE performance.

TSMs should be paid commissions on all sales in their territories. Their percentage is typically lower than AEs who own opportunities and close sales. If TSMs facilitate sales in their territory, they could receive an “override” commission, such as 0.5% of revenue on all sales. They may also have a quota they are expected to meet for their territory. Some TSMs may act exactly like AEs and own individual opportunities, but are labeled as TSMs only because different organizations use different terminologies.

In Conclusion

In this blog post, we described:

• 4 key sales roles
• Responsibilities and desired sales behaviors for each role
• Commission structures which promote those sales behaviors
  • SDRs = count generated leads & appointments
  • AEs = measure closed won opportunities
  • AMs = measure renewal, churn, account growth
  • TSMs = pay override commissions

Using Sales Cookie, you can automate your entire sales commission process, and all types of commission structures. You can increase commission agility and ensure that your team is rewarded based on the right sales behaviors. Reach out for assistance!

• Eliminate manual spreadsheets
• Increase commission agility
• Improve accuracy / avoid costly mistakes
• Deliver reporting across all payees
• Increase transparency and motivate reps
• Provide managers more visibility on team performance
• Deliver accounting & legal compliance
• Track all commission “facts” in a data repository
• Provide real-time visibility on commissions

We offer a native connector, with the ability to retrieve data from any SalesForce list view or report. This makes it very easy to retrieve and process your SalesForce data for the purpose of calculating commissions.

However, what if you want to do the reverse – i.e. publish calculated payouts from Sales Cookie to SalesForce? Sales Cookie has an open data API. You can access all your entities and relationships via simple API calls. You can even connect to this API from Excel, Tableau, Power BI, etc. We’ll show you how you can leverage our open API to “push” data from Sales Cookie to SalesForce.

Below is the Sales Cookie API explorer. We’ll focus on the CalculationResult entity because it holds payout summary information:

SalesForce Connect (from SalesForce) supports our data API. As a starting point, install the SalesForce Connect package by clicking on this link. You may need to login to SalesForce. You should see a prompt like this one. Complete the installation.

Next, go to your Account in Sales Cookie, and copy your data access URL:

In SalesForce, follow these simple steps:

1. From Setup, search for External Data Sources in the Quick Find box
2. Select External Data Sources
3. Click on New External Data Source
4. Enter Sales Cookie as a label
5. Select Salesforce Connect: OData 4.0
6. Paste your data access URL
7. Click on Save

That was pretty easy, right? Next, let’s synchronize one entity from Sales Cookie. We’ll choose the CalculationResult entity because it contains summary payout information:

1. From Setup, enter External Data Sources in the Quick Find box
2. Select External Data Sources
3. Click on Validate and Sync
4. Select CalculationResult
5. Click on Sync

The sync helps SalesForce understand our schema. However, it does not store actual data within Salesforce. Mappings allow Salesforce to retrieve and understand external data.

To view the external data’s schema:

1. From Setup, enter External Data Sources in the Quick Find box
2. Select External Data Sources
3. Click on the Sales Cookie data source.
4. Scroll to External Objects
5. Click on CalculationResult

You can now see the schema for our chosen Sales Cookie entity. This really looks like any other custom object:

Next, create a custom tab to more easily view CalculationResult records:

1. From Setup, enter Tabs in the Quick Find box
2. Select Tabs
3. Click the New button (next to “Custom Object Tabs”)
4. Select CalculationResult as the custom object type
5. Choose other options (ex: tab style, short description, visibility)
6. Click on Save

You can now view payouts as if they were stored in custom entities within SalesForce:

1. Click on the app menu (top left corner)
2. Select CalculationResult in the list of entities
3. Select View All

Salesforce Connect was able to retrieve all CalculationResults (i.e. payouts). Salesforce Connect retrieves data from Sales Cookie real-time when you click on a record. Obviously the list view below is pretty rough, because we didn’t customize it at all. But it would be easy to show all payout amounts, their types, etc.

If you click one of those entries, you will see the record. Here too, the form looks a bit rough because we didn’t customize it. But we can clearly see that all details about this single payout are available.

Your next step will be to sync other related entities. For example, you could bring in the Calculation and Plan entities as they have useful details related to CalculationResult records.

In Conclusion

In this blog post, we described one of the many ways you can bring Sales Cookie commission information into SalesForce. We used the SalesForce Connect package to connect SalesForce to Sales Cookie, but other options are also available. For example, you could manually import spreadsheets (easily exportable from Sales Cookie), or use solutions such as Tray or Zapier to programmatically fetch records and insert them into SalesForce. Reach out for any questions!

Splits

Any time you have split commissions, the inevitable question is – how to split? Should the split be applied to both credits and payouts, or just one of those? If you always split evenly, then splits are pretty easy to deal with. Otherwise, clear rules are needed, so that splits can be dealt with in a systematic manner. After all, you don’t want to ask your VP “what are the split percentages for each rep” each time there is a split, right? One thing we love is SalesForce’s built-in opportunity split feature. Using this feature, split percentage are always recorded within SalesForce. This makes it easy to configure formulas which automate splits. For other cases, Sales Cookie includes several common built-in split options, as well as the ability to define more complex formulas.

Claw Backs

Many organizations use claw backs to recoup previously paid commissions (ex: following a refund, return, or cancellation). One easy strategy to deal with claw backs is to input another negative deal, which will then pay a negative commission. This works pretty well if your commission structure doesn’t change. However, there are some situations where this simple strategy doesn’t quite work. For example, if commission rates (or your entire commission structure) has changed, you may need to claw back the exact original commission amount paid months ago. For those cases, you definitely need a system with the ability to a/ automatically lookup and b/ claw back original commission amounts. Otherwise, you’d need to locate old spreadsheets and find who got paid what on each deal!

Catch-up / Retroactive Commissions

Many organizations use commission structures with retroactive payouts. Payouts are only triggered (retroactively) once certain conditions are met. For example, reps may not receive commissions on their January and February closed deals until they hit their quarterly quota. Once their quarterly quota is hit (ex: mid-March), payouts are applied retroactively to all January and February deals. A similar scenario occurs if a single deal’s characteristics can change over time, impacting the amount owed in commissions. For example, let’s say you have a deal worth $100, for which a 10% commission has already been paid. If, later, the same deal’s revenue is updated from $100 to $150, you may need to pay a commission “delta” amount. This is very painful to deal with manually. However, using software, we can re-evaluate the amount owed, lookup previously paid commissions, and only pay the delta.

Multiple Data Sets

Sometimes, it’s necessary to use two distinct data sets to calculate commissions. For example, suppose that attainment is based on closed won CRM opportunities, but that commissions are only issued when payments are received from customers. Now, we must deal with two data sources (ex: SalesForce opportunities + QuickBooks invoices) to calculate commissions correctly. This is known as the “pay only when you get paid” model. Here too, calculating commissions manually can be tedious and error-prone. Indeed, each time a payment is received, you must figure out a/ which opportunity this payment was for, b/ who earned a commission on this opportunity, and c/ what the commission rate was (based on attainment). Automation can solve this complex problem for you. Make sure to choose an SPM solution which supports multiple data sources and data cross-lookups.

Inaccurate Data

Garbage in, garbage out! Mathematically, the accuracy of your commission calculations cannot exceed the accuracy of your sales data. For example, if your commission structure is based on rep attainment, and someone enters a closed won deal worth $9,999,999, then this rep will incorrectly retire quotas and earn higher rates. Here at Sales Cookie, we’ve built a lot of defensive features to detect problems such as abnormally high amounts, double-payment of commissions, incoherent exchange rates, missing quotas, duplicate calculations, typos in rep names, suspicious team hierarchies, etc. However, all we can do is alert you. We cannot fix sales data for you. Some recommendations we keep daily to our customers include:

• Always use a system to track sales (ex: not a custom spreadsheet)
• Record when things changed (ex: track when an opportunity moved to closed won)
• Think about sales data as an “event log” (ex: prefer adding new records to updating the same record)

Time-Based Variability

In the world of sales commissions, time is a key aspect because ultimately everything will change – rep quotas, commission rates, payout structures, territories, payee roles, named accounts, etc. Think about your ability to audit past commission calculations. You need to know what the commission “facts” were at any point of time. Unless you implement some careful tracking (or use an SPM solution), this is very difficult. Our general approach at Sales Cookie is to make time-tracking a primary dimension. For example, custom variables you set on users or plans always include effective start and end dates. Similarly, plans have versions, teams members have effective dates, configuration changes are logged, etc.

Multi-Dimensional Hierarchies

If you’re lucky, you only require a single team structure, such as the one below. This is the only hierarchy you need to calculate commissions (ex: crediting rollups, manager overrides, etc.). In reality, however, many organizations require multiple hierarchies. For example, one hierarchy may be based on geography, and another hierarchy may be based on customer verticals, and another based on user permissions. Dealing with multiple hierarchies (in addition to the time dimension!) is no easy task. At Sales Cookie, we’ve developed approaches to automate such scenarios by keeping crediting logic highly flexible.

Exceptions

Perhaps your commission structure includes “fuzzy” payout rules, such as conditional approval by VPs “in some specific cases“, or discretionary splits based on “mutual rep contributions“. Those types of statements absolutely get in the way of automating your commissions, because they require constant manual intervention. Commission rules cannot be configured because, by definition, a human has to make a decision. Formulas won’t help, unless you record those decisions within your data (ex: using custom fields). For all other cases, you need a way to easily make and record adjustments. Sales Cookie provides 6 different ways to adjust commissions. Plus power tools to bulk-process adjustments, process claw backs, manual overrides, etc.

Global Reporting

If you are not using an automated solution, you are probably generating many individual commission spreadsheets. This is a major headache because you must constantly generate, revise, archive, and distribute those spreadsheets. But the difficulty does not stop there. The bigger issue is that your managers do not have visibility on overall sales performance. The only thing they can do is locate commission spreadsheets (for various periods and individuals), and manually put it all together. There is no central system holding all commission data they can query or analyze. For this reason, using an SPM solution with open data APIs is a must. Using Sales Cookie, you can retrieve ALL your data using Excel, Tableau, Power BI, and many other solutions. This includes users, plans, calculations, commissions, rates, quotas, etc.

In Conclusion

We hope this blog post will result in more empathy towards your Sales Ops team. Without a system, calculating commissions manually can be a real headache consuming many hours of painful work. If you haven’t yet automated your commissions, it’s not too late. Visit us online to learn more – we’d love to help.

1. Eliminate the need to constantly generate / revise / distribute commission spreadsheets
2. Increase commission accuracy and avoid mistakes
3. Motivate your reps via online dashboards, goals, increased transparency, etc.
4. Deliver commission reporting spanning all reps
5. Improve commission agility
6. Ensure compliance with legal & accounting standards

Pulling Commission Data

First, let’s grab our Sales Cookie data access URL. Simply login to Sales Cookie, and browse to Accounts > My Profile > Security. Copy your data access URL:

Now, we can connect using various tools such as Tableau, Microsoft Power BI, or Excel. For this blog post, we’ll use Microsoft Power BI. Start Microsoft Power BI, and connect using OData. Here my URL is “localhost” because I’m using a test environment:

We’ll just select a few essential data tables among many available to us:

We can see that Power BI magically understands all the relationships between selected tables. This means we can formulate queries without having to explicitly specify how to join between tables:

Commission Natural Language Query

We can certainly handcraft custom reports (with drilldowns, charts, filters, groups, etc.). However, let’s be a bit lazy and use a natural language query to quickly create a simple report. We can use the Insert > Q&A function, and ask a question like this:

That’s pretty awesome! We built a report (mind you, with table joins, multi-level grouping, and data aggregation) simply by typing text! Let’s change the visualization to waterfall. We now have a stack ranking visualization. This highlights differences in payouts between individuals. Many other visualizations are also available (from pie chart to heat maps).

It’s equally easy to switch to table mode and view the underlying data:

Data-Mining Commissions

It’s time to take our analysis of commissions to the next level. But first, let’s run additional calculations within our Sales Cookie demo workspace. We’ve also added manual commission adjustments for good measure:

Commissions can be lump-sum amounts (ex: cash bonuses). Or, commissions can paid on a per-transaction basis. For our analysis, we want to focus on per-transaction commission payouts. Let’s pull in data from some additional tables, including the CalculationCommission table. Make sure to also include Transactions (not listed below).

Let’s plot the average per-transaction payout by payee and by product:

This looks interesting, but it’s hard to know what is really going on. Which factors impact commission amounts the most? Is it the customer? Is it the product? Is it the commission plan? Let’s add a Decomposition Tree visual. At this point, it looks a bit bare:

Next, select the metric to analyze. Here, we’ll select the average value from table CalculationCommission. This table stores per-transaction payouts, and the value is the payout.

Suppose that we want to analyze which factors impact commission payouts the most – for example:

1. The commission plan’s name?
2. The transaction’s customer?
3. The transaction’s product?

We can drag and drop those fields to the “Explain by” list:

We can now expand the Decomposition Tree based on “high value” impact. The algorithm finds which criteria is the most meaningful, in terms of yielding higher payouts. We can see that the customer name is the #1 most significant factor (the average per-transaction commission amount is $111.95 for “Candy Fancy Inc.”). Then, the #2 most significant factor is the product name (the average per-transaction commission amount is $506.99 for “Lemon Cookies”) . Finally, the #3 factor is the plan name.

Above, we let a data mining algorithm discover which factors have the most impact on commission payouts. However, we can also draw a decision tree based on our own choices. Below, we generated a decision tree which shows the average per-transaction payout by plan, then by product (because that’s what we want to do).

Commission Root Cause Analytics

Let’s try a different but related type of analytics – key influencers. Below, we can see how certain fields impact the amount credited to rep (for quota retirement). The event name (purchase vs. refund) appears to be a key influencer. No big surprises here. Other influencers are revenue and order quantity.

Here is some really cool advanced analytics! We want to know what might be causing a slight trend of decreasing credited revenue. It looks like sales to customer “Fancy Treats” has something to do with this downward trend. To get this visualization, all we had to do is a/ plot credited revenue by date, b/ add a trend line, and c/ ask Power BI to explain the trend.

Find Commission Anomalies

Next, we can plot the commission amount by transaction date and detect anomalies. In this example, all commission amounts are within the expected band. If there were anomalies, they would be highlighted.

We can also create a commission table with various fields like this:

And find clusters:

Below, we can spot a huge anomaly. This was a 5K manual commission reward which we added to see if we could identify it. We can see that this amount has no relationship to the transaction’s revenue nor its order quantity.

In Conclusion

In this blog post, we showed a few examples of advanced analytics you can use to analyze your sales commissions. In the end, it’s all about having access to all commission data. Sales Cookie is a powerful, open platform which makes analyzing commissions a breeze. Using Sales Cookie, you have unlimited power to slice and dice commission data any way you want – and even run data mining algorithms to better understand root causes and detect anomalies. Visit us online to learn more!

For those reasons, you need a knowledgeable partner with decades of experience with SPM solutions, such as McAlign Consulting. We recommend McAlign because they are familiar with all available software solutions, and have a ton of real-world expertise with sales commissions. Another thing we love about McAlign is their ability to accurately estimate project costs.

Using McAlign (and SPM solutions such as Sales Cookie), you can automate the whole commission process and:

• Eliminate the need to generate / send / revise / archive commission spreadsheets
• Delegate tasks such as data preparation or normalization
• Centrally manage all your commission and incentive plans
• Automatically calculate all commissions and reduce errors
• Provide reps and managers with real-time dashboards
• Improve accounting & legal compliance

In this blog post, we asked the McAlign team about their experience with sales commissions. Please reach out to McAlign for excellent advice regarding sales compensation and automation.

You’ve Analyzed Many Commission Structures – Which Common Mistakes Do You See?

Sales incentives can be a phenomenal growth engine. Selecting the appropriate incentive strategy can boost profits, improve performance, and reduce costs. Great incentive programs impact every level of the organization, and keep everyone focused on key goals. Unfortunately, many companies struggle with sales incentive design. Here are 5 common mistakes we often see during the planning phase.

Using Outdated Metrics

Often, incentive plans are based on outdated metrics, such as total sales volume, which are only specific to one role. Instead, shift your focus on compensating for exceptional end-to-end customer experiences. If you treat your client the way you want to be treated, you will reap plenty of rewards. Focus on each customer – individually (instead of just gross sales volume).

Using Irrelevant Metrics

Woohoo! Your sales rep came back from a trade show with 50 new leads. The catch is, most of those are cold leads. If you reward your reps for those 50 cold leads, you are using a flawed performance metric. You will both waste time and money because the metric you chose is not correlated to actual sales performance.

Forgetting Key Contributors

If you only reward high-performing hunter reps for closing deals, you’re probably making a mistake. Hunters wouldn’t exist without Gatherers, who identify quality leads, nurture them, and keep your sales pipeline full. Make sure to compensate every contributor (instead of just the more visible ones).

Delaying Compensation

Don’t wait to motivate your sales reps and announce incentives. The longer you wait, the less likely you are to get a positive reaction. Delayed compensation can even reduce sales motivation and generate churn. Compensating reps after the fact isn’t as productive as announcing incentives upfront.

Only Offering Monetary Incentives

Money brings joy, but non-monetary rewards add to that joy. In the words of Dan Pink, “Just using financial incentives creates a focus that adversely impacts performance.” Broaden your vision, and consider rewarding your employees with softer, personalized incentives. For example, letting your reps work outside the office, or offering a paid membership to a club.

Just using financial incentives creates a focus that adversely impacts performance.

In Conclusion

To design effective sales incentive plans, avoid these 5 key sales compensation mistakes. Consider spending extra time designing a meaningful and efficient compensation process. By eliminating key design mistakes, your sales compensation strategy can drive not only revenue, but also long-term value and growth.

How Can Sales Commission Automation Help?

Every organization’s goal power of attainment (vs. goals) depends on:

• Highly efficient sales processes
• Few implementation errors
• Higher sales volumes
• Increased profitability
• Great employee retention

Everyone, from sales reps to the CEO, thinks those goals are important (and talks about them daily). The problem is that everyone follows a pragmatic (not systematic) approach. Unfortunately, ad-hoc approaches often fail. Using modern sales tools, sales teams can achieve a lot more. Automation makes them more efficient. However, those tools and processes must be compatible with the organization’s unique communication fabric. Also, those tools and processes must be configured correctly for organizational goals, sales behaviors, and incentives to be aligned. Here are some of the key benefits of using a consulting partner such as McAlign to automate your commissions.

More Efficiency

A well-design sales compensation process saves significant time and pain – every pay cycle! It also allows sales operations staff, sales managers, and IT professionals to focus on more important business operations. McAlign can free your team from routine tasks such as:

• Collecting and merging sales data
• Implementing an error-free sales compensation process
• Generating meaningful reports and analytics

More Accuracy

A great incentive automating platform should integrate with all existing sales processes. This is the only way you can verify payment accuracy and eliminate over-payments. McAlign can provide a fast ROI by doing the following:

• Selecting the right sales compensation solution
• Automating sales compensation calculations
• Providing comprehensive audit trails and reports
• Delivering a streamlined dispute resolution process

Less Shadow Accounting

The ability to recapture a fraction of every rep’s time wasted checking commissions, and convert this time into active selling, will always result in a high ROI. Using technology to automate incentives, reps can easily access clear commission statements. Self-service, on-demand online statements will earn their trust. McAlign can help eliminate shadow accounting and improve transparency via technology.

Better Goal Tracking

Organizations who constantly monitor progress towards goals accomplish them more often. Using technology, you can better surface goals and progress to individuals and managers. Automation makes your commission process more agile, so switching strategies or updating quotas become much easier. McAlign can help you:

• Analyze and build effective incentive plans
• Balance out short-term vs. long-term goals
• Help you communicate and manage change

Reduced Turnover

More visibility on financial performance increases trust. Transparency makes it easier for individuals to take action when they spot a problem or fall behind. Managers and individuals feel they are working together and contributing to a common effort. McAlign can help dramatically reduce sales turnover by providing reps with real-time access to their goals and progress. Automation is guaranteed to increase employee satisfaction because they know you are investing in them!

In Conclusion

McAlign provides a combination of technology and expertise, with an immediate and measurable ROI. Sales compensation is any organization’s biggest controllable expense. Even a small improvement in efficiency can result in significant ROI. Imagine the payback you’ll get using a streamlined and integrated technology solution! Visit McAlign online to learn more and become your sales team’s hero.

What’s A Claw Back?

At times, you may encounter situations where payment cannot be collected from customers, a project was cancelled, or a refund was issued. Therefore, you want your reps to recoup commissions previously paid on those deals. This is commonly referred to as a claw back or a chargeback. This article describes different ways to handle claw backs, including some advantages and disadvantages of each approach.

Option 1 – Record Negative Transactions

To simplify claw backs, you can create new transactions whose amounts are negative. Essentially, negative transactions become a mirror image of positive transactions you already paid commissions on. Using those negative transactions, you can calculate new negative commissions, the exact same way you would calculate positive commissions. This approach is quite convenient as:

• Your claw backs become easy to automate
  • You can use the exact same payout rules as for regular commissions
• You can easily handle partial or pro-rated refunds
  • Just enter a partial negative amount
• You can leave the original transaction “alone”
  • No need to edit the transaction and mark it as cancelled
• Your negative amounts can be used to penalize rep attainment
  • Refunds can now impact quota attainment
• You are treating refunds and claw backs the same way
  • This keeps handling of all forms of cancellations consistent
• Your revenue reporting and revenue totals makes sense
  • You are recording balanced positive and negative amounts
• You have the complete history of events
  • You are tracking refunds as a separate event

Is this approach perfect? The answer is no. There are scenarios where newly calculated negative commissions may not 100% offset previously paid ones. For example, let’s say that Joe qualified for a 10% commission in January (based on his attainment), over a $2000 sale. Now, in February, you record a minus $2000 sale (a refund). Unfortunately, Joe’s attainment is lower in February, so his commission rate is 8%. The negative commission will be 8% of minus $2000 – but you paid 10% of $2000 previously! As you can see, because we are calculating a new negative commission, but the situation could have changed, the amount may not match exactly.

Option 2 – Configure Claw Back Logic

If it’s important to accurately claw back the original amount paid in commissions (instead of re-calculating it), you need something else. In this case, you would probably update the original transaction to indicate that a cancellation took place. For example, you may change its status from “Closed Won” to “Cancelled”. You may also set its amount to zero. Finally, you may also update the transaction’s date to the cancellation date.

We can now configure a payout formula to a/ detect that the current status is cancelled and b/ recoup the original amount paid in commissions. The formula below uses a magic function called GetCommission(). Using an SPM solution such as Sales Cookie, there is a “memory” (database) of every commission paid on each transaction. This function is able to automatically pull the relevant commission amount.

The example below is quite basic. It just looks up and reverses the original commission amount. In practice, we could use more sophisticated logic, and calculate a pro-rated chargeback amount. The key takeaway here is that we’re using the exact commission amount paid on this sale (instead of calculating a new amount) and using this fact to effect the claw back. This approach isolates your calculation from changing conditions (such as a new quota attainment, updated tiers, updated rates, etc.).

Option 3 – Leverage A Claw Back Tool

There may be situations where:

1. You have a list of transactions to claw back commissions from
2. You want to claw back the exact amounts previously paid in commissions
3. You don’t want to configure a claw back rule because claw backs are infrequent

For this, you can use an automated tool such as the one below.

Using this type of tool, you can enter a list of transactions. The tool will find who received a commission over those transactions, and reverse each amount. You can also provide an explanation to your payees, who will then see it on their dashboard.

In Conclusion

On the surface, claw backs appear simple, but can be a real headache to deal with. In this blog post, we described multiple way to streamline claw backs. Each approach comes with certain advantages and disadvantages. The negative transaction approach makes it easy to implement claw backs and allows for negative attainment. On the flip side, there are situations where reversed amounts may not match original amounts paid. This approximation is sufficient in most cases, but becomes problematic when dealing with large transactions. For scenarios where the exact commission amount should be reversed, using formulas or a claw back tool are great options. Visit us online to learn more about automating your commissions!

Accelerators – Accelerators afer just one type of “kicker”. They usually take the form of higher commission rates, which are only applicable to higher levels of attainment. Example: “Our SDR plan includes an accelerator – after reaching 150% of quota, you will receive an additional 1% per deal (in addition to the regular 5%)”.

Attainment – Attainment represents achievement vs. a sales performance goal for a specific time period. Often, each rep’s attainment is measured using “credits” (see definition below). Typically, credits and attainment impacts commission amounts or rates. Attainment can be measured using absolute values (ex: attained total revenue), or in relation to a quota (ex: % of quota attained). More advanced types of attainment are also possible (ex: competitive ranking, year-over-year growth, etc.). Example: “Sara did great last month – her attainment was 125% of quota”.

Balance – When reps are granted recoverable advances, they have a repayable debt to the organization. Each rep’s balance tracks how much they owe. A rep’s balance may go up (when recoverable amounts are granted), or down (when repaid by the rep). Example: “John has a balance of $1000 because he received two advances of $500 this month and last month”.

Blended Rates – Suppose that you have 2 attainment tiers. Under quota, the payout is 5% of revenue. Above quota, the payout is 10% of revenue. Now, there could be a situation where a single (potentially large) deal crosses tiers. A portion of the deal’s amount is effectively under the quota threshold. Another portion of the deal’s amount is effectively above the quota threshold. Enter blended rates. Each tier’s commission rate is applied to a portion of the deal. Example: “Your blended rate on this deal is 7.5%, because 50% of revenue was paid at 5%, and 50% of revenue was paid at 10%”.

Bonus – Often, commissions are calculated on a per-deal basis. Each per-deal commission can be a fixed amount (ex: $100 per deal), or a percentage (5% of revenue). However, there are cases where rewards need to be lump-sum amounts. In this case, payouts are not per-deal, but cash amounts. Note that bonuses can create problems if you must track how much commissions were paid on a per-deal basis for accounting purposes (ASC 606, amortization, etc.). Example: “Jane is getting a $1,000 bonus for winning this week’s sales contest”.

Calculation – A calculation consists in calculating commissions for one specific incentive plan and calculation period. For example, if you have a quarterly AE bonus plan, you will have a Q1 calculation, a Q2 calculation, a Q3 calculation for the same AE bonus plan. Each calculation determines which transactions fall within the calculation period, what the attainment is for each target, and what payouts should be. Example: “We’ll need to re-calculate Q1 commissions for AEs because we received updated December sales data”.

Credits – Crediting is the action of attributing deals to reps for the purpose of calculating commissions. When a rep is credited with a deal, this impacts their attainment. Reps may be credited directly, for example because they own deals. Or, reps may be credited indirectly, for example because they manage a territory or other reps. Credits can be expressed as total revenue (ex: $50,000 in credited revenue), or other metrics (ex: 10 appointments, 20% margin growth, etc.). Example: “Bob was credited with 10 sales last month, representing $25,000 in total margin”.

Claw-Back – A claw-back consists in recouping paid commissions following an adverse event (ex: a cancellation, a refund, non-payment, etc.). An alternative name for claw-backs is charge-back. Claw-backs can be easy or difficult to implement, depending on the trigger (ex: non-payment after 2 months), charge-back amount (ex: fixed vs. prorated), and repayment rules (ex: use paid commissions to cover claw-backs). Example: “We should issue claw-backs for Terry because we didn’t receive payment for 2 of his invoices and we pre-paid commissions on those”.

Draw – A draw is equivalent to a minimum commission guarantee – essentially an advance. Draws are common for new employees whose payouts may remain low while ramping up. When a rep’s earned commissions fall below a certain limit, some “padding” commission amount may be granted in the form of a draw. Draws can be recoverable (i.e. they need to be repaid), or non-recoverable (i.e. they are forgiven). Example: “All new employees will receive a recoverable draw of $5000 per month while in training – repayment will start as soon as covered by commissions”.

Draw Repayment – A draw repayment occurs when a rep was previously granted recoverable payouts / advances, and their owed balance is being repaid (partially or in-full). Typically, recoverable amounts are only repaid by commissions (not deductions from salary). Sometimes, the draw repayment amount is capped, making repayment more gradual. Example: “Eric repaid $100 from his owed recoverable balance last period – his commission was $1100, with a repayment maximum of $100 per period“.

Earned Commissions – There is no standard definition of “earned commissions”. Some organizations declare commissions as “earned” as soon as they are calculated, but those “earned” commissions won’t be paid unless payment is received. Other organizations declare commissions as “earned” only if they have been fully processed by payroll. We recommend not using this terminology because it is confusing, and can cause legal headaches (ex: you declared commissions as “earned” and are now legally required to pay them).

Estimated Commissions – An estimated commission is an expected commission, but only an approximation. This is common in situations where commissions are estimated based on CRM opportunity amounts, but payment of actual commissions depends on payments being received from customers. Often, the actual amount received from customers differs from the CRM opportunity amount (for example due to taxes or discounts). Estimated commissions allow your reps to forecast and track expected payouts.

Incentive Plan – An incentive plan represents a commission structure (i.e. a way to pay commissions). Each plan measures some type of performance (ex: finding leads, closing deals, booking appointments, etc.) over a certain period, and assigns rewards based on attainment. Each plan will also have a list of eligible payees, often based on role. Example: “The STM bonus plan is for senior territory managers only, and pays commissions monthly, based on year-over-year territory revenue growth”.

OTE – On-target earnings (also known as OTE or “on-track” earnings) represent expected earnings for a given role when all expected performance goals (ex: quotas) are satisfied. OTEs help reps estimate what their commission should / could be, and help organizations define a commission budget as well. Example: “For this role, the base pay is $50K, and the OTE is $30K at 100% of quota”.

Override Commissions – There are two possible meanings for “override”. The first definition of override commission is commission received by managers based on some type of rollup (ex: team rollup, territory rollup). Example: “VPs will receive a 0.5% override commission on all sales within their territories”. The second definition of override commission is an exception to a calculated commission. Example: “We’ll need to override Bob’s commissions because one deal had the wrong amount”.

Pay When You Get Paid – A commission structure where closing deals drives attainment (and so estimated commission payouts), but actual payment of commissions is delayed until payment is received from customer. This often involves two systems (ex: a CRM and an Accounting system) and two types of records (ex: CRM opportunities and Accounting invoices). Example: “For this plan, attainment is measured using SalesForce closed opportunities, but commissions are issued when payment is received within QuickBooks“.

Quotas – Quotas are sales goals which are valid for a specific time period. Quotas can be expressed using revenue (ex: $50,000 / quarter), or other metrics (ex: 10 appointments / week). Often, quotas impact commission amounts or rates. Also, quotas typically change over time. In some cases, reps are expected to meet quota before they receive meaningful commissions. Example: “Joe’s quota for Q1 is $50,000 in total revenue, with a 0.5% payout under quota, and 5% above quota”.

Quota Retirement – When reps are credited with deals, they receive attainment via credits (see definition above). Their attainment is used to retire their quota. The idea here is that commissions will remain lower until quotas are met (i.e. retired). The idea of retiring quota is more common for incentive plans which are YTD or QTD, because quotas tend to be large and retiring the quota represents a significant milestone. Example: “Ted already retired his annual quota – his sales were $110,000 for an annual quota of $100,000”.

Plan Targets – To define a commission structure, you have to measure sales performance. You could measure the performance of specific individuals, or you could measure the performance of specific territories / teams. Those individuals or teams are plan targets. Note that payees may differ from targets. For example, you could measure the performance of teams (so those teams are plan targets) but pay managers. Or you could measure the performance of individuals (so those individuals are plan targets) but pay their managing VPs. Make sure to use a solution which offers this level of flexibility.

Ramped Quotas – A ramped quota is a quota which gradually increases over time. Ramped quotas are often used to artificially reduce quotas for new employees while ramping up (ex: building a new pipeline of deals). Often, the ramped quota is calculated based on current employment duration. Example: “New employees will receive a ramped quota, which is 30% of their regular quota for their first month of employment, and 60% of quota from their second to fifth month of employment”.

Reward – A reward is equivalent to a commission payout, but a bit more general. For example, rewards may include non-monetary incentives such as perks, badges, emails, prizes, etc. Example: “Reps who attain 150% of quota in Q1 will receive an extra 2% commission for all their Q2-Q4 deals”.

Release – After calculating commissions (manually or automatically), you have to decide when to publish commission statements to your payees. The release process consists in publishing either intermediary (ex: mid-period), or final (ex: frozen) commission statements to your payees. With manual spreadsheets, you would manually distribute them, or send them via email. With an automated commission system, you would release them to your reps’ online dashboards.

Rollups – Whenever there is some type of hierarchical structure, there is an opportunity for rollups. The rollup may apply to crediting, and/or to payouts. For example, territory managers could have their performance measured based on how each region they manage performs. Or, a VP of sales may be paid based on commissions received by his/her employees. Example: “For the purpose of crediting, each regional VP will be credited for all strategic sales within their territory hierarchy”.

Sales Contest – A sales contest is a type of incentive plan which is based on relative performance (i.e. a rank). Based on each rep’s ranking, the highest performers will receive rewards. Sales contests are often used to promote friendly competition. Example: “Next month, we’re having a sales contest for APAC SDRs – the SDR who books the most appointments will win a trip to Mexico”.

Spiffs – A Spiff is a special one-off incentive. Spiff is sometimes understood as “Special Performance Incentive Fund”, and sometimes as “Special Performance Incentive Fund”. Therefore, there is no single definition of Spiff (other than being special). Typically, spiffs are allocated from a unique budget, are limited in duration, and exist in addition to mainline commissions. Example: “In Q1, we’ll include a $5,000 spiff for the person who closes the most deals”.

Splits – A split happens when 2 reps with the same role receive commissions on the same deal. The split may be a crediting split (ex: each rep gets credited half the deal’s amount). Or, the split could be a commission split (ex: each rep gets credited for the full deal’s amount, but only receives half their calculated commissions). Example: “Bob and Janes are splitting commissions on this deal”.

Statements – Most organizations provide periodic commission statement to all payees to inform them of their payouts and to increase transparency. Those statements can be spreadsheets with attainment, payouts, etc. Most statements include a time period and explanations as to how commissions were calculated. More detailed statements can include a list of deals, per-deal commission rates, split details, etc. Example: “We’ve now generated all February commission statements for the APAC team, and are ready to send them”.

Score – While most incentive plans use revenue or profit to measure sales performance, some plans need to “count” commissionable events (ex: the number of appointments booked, the number of deals originated, the number of solar sale installations completed, etc.). For those cases, using a score makes sense. Often, the calculated score is simple (ex: 1 point per appointment). However, some organizations may require more sophisticated scoring. Example: “Reps will be credited with 90% of revenue for gen-1 products, and 120% for gen-2 products, because we want to promote sales of gen-2 equipment”.

Tiers – Many incentive plans measure attainment, and define nuanced payouts depending on attainment. Tiers define bands of attainment, each having associated rewards. Tiers can be cumulative (in which case lower attainment tiers will also have their rewards triggered), or non-cumulative (in which case only the highest attained tier counts). Also, each tier may pay commissions over all transactions, or only over in-band transactions. Example: “Our AE plan has 4 cumulative tiers – below 40% quota, 40-100% quota, 100-200% of quota, and 200+% quota”.

Transactions – To measure sales performance, you could use invoices, deals, opportunities, orders, bookings, appointments, payments, leads, credit memos, sales receipts, etc. A transaction represents any of those! More generally, a transaction is a commissionable event. Example: “To calculate commissions, we’ll import SalesForce orders and QuickBooks payments as transactions”.

Variable – A rep’s variable is their total expected commission amount at 100% quota attainment. Typically, reps have both a base salary component, and a variable component. The variable component will be received in full if performance is at the “expected” level. Often, base commission rates are calculated by dividing rep variables by corresponding quotas. This way, attaining 100% of quota means paying the variable in full. Example: “Martha’s variable for January is $1,000, and she has a monthly quota of $10,000, so her commission rate is 10%”.

Withholdings – Sometimes, commissions are calculated but remain unpaid until actual payment is received from customers. In this case, commissions are essentially withheld until approved. Your reps should have a way to track which deals are awaiting payment. Example: “Fred has 3 commissions awaiting payment from customers”.

In Conclusion

Did we miss some important commission-related definitions? Let us know by visiting us online and leave us a message. We’d love to hear from you!

• Commission rules are too complex relative to the number of payees
• Commission rules require manual decisions which are incompatible with automation

Commission Complexity vs. Number of Payees

The following “ingredients”, while complex, are also standard constructs in the unique world of sales commissions:

• Attainment tiers
• Cumulative payouts
• Non-cumulative payouts
• Recoverable draws
• Quotas and attainment
• Claw-backs / charge-backs
• Delayed / partial payments
• Triggered payment of commissions
• Etc.

Because these are standard constructs, they are a breeze to automate. We can then easily configure your automation visually – like this:

There can be some situations where we need to use formulas, but configuration remains straightforward. Here is an example of slightly more advanced logic. Here, our customer wanted a different behavior depending on whether commissions were calculated for the first half vs. second half of the month. Don’t worry if this formula doesn’t make sense. This is only to give you a feel for the type of logic we configure for our clients.

Where things start breaking down is when a client wants us to automate commissions for 8 payees with 5 different roles (ex: AE, VP, SDR, etc.) and 4 commission components per role (ex: monthly commissions, quarterly bonus, Joe’s unique incentives, etc.). If you do the math, this means configuring 20 plans for 8 payees. Worse, some small organizations also include dozens of additional one-off commission rules (some simple and some complex).

While configuring all this logic is very much doable, we feel this is quite unreasonable for a small organization, and gracefully bow out. Indeed, even if we were to automate all those rules, some inescapable complexity would remain. For example, even though calculations are fully automated, you should still audit them. You will also need to refresh metrics (ex: quotas) from time to time. And a fragmented commission structure will likely evolve, generating more complexity for a small team of payees.

In other words, the complexity of a commission structure should be commensurate with the number of payees. If the total number of commission components is more than twice the number of roles, something is probably wrong. Also, if there are 7 payees for 5 roles, it’s time to rethink your commission structure and simplify. You don’t want the cost of managing commissions to exceed commission payouts – right?

Commission Rules Incompatible With Automation

Sometimes, potential clients ask us to automate commission rules such as:

Subject to manager and VP approval, commission rates will be increased by another 20% for strategic deal which result in upsell opportunities

If an AE deal originated from a BDM, the AE’s commission will be split with the BDM based on their mutual contributions

Unfortunately, when we see this type of vague language, we know it’s time to gracefully bow out. Why? Because those types of fuzzy rules cannot be automated. In the first example, managers and VPs have to make manual decisions whether a deal qualifies for extra commissions. The only way to automate this would be to configure a workflow process asking managers to review and approve deals. But, what if the manager is on vacation? Now, we also need an escalation process. Maybe a VP override mechanism. This opens a whole can of worms.

Also, whether a deal will result in “upsell opportunities” is subjective, and not something we can automate. Sure, if you’re willing to customize your CRM and add more data tracking fields (such as one tracking if extra commissions are approved), we can add simple commission logic (example below). Otherwise, automation is NOT going to solve your commission headaches because you will still need your managers to make a lot of manual decisions, constantly override amounts, constantly make adjustments, etc.

The same applies to the “split” commission example above. We understand you are trying to be fair by splitting commissions, but you are also splitting hairs. Here the same rationale applies. If you can provide a tracking data field with each person’s contribution as a percentage, we’ll happily configure split commission rules. Otherwise, you’ll constantly have to make manual decisions and specify overrides within the application, which completely defeats the goal of automating commissions.

In Conclusion

When potential clients reach out and ask us to automate commissions, we try to assess if they are a good candidate for automation. We ask ourselves:

• Is their commission complexity commensurate with the number of payees? If not, automation is not going to help because some unreasonable “inescapable complexity” will remain after deploying automation. Calculations still have to be audited. Payouts still have to be released. Quotas still have to be refreshed. Etc.
• Are commission rules compatible with automation? If payouts are based on manual decisions, automation will fail to deliver because manual intervention will be required all the time. Rules which mention special approvals or conditional splits often cannot be automated because they are not backed by tracking data.

Visit us online to learn more about automating your sales commissions!

Commission-Related Tables

Your Sales Cookie environment is where all your commission data lives (incentive plans, rep dashboards, commission calculations, attainment thresholds, payout rates, etc.). Using Excel, you can easily connect to your Sales Cookie cloud environment and retrieve commission data. To analyze payouts, you only need to use a few of the available data tables. For a complete list of tables, see this list.

• Plan – Plans represent commission structures. Each plan has a set of eligibility, crediting, attainment, and payout rules.
• Calculation – Calculations determine commission payouts for one specific plan (ex: Quarterly Bonus) and period (ex: Q4).
• CalculationCommission – Calculation commissions track per-transaction payouts. Calculation commissions do not track payouts which are not transaction specific (ex: cash bonuses).
• CalculationCredit – Calculation credits track which transactions were credited to which users / teams. Calculation credits are also used to determine attainment.
• CalculationResult – Calculation results summarize payouts per payee. Calculation results do not track commissions at the transaction level.
• SystemUser – System users are users within your workspace. They can be admins, payees, etc.

Each table is linked to other tables. For example, each record in the CalculationCommission table points to a beneficiary (aka payee) within the SystemUser table. Don’t worry if those relationships look a bit cryptic. We’ll walk you through everything!

Connecting Excel To The Cloud

Connecting Excel to your Sales Cookie environment is super easy! First, login to your Sales Cookie account, and copy your API URL from your profile.

Next, open Excel and select this option.

Paste your API URL and Excel is connected to your Sales Cookie environment! Excel will show you all available tables. Sales Cookie is a powerful platform with open APIs, so all kinds of tables are available. However, to analyze commissions, you’ll only use a few tables mentioned previously.

As an example, we’ll only select the CalculationCommission table. This table stores per-transaction commissions. Excels shows us sample data within the CalculationCommission table. It also gives us the option to first transform the data. Let’s do this!

Each CalculationCommission record refers to other tables. For example, each CalculationCommission record points to a payee within the SystemUser table (via its BeneficiaryId field). Our goal is to retrieve payee email addresses and first/last names. To retrieve fields from related tables, choose this option.

Retrieving Data From Related Tables

Here is what our CalculationCommission table looks before transformation. As you can see, some of the fields, such as Value, have actual data (here Value means payout). Other fields look more like IDs because they reference other tables.

If we scroll to the right, we can see related records like this:

To pull fields from related records, all we have to do is click on the “split arrow” icon. This allows us to expand the related record, and select fields from it. Below, we expanded the Beneficiary linked record to grab its email address and first/last name.

Awesome – we can now see fields from our CalculationCommission table AND the related table!

We’re done with our data transformation. Let’s close the editor and load the spreadsheet.

Here are the first 3 rows of our loaded spreadsheet (with fields from the CalculationCommission and related table). Now we can clearly analyze who got paid what.

Our Excel spreadsheet has a live connection to the Sales Cookie cloud environment, so we can refresh its content with just one click.

The Sky’s The Limit!

We can now create all kinds of commission reports using a tool we’re very familiar with – Excel. For example, we can run forecasts, review data insights, add pivot tables, and build charts such as this Pareto chart.

In Conclusion

If you have hundreds of payees, manually generating commission spreadsheets is a time killer. You won’t be able to create global reports spanning multiple payees or periods. And if a single commission spreadsheet changes, your reports becomes invalid, and need to be re-generated. Using Sales Cookie, you can calculate commissions across hundreds of payees, with then analyze everything live from Excel. Visit us online to learn more!

What Sales Engineers Do?

Sales Engineers are responsible for facilitating sales during the discovery phase. They are most active when a client evaluates a product’s fit or capabilities from a technology perspective. At times, they work behind the scenes, answering questions from the sales team about technical capabilities, limitations, or scenarios. Sometimes, they actively engage with customers. For example, they may actively present technical capabilities, create a deployment roadmap, or describe a technical architecture to customers. In short, Sales Engineers are responsible for describing the technical and functional aspects of a solution, discovering potential issues, and offering technical recommendations. Let’s say your company is selling propellers for submarines. A Sales Engineer may answer questions (from the sales team and from clients) about material durability, power consumption, etc. They might propose a solution to assemble 3 propeller components to fit a new type of submarine, and bundle those 3 components as a package.

The Data Tracking Problem

Ideally, one would pay commissions based on an accurate measurement of each Sales Engineer’s impact. However, this implies it is possible to accurately measure and track their contribution for each sale. However, their degree of involvement often varies based on need. For example, a Sales Engineer may answer a quick question for one client, but spend long hours doing some technical research for another client. Their impact on each sale also varies. A Sales Engineer could be instrumental to a sale (for example finding a technical solution when things looked “stuck”). Or they might just answer routine technical questions when the sale was already virtually guaranteed. Therefore, tracking each SE’s exact contribution per sale can be difficult and it requires more tracking discipline than most organizations tolerate.

This is why many organizations:

• Use team / territory based commission plans for their SEs
• Limit the variable component of on-target earnings for their SEs
• Create clear career paths and seniority ladders for their SEs

Typical Sales Engineer Commissions

Many sales engineers have 70% or more of their compensation fixed (i.e. based on a salary), and 30% or less variable (i.e. based on commissions and bonuses). Often, the variable component is lower (ex: 10%) because it’s so difficult to measure their performance on a per-deal basis. However, Sales Engineers often have more structured career paths than other sales roles, with titles such as “Senior SE”, “Principal SE”, etc., where each ladder level includes additional compensation. Their managers are responsible for measuring true performance and granting promotions.

Typically, Sales Engineer commission plans (when offered) are based on territory or team performance. Sales engineers often receive low commission rates such as 0.5% or 1% of revenue over their territory. Sometimes, only specific types of deals (ex: strategic deals) are included in the territory’s total. Also, some organizations prefer to pay a cash bonus to Sales Engineers based on their territory reaching specific goals. This is more in line with the philosophy of offering a stronger base and lower variable.

As an alternative, some organizations compensate Sales Engineers based on client satisfaction or related metrics (ex: time to onboard, time to deploy, etc.). Other organizations choose to compensate Sales Engineers based on ratings from their internal sales team. Using those metrics often makes more sense than paying a percent of revenue because they better capture what is expected of Sales Engineers.

A Brief Look At Sales Engineer Compensation

There are plenty of surveys and job offers available online for you to analyze. As an example, below is sample SE compensation in a mid-sized organization with over 100 Sales Engineers. As you can see, the fixed component represents 75% of total compensation, while the variable component represents 25% – this is very typical. For comparison, an Account Executive would have a much larger proportion of their OTE allocated to variable pay. This makes sense – the more difficult the sale (ex: requiring more aggressive sales tactics), the higher the variable component should be to provide some upside to reward risk.

In Conclusion

If you’re selling complex solutions, Sales Engineers are instrumental to the sale process. Because Sales Engineers typically have career ladder levels and greater opportunities for promotions, their variable component should be lower than other sales roles. To incentivize your Sales Engineers, you could:

1. Attempt to track their contribution to each sale and individualize commissions
2. Measure performance at the territory level and pay a percentage of revenue
3. Offer pre-determined bonuses when a territory achieves specific goals
4. Pay commissions based on metrics such as average time to onboard

Visit us online to learn more about automating your commissions.

Payout Timing & Predictability

With YTD commission plans, reps often earn larger commissions towards year end. Indeed, they must first retire sufficient quota before they become eligible for higher tiers. With a YTD structure, this can take months. With QTD plans, on the other hand, quotas are reset every quarter. Therefore, reps have several opportunities to reach higher commission tiers during the course of a year.

A typical YTD commission payment profile looks like this:

A typical QTD commission payment profile looks like this:

Here, the advantage goes to QTD plans because commissions are better distributed over time. The average spend is more evenly spread (vs. being heavily weighted towards year end). In fact, YTD plans can result in bad surprises. In December, one might discover that many reps crushed their YTD quotas, making you liable to pay much larger commissions than previously within the same year. For this reason, a YTD commission structure can make commission spend budgeting a bit more difficult.

Commission Agility

QTD plans give you an opportunity to change your commission structure more frequently (ex: every quarter). Using YTD plans, it’s more difficult to change plan parameters (ex: quotas, crediting rules, payout rules, etc.). If your reps are on a YTD plan, they’ve been working for months towards retiring a large annual quota. Changing quotas mid-period may prove challenging. The same applies to payouts or crediting. If a change is made mid-year, YTD plans must deal with both “old” (backward-compatible) and “new” (forward-compatible) commission rules. With QTD plans, you can isolate the complexity of dealing with changes within a single quarter.

Once again, the advantage goes to QTD plans because they allow you to more easily make adjustments, add or remove spiffs, and better respond to unique situations (ex: an economic crisis, a competitor going out of business, a territory re-design, etc.).

Impact On Rep Motivation

Here are some things to consider:

1. Whether you use YTD or QTD plans, there will be some type of “reset”. Reps will be assigned new quotas and start all over from scratch. With YTD plans, this reset happens every January. With QTD plans, this reset happens every 3 months. With QTD plans, this reset is more frequent but less abrupt. With YTD plans, most reps earn their highest commissions towards year end. Therefore, starting from zero in January is often a bigger letdown than starting from scratch every quarter.
2. With QTD plans, some reps may try to manipulate the timing of deals, so that they “magically” appear with a specific quarter (with the hope of earning higher commission rates within a quarter). With YTD plans, this type of manipulation is meaningless. However, QTD plans help you motivate your reps to close as many deals as possible each quarter (vs. just in Q4).
3. With YTD plans, it might take your reps several months of hard work before they become eligible for higher commission rates. Some may get discouraged because their hard work isn’t being rewarded along the way. QTD plans provide an opportunity for more immediate rewards. Also, higher performers might get too comfortable if they know they are now eligible for higher rates (no matter what happens). QTD plans tend to create more sales motivation.
4. As mentioned previously, YTD plans have a different spend profile from QTD plans. What do your reps like? Do they prefer more lavish payouts in December? Or do they prefer to crush it every quarter and have a shot at exciting payouts every 3 months?

Impact On Spend

As previously mentioned, YTD plans leave the door open to bad surprises. In December, you might discover that many reps crushed their YTD quotas, making you liable to pay large commissions. Using QTD plans, you have an opportunity to more frequently adjust quotas, adjust payouts, etc. This can reduce your overall spend because, after all, you’re not committing to a commission structure for a whole year.

One advantage of YTD plans, however, is that only committed reps can become eligible for higher commission tiers. If a rep works 4 months at your company and leaves, it’s unlikely they would have qualified for higher commission rates. So, you won’t overspend on reps whose tenure was short. This said, you may find it easier to retain high performers if they don’t need to wait a whole year to see the benefits of their hard work.

Are Quarters Too Short To Measure Performance?

One characteristic of YTD plans is that they measure performance over the course of an entire year. Therefore, you may wonder whether 3 months is too short to accurately measure sales performance. The answer is – probably not. Even if a rep goes on vacation for 2 full weeks during one quarter, their active time still represents 89% of a normal working quarter. This may be more of an issue if you have employees with extended leaves.

With YTD plans, a rep could take an entire month off, and make up for lost time months later. However, if you want to encourage more sustained (and reproductible) performance, a QTD approach makes more sense. In short, do you want your reps to run a marathon, or sprints? With a marathon, some reps may get discouraged, take along break, or give up.

Calculating QTD / YTD Commissions With Monthly Payouts

Here we’ll focus on calculating commissions for QTD plans, but this is equally valid for YTD plans.

There are two primary ways you can measure QTD sales performance, yet pay commissions more frequently (ex: monthly, weekly, etc.):

• Approach 1 – with deductions
• Approach 2 – without deductions

Approach 1 – With Deductions

We will always re-calculate from quarter start. Each month, we will re-evaluate all sales QTD, determine attainment for each target, and calculate the total commission due – QTD to each payee. However, we will deduct what has already been paid in previous months within the quarter.

Let’s say you already calculated commissions for January 1 to January 31. You now want to calculate February commissions. We will process sales from January 1 to February 29, determine QTD attainment, and calculate the total commission due QTD to each payee from January 1 to February 29. And then, we will deduct what was already paid in January (so that you don’t double-pay commissions over January sales).

Approach 2 – Without Deductions

We will always calculate from quarter start. We will evaluate all sales QTD, and determine attainment for each target. However, we will only issue commissions for sales within the current calculation period.

Let’s say you already calculated commissions for January 1 to January 31. You now want to calculate February commissions. We will process sales from January 1 to February 29, and determine QTD attainment. However, we will only calculate commissions for February sales. No deductions are required.

To learn more about how to configure plans for QTD and YTD scenarios, please review the following articles:

https://support.salescookie.com/en/article/recipe-how-to-setup-a-monthly-plan-with-qtd-attainment

https://support.salescookie.com/en/article/recipe-how-to-setup-a-monthly-plan-with-qtd-attainment

In Conclusion

QTD plans are preferable to YTD plans because of the following characteristics:

1. Commission agility. Each quarter is an opportunity to adjust things. You’re not committing to one structure for a whole year.
2. More even spend. Payouts are more evenly distributed over time vs. skewed towards a heavy Q4.
3. More motivating. Each quarter, your reps have an opportunity to earn higher commission rates vs. patiently waiting for year end.

Some of the downsides of QTD plans include:

1. Reps don’t need to complete an entire year of service to earn higher commissions. This may be a problem if turnover is high.
2. Some reps can manipulate the timing of closed deals so that they appear within certain quarters. This is meaningless with YTD structures.
3. Reps can’t take extended breaks because they are running sprints, not a marathon.

Visit us online to learn more about sales commission automation!

Looking for a free tool to calculate tier-based commissions? Click here!

In this blog post, we will cover different structures, such as:

• Example 1 – simple tiers (revenue)
• Example 2 – capped tiers (units sold)
• Example 3 – net-based tiers (revenue)
• Example 4 – rollup tiers (revenue)

The main parameters you will need to define for your commission structure are:

• A tier metric (ex: revenue, margin, quantity, etc.)
• Tier thresholds (ex: 0-100, 100-200, etc.)
• Tier commission rates (applied to the portion within each tier)
• Tier bonuses (applied to the total for hitting certain goals)
• Tier caps (if you have limits within each tier)

Example 1 : simple tiers (revenue)

Consider sales worth $12500. We will determine which portion of revenue falls in each tier, and apply the tier commission rate to each portion.

We will also pay an incremental cumulative bonus amount based on the highest attained tier (see the “Bonus Rate” column in our commission structure) over the entire amount.

Example 2 – capped tiers (units sold)

Here we will work with units sold. We’ll set a cap of 90 units within the 50-100 tier. Consider sales of 150 units worth $100 each. We will determine which portion of the total quantity falls in each tier and apply the tier commission rate to each portion. To handle the cap, we’ll pay commissions over the entire 50 units within the 50-100 tier. However, because our cap of 90 was exceeded, we’ll deduct commissions for those 10 units above 90 within the 50-100 tier.

We will also pay an incremental cumulative bonus amount based on the highest attained tier (see the “Bonus Rate” column in our commission structure) over the entire amount.

Example 3 – net-based tiers (revenue)

Consider sales worth $12500. We will determine which portion of revenue falls in each tier and apply the tier commission rate to each portion. However, within each tier, we won’t apply the commission rate to the entire in-band revenue. Instead, we will apply the commission rate to the in-band revenue minus the commission. Essentially, the commission is deducted from revenue before the commission rate is applied.

We will also pay an incremental cumulative bonus amount based on the highest attained tier (see the “Bonus Rate” column in our commission structure) over the entire amount minus the commission.

Example 4 – rollup tiers (revenue)

Consider sales worth $12500 and the following hierarchy. Note the new “Override Rate” column in our commission structure. The key point here is that we won’t aggregate sales from Sam and Jane to calculate Bob’s commissions (indeed, this would lead to higher commission rates, which seems unfair). Instead, we’ll calculate Sam and Jane’s commissions separately, and do it again but using Bob’s override commission rates.

             Bob
              |
    __________|__________ 
   |                     | 
 Sam                    Jane

In Conclusion

In this article, we described different ways to calculate commissions based on tiers. Some of our tier-based commissions were non-cumulative – i.e. they were applied to the portion within each tier (in-band). Some of our tier-based commissions were cumulative – i.e. they were applied to the entire amount (as a bonus for hitting certain goals). We also showed you how you can deal with caps and overrides. Many other permutations are possible. The goal here was to get you thinking about various nuances of tiers and their mechanisms (cumulative vs. non-cumulative, capped vs. non-capped, net vs. gross, etc.).

The hard part if of course to implement your chosen approach using Microsoft Excel / Google Sheets formulas. Also, we showed you how to calculate commissions based on total sales. However, your reps would likely want to see a breakdown of commissions per sale. What this means is that you’d calculate commissions the same way, but on a per-sale basis. First, sort sales by date, and determine which sale fell within which tier. Also, some sales may cross tiers, in which case you should “split” those sales into 2 portions, and apply the right commission rate to each portion (blended rates) as we did previously.

This gets more complicated and messier when dealing with a large number of reps. You can use our free calculator to get it right. If you’re tired of manually calculating commissions, or want to improve transparency & accuracy, automation is the way to go. Here is what your automated commissions could look like. Visit us online to learn more.

If so, the Certified Sales Compensation Professional Certification could make sense. However, is it really worth the cost, time, and effort? Are you even ready for the CSCP? Is the CSCP well recognized? At Sales Cookie, we’re passionate about automating commissions. Here’s our take on the CSCP.

The CSCP Certification

CSCP stands for Certified Sales Compensation Professional. While other other organizations offer some commission-related certifications, WorldatWork delivers a pedigree which is reasonably well-recognized within the Sales Ops community. Certified individuals demonstrate a broad understanding of commission structures, incentive management, and much more. Also, the CSCP certification is quite specific to commissions, and it comes with some worldwide recognition, making it more portable than other more obscure certifications.

About WorldatWork

WorldatWork helps commission professionals learn more about Sales Operations and excel in their position. They offer many training programs whose level of difficulty range from beginner to expert. They publish online contents such as magazines, guides, surveys, etc. They are well known for organizing conferences, allowing sales ops leaders to network and share best practices. Some of their events focus on narrow subjects (ex: executive team benefits). Others are more general and geared towards a broader audience. Finally, they certify sales commission professionals via the CSCP certification.

Preparing For The CSCP

There is no official course for the CSCP. The CSCP tests knowledge acquired on the job. Therefore, real-world experience with commissions is required before considering taking the CSCP. It’s not enough to simply read general content about sales commissions. Those rarely don’t cover all the tricky “gotchas” associated with commissions.

If you’ve never had to implement a claw-back, you’re probably not ready for the CSCP. In general, a minimum of 2 years of experience in sales ops is necessary to acquire the knowledge required to pass the exam (as per their website). Sales commissions is a complex subject which takes time to master.

Because commission structures (and associated implementation challenges) vary widely from company to company, having experience managing commissions for multiple companies is a good idea. Attending events and conferences related to sales commissions can also help you learn about different permutations.

Some experience with commission software solutions is also a must. A solid understanding of key mechanisms fundamental to sales commissions is required, including:

• Crediting / splits / rollups
• Attainment / quotas / tiers
• Claw-backs / manual adjustments / corrections
• Recoverable / non-recoverable draws
• Variables / OTE compensation
• Incentive spend / budgeting
• Payroll execution

For example, if your experience is limited to payroll execution, consider broadening your knowledge to other areas of sales commissions before taking the exam. Most candidates for the CSCP have contributed to plan design and implementation.

CSCP Exam Topics

The CSCP test encompasses 70 different topics! The CSCP certification evaluates your knowledge of sales commission in different categories such as:

• Sales roles & plan eligibility
• Commission plan design
• Communicating incentive plans
• Sales objectives & attainment
• Incentive spend analysis
• Plan administration

CSCP Total Cost

First, consider joining WorldatWork for a discount. Then, expect to spend about $1000 on the exam. Note you can save money by taking the much cheaper “practice” exam to make sure you are ready. You also have to account for your own time while preparing for the CSCP. We’ll leave this exercise to your discretion.

Even if you fail the CSCP, you’ll have gained a ton of knowledge while preparing for the exam. Most candidates succeed on the first or second attempt. It’s OK to fail and re-take the exam as it’s not an easy one. Also, it may take one full “run” to really know what to expect and improve.

Finally, consider asking your company to pay for the exam. Some companies reimburse exam costs if their employees pass. Others reimburse exam costs regardless of success. In any case, your organization would greatly benefit from having a CSCP-certified employee on payroll.

Is The CSCP Really Worth It?

Don’t expect a lot of companies to ask for the CSCP certification in their job postings. By any means, the certification is not considered prestigious – nor is it a must-have for commission-related positions. Indeed, the certification is delivered by a for-profit organization, so there is no clear quality benchmark.

However, what the CSCP does is demonstrate some clear motivation from you. It provides clear evidence that you are on a path to master sales commissions. Also, you’ll gain much knowledge while preparing for the exam. More importantly, this knowledge will benefit many people around you.

For example, it will help you:

• Create more successful commission plans
• Ensure your reps are happy and motivated
• Improve commission transparency
• Handle tricky commission-related scenarios
• Help your company better manage spend
• Reduce stress on the sales ops team
• Mentor other sales ops professionals
• Connect with other top Sales Ops professionals

In Conclusion

The CSCP exam is specialized yet covers broad topics. It requires prior real-world experience with commissions. WorldatWork is a private for-profit organization, so recognition is limited. Your CSCP certification probably won’t impress your VP. However, getting certified is guaranteed to benefit you in the long run. It will help you join an exclusive club of highly motivated and skilled Sales Ops pros. To learn more about sales commissions, visit our blog salescommissionsexplained.

Quotas help:

• Ensure commissions are fair
• Highlight successful & struggling reps
• Regulate the cost of commissions
• Reveal issues within the sales process
• Create sales benchmarks and goals

Setting quotas is an art. In practice, it’s difficult to define quotas which are attainable yet challenging. Many organizations spend significant time and effort setting quotas. While methods used to set quotas vary from organization to organization, the same traditional patterns are often used. Unfortunately, those traditional patterns do NOT involve reps. In this article, we explain why and how you can involve your reps to define quotas.

Traditional Ways To Set Quotas

The two traditional ways to define sales quotas are a/ top-down and b/ bottom-up.

Top Down

With the top-down approach, the organization sets a goal for a given period (ex: quarter). The goal could be set by the Finance department, by analyzing historical sales, by analyzing trends, etc. Quotas are then assigned to reps or territories to support this overarching goal. Managers, in turn, are responsible for proposing goals based on the overall objective. In any case, it all starts with a stated goal. You then work backwards to assign individual goals to reps.

Bottom Up

The bottom-up approach consists in identifying what each rep can deliver based on their own historical performance. In a perfect world, sales quotas should be challenging, yet realistic. The bottom-up approach helps you define quotas with are attainable (since they are based on historical rep performance). Attainable quotas help your team remain motivated! Unreasonable quotas hurt motivation and create all sorts of business planning issues because they are unrealistic.

Involving Your Reps

Above, we described two main ways to set quotas. Note that, with both approaches, management remains responsible for setting quotas. Even though the bottom up approach starts by analyzing what each rep can deliver, reps don’t have a say in how quotas are set. There are two main ways you can improve:

• Have your reps propose initial quotas
• Make quota setting a negotiation with your reps

Sometimes, analyzing historical sales performance isn’t enough to predict future performance. It may not account for seasonal variations, product challenges, planned vacations, etc. For example, a rep who trained other reps last quarter, and no longer has this responsibility, probably should strive for a higher quota. Having your reps propose initial quotas can help you learn how much they think they can sell next period (realistically).

Involving your reps also means you won’t receive as many complaints about “arbitrary quotas”. Often, reps resent quotas because they have no idea how they were set, or even who set them. Did the VP of sales set quotas? Or was it the Finance department? Or external investors? By involving reps in your quota-setting process, you increase their ownership of goals that they helped define.

Finally, involving reps during quota setting helps normalize goals. For example, if Eric proposes a quota of $100K, while Jane proposes a quota of $200K, it makes sense to ask Eric why his proposed quota is so much lower. This normalization effort becomes more meaningful when reviewing an entire team’s list of proposed quotas. You’ll quickly find out who is ambitious and who isn’t. The normalization process can also help you communicate goals which are consistent across the board.

How To Negotiate Quotas

Our recommendation is to use a back-and-forth negotiation process to set quotas. This involves receiving proposals from your reps, and making counter-proposals. Instead of just starting bottom up or top down, consider the following approach:

• Start with an overall goal across the organization
  • Next quarter, the goal is $350K in sales (from Finance)
• Ask your reps to define their own initial goals
  • Eric and Jane, what do you think you can close next quarter?
• Normalize goals using team discussions
  • Eric, why is your quota half of Jane’s quota?
• Roll-up individual goals & compare with your overall goal
  • Based on Eric and Jane’s own estimates, we should be able to close $300K in sales next quarter but we want to get to $350K.
• Counter rep proposals based on the difference
  • Guys, based on your defined goals, we’d be in trouble and need another $50K in sale – can you propose some adjustments?
• Continue negotiating until you have alignment
  • Eric, if you could increase your quota a bit, I’m ready to throw in a spiff if you reach 110% of your goal. I also asked our VP of Sales and he said that $325K in sales overall is OK with him so we’ll meet you in the middle.

That’s it! Your reps provided you with realistic estimates. You used team meetings to normalize quotas and correct for over / under-optimism. You then measured the overall business impact of rep-initiated quotas. Finally, you negotiated individual quotas with your reps based on the overall business impact. Your reps are happy that you asked for their feedback, and are motivated to reach goals they helped define. They understand how their own goals support the business, and how quotas were set.

In Conclusion

Working with your reps to set meaningful quotas is just part of the equation. To truly motivate your reps, you must make sure your incentive program is transparent and accurate. Sales Cookie can help you deliver the motivation you need by automating your entire commission program and delivering clear goals to your reps.

What is the exact definition of OTE?

On-target earnings (also known as OTE or “on-track” earnings) represent expected total earnings for a given role when all expected performance goals (ex: quotas) are satisfied. OTEs are quite common in sales positions because they help reps estimate what their commission should be and because they help organizations define a commission budget.

Is the OTE on top of salary?

No. The OTE is the total expected payout for a given role, including base salary and variable payouts (commissions). The OTE represents what the payee should see on their W2 statement as their total earning, should they meet all their goals. Please note that the OTE normally does not include compensation for special situations such as overtime, one-off bonuses, benefits, etc.

What are the benefits of using OTEs?

Here are some reasons why many companies use OTEs when defining commission structures:

• To forecast the cost of sales commissions
• To allow your reps to estimate how much they could earn
• To define a commission rate or percentage (we’ll explain how below)

Defining OTEs helps you define how much you will spend on commissions, how much your reps will earn, and what percentage you should pay in commissions.

How to communicate OTEs?

Your OTEs should be numbers that your payees understand and agree to (ex: defined within your incentive program’s terms and conditions). This will ensure your OTEs are clear and transparent. Also make sure they are realistic and that corresponding sales objectives can be met. Avoid inflating OTEs during the hiring process. This would be unethical and misleading. Solid performers should be able to consistently receive their full OTE. More realistic OTEs will energize your sales team, and reward reps for their work. Note that good reps always ask how many payees actually meet their OTE before accepting a position.

Should commissions be capped to the OTE?

You may be wondering if you should cap earnings to the full OTE. This may discourage your best performers who are looking for “unlimited compensation” (or at least some upside when exceeding goals). In addition, there will be fluctuations over time (some months may be slower than others). Blindly capping monthly payouts based on a pro-rated monthly OTE could unfairly penalize your reps.

Here are different approaches you can use:

• Uncapped – your top performers are free to exceed their OTE without any limit (you may even include accelerators above quota)
• Capped – each pay period, payouts are capped to the OTE multiplied by a value such as 1.5 (i.e. a maximum safety margin)
• Capped with adjustment – same as the above, but there is some “catch up” adjustment at the end of the quarter where you pay the difference

About 50% of your reps should be able to receive their full OTE. Some will underperform, so you will pay less than OTE. Some will overperform, so you will pay more than OTE. Assume things balance out, the average spend per rep will be close to OTE.

How to calculate commission rates from OTE?

One benefit of OTEs is that they help you determine a per-deal commission rate. This is a lot more reliable than trying to figure out whether you should pay 6% commissions vs. 7% commissions.

Simply take each role’s OTE and deduct the base salary. This gives you the on-target variable component for each role. Now, divide this on-target variable component by each rep’s quota. You now have a per-deal commission rate you can use to pay your reps. If they hit 100% of quota, they will receive their full OTE. This approach is more reliable than trying to figure out a commission percentage based on your industry. It also makes spend and earnings more predictable for you and your reps.

Commission Rate = [OTE – Base Salary] / [Quota at 100%]

What questions to ask about OTEs during a job interview?

If you are interviewing for a position, we recommend the following:

• Make sure there is clear agreement regarding the definition of OTE. Some job postings incorrectly state you will receive “salary + OTE” which should be a red flag. OTE always represents total expected earnings (i.e. salary plus variable).
• Ask how many reps met their OTE. Some companies are optimistic and advertise high OTEs. In reality, only a small percentage of reps receive their full OTE. If they don’t know, ask how their OTEs were determined (ex: based on historical payouts?).
• Ensure your OTE is documented within your incentive program agreement. Ask whether your OTE will be used to actually calculate commissions, or whether it’s only informational.
• Check that your OTE is competitive. Check how much of your OTE will be base salary vs. variable (pay mix). Check whether your earnings will be capped to your OTE or can exceed it. See our earlier paragraph about OTE and caps.

How to determine OTEs?

You could base your OTEs on the average yearly earning of your top 50% reps (ex: check their W2 statement). Using this simple approach, your OTEs will be realistic (assuming those “better” reps did meet their goals). Historical payouts provide a reliable benchmark to define how much reps should expect to earn when meeting goals. Note that you may need to pro-rate OTEs based on role, seniority, etc.

If you need to determine OTEs from scratch, start by defining a desired pay mix for each role. Typically, the variable component should be increased as selling gets more difficult. A higher variable helps generate additional rep motivation to close deals requiring more effort because they have more skin in the game.

In our example below, our Account Manager has some account maintenance responsibilities. Therefore, his/her base salary represents the bulk of the OTE (70%). The variable component is much lower (30%). However, our Business Development Manager is expected to adopt a more aggressive sales posture. Therefore, his/her base salary percentage is lower (40%). The variable component is higher (60%). This reflects a “more risk, more upside” approach.

If you know the base salary for each role, and have also defined a pay mix, you can calculate the OTE. For example, if an Account Manager’s base salary is $70K, and this represents 70% of their OTE (based on the pay mix), their variable component should be $30K (since it should represent 30% of their OTE). The Account Manager’s OTE is then $100K ($70K base plus $30K variable). Make sure that your OTE is competitive and meets your budgeting needs.

What about ramped OTEs?

As a new hire, sales cycles can impact your ramp time and ability to close deals. If the sales cycle is long (ex: enterprise software), you may enter a commission cycle mid-period, so your actual OTE may be prorated. As a new hire, it may also take some time to build a pipeline and deliver sales performance matching expectations associated with a full OTE. Therefore, your take-home OTE may be lower than the announced OTE. Either because your full OTE was prorated to your ramp period, or because the initial ramp up makes it hard for you to earn your full OTE. Hiring departments often quote OTEs which are based on fully-ramped rep performance. They do not factor lower OTEs during the ramp up period.

What about OTE expectations?

Some organizations require their sales employees to perform non-selling activities (ex: creating marketing collateral, mentoring interns, configuring a CRM, generating training documentation). While some of those responsibilities may be inevitable, they can add up and take time. It’s important to determine how those activities will impact your OTE, and whether you will be able to attain your full OTE given the additional workfload. Finally, it’s quite difficult to build a pipeline from cold-calling alone. It’s going to be easier if you have marketing and lead-generation support. Optimistic OTE goals may be more attainable if marketing can deliver a reliable stream of inbound leads.

In Conclusion

OTEs, when used correctly, are a fantastic tool to build reliable commission structures and improve transparency. If you’re dealing with manually-generated commission spreadsheets, please visit us online and learn how you can automate your sales commissions. Using Sales Cookie, you can easily define and manage OTEs, calculate commissions reliably, and pay your reps correctly and on-time.

Using this online guide, you should be able to understand commission structures in depth and design a successful commission program. Designing a working sales incentive program is all about breaking commissions into components and making key choices along the way. We’ll guide you through this process. And we’ll explain the pros and cons of each approach.

High-Level Analysis

It’s always a good idea and step back for a moment:

• Who is responsible for calculating commissions?
  • Unless you automate the process, calculating commissions is going to be repetitive and painful. It’s also a key responsibility. Who should own this painful, yet important process? Should it be your Finance department, your accountant, your VP of sales? Do you have buy-in from them? Will they have the stamina & discipline required to run this process (forever)?
• How long should it take to calculate commissions?
  • If your commission process takes days, you will likely experience calculation errors, delayed payouts, and complaints from reps. Start by defining the maximum time it should take to calculate and audit commissions. This will force you to simplify your commission structure before it becomes too complex.
• How accurate do your commissions need to be?
  • Should all commissions be calculated based on measurable goals and rep performance? Or should some commissions be more discretionary? Are manual adjustments forbidden, or are they expected? Is your data accurate and complete enough to ensure precise or automated calculations?
• Who are your payees?
  • First, identify all roles eligible for commissions. Then, step back and determine corresponding key performance goals and behaviors you want to promote. Is it completing more product demos? Is it renewing customer contracts? You can’t define a commission structure without identifying each role and a corresponding set of sales behaviors to promote.
• Are your commissions competitive?
  • To attract and retain top talent, you must do some research and make sure your incentive program is competitive. Consider working with your HR department to define a budget and to define a clear on-target commission variable for each role.
• What is your system of record for commissions?
  • In most cases, it will be a/ your CRM system (ex: SalesForce), or b/ your accounting system (ex: QuickBooks). Here are their pros and cons of using each type of system for commissions:
    • CRM systems always specify which rep or territory should be credited for each sale (ex: there’s always an opportunity owner). However, CRM systems don’t know if you actually got paid, when you got paid, and how much you got paid by your customers.
    • Accounting systems always specify when each payment was received and its exact amount. However, they often don’t know which rep or territory should be credited for each sale (ex: do you have rep names on each invoice?).
• Do you have all the data required to calculate commissions?
  • Let’s say you had to calculate commissions manually. Would you be able to do so based on all your current CRM or Accounting data? If not, first improve your current tracking of sales data until you can. If you can’t calculate your own commissions manually, nobody can. Not even automated commission software.

Think Commission Components!

To structure your commission program, start with the following:

1. First, identify all sales roles
   1. Ex: Account Manager, Territory Manager, Service Engineer, VP of Sales, etc.
2. For each role, identify 1-3 key goals
   1. Ex: increase revenue, book more appointments, sell upgrades
3. For each key goal, identify 1-3 commission components
   1. Ex: monthly commission, quarterly bonus, upgrade commission plan

If you end up with more than 3 components for any given role, you got it wrong. Few individuals can optimize their sales behavior across 4+ dimensions. Having too many concurrent priorities is confusing.

Next, let’s define each component in more detail.

What Is Your Component’s Name?

Assign a name to each commission component, such as:

• “AE – Own Revenue – Quarterly Bonus”
• “AMs – Territory Revenue – Monthly Commissions”
• “BDR – Booked Appointments – Monthly Commissions”

Consider using [Role] + [Goal] + [Period] to name each component as shown above. This will ensure the following questions are answered:

• Who is this component for?
  • Ex: it’s for BDRs
• What is the payment frequency?
  • Ex: it’s monthly
• What is the goal?
  • Ex: book more appointments

How Do You Set Sales Performance Targets?

Next, choose a way to set performance targets. Here are some typical strategies you can use to set goals:

• Count-Based
  • Ex: the goal is a total number of booked appointments
  • Here, a count determines commissions
• Point-Based
  • Ex: the goal is a target number of hardware sale “points”
  • This is useful if some sales activities are more valuable than others
• Quota-Based
  • Ex: the goal is a quarterly revenue quota
  • Relative attainment (ex: 120% of quota) determines commissions
• Fixed Thresholds
  • Ex: the goal is 100K in total monthly revenue
  • Absolute threshold attainment determines commissions
• Flat Rates
  • Ex: reps get 3 to 6% percent of each sale depending on product categories
  • In this case, there isn’t a specific goal to deliver on other than “sell more”

More exotic strategies are possible (ex: sales contests, growth-based goals, management by objective, etc.). However, avoid those when defining primary commission components. Once you have a well-working commission structure, you can add more twists such as spiffs, prizes, contests, etc.

Do You Have Attainment Tiers & How Do They Work?

You may choose to use attainment tiers. The goal is to:

• Punish underperformance
  • Ex: under 50% of quota, no commissions will be paid
• Promote overperformance
  • Ex: above 110% of quota, a commission accelerator will be paid

On the surface, tiers look simple. Many of our customers assume tiers can only be structured one way. However, there is some subtle but important complexity around tiers.

Let’s say you defined the following tiers:

• For revenue from 0K to 20K, pay 5%
• For revenue from 20K to 50K, pay 6%
• For revenue above 50K, pay 8%

This looks obvious, right? Well, it isn’t.

Tiers – Cumulative vs. Non-Cumulative Tiers

Assume a rep delivered 60K in revenue. If your tiers are non-cumulative, only the highest attained tier matters. The payout will then be 8% of total revenue (60K).

If your tiers are cumulative however, each tier pays a portion of revenue within its own band, so the total payout will be lower. Using cumulative tiers and for the same 60K total, the payout will be:

• 5% of 20K PLUS             <- the portion of 60K revenue from 0K to 20K
• 6% of 30K PLUS             <- the portion of 60K revenue from 20K to 50K
• 8% of 10K                       <- the portion of 60K revenue above 50K

Make sure to set expectations and explain to your reps precisely how your tiers work. Otherwise, they may assume they are non-cumulative and be disappointed once they review their commission payout and discover that they were cumulative.

Tiers – Per-Transaction vs. Portion-Based Commissions

Here we assume that you use cumulative tiers. As reps sell more during a given period, some sales will help them transition from lower attainment tiers to higher attainment tiers. So, how should sales which “sit on the fence” between two tiers be handled? You could:

• Apply the lower tier’s rate to the sale’s entire amount
• Apply the higher tier’s rate to the sale’s entire amount
• Split the entire sale’s amount into two portions
  • And apply each tier’s rate to each portion

For example, let’s say you closed a single mega-sale worth 25K. This mega-sale lets you advance from tier 1 (revenue from 0K to 20K) to tier 2 (revenue from 20K to 50K). Should:

• This sale’s entire 25K be paid at the 5% rate (0K – 20K tier)?
• This sale’s entire 25K be paid at the 6% rate (20K – 50K tier)?
• This sale’s 25K amount be split into two?
  • A 20K portion to be paid at the 5% rate (0 – 20K tier)
  • A 5K portion to be paid at the 6% rate (20K – 50K tier)

To understand the pros and cons of each approach, read this article.

Tiers – Avoid Too Many Tiers

Defining too many tiers can make your reps feel like:

• Your commission structure is overly complex
• You are trying to nickel-and-dime on commissions
• Your sales objectives are artificial and fragmented

Suppose that you’re a rep, and that there are 10 different tiers. As you move up the attainment ladder, you know that the incremental benefit of advancing to the next tier is going to be quite small. That’s not very motivating, and it’s also confusing.

Do You Split Commissions?

Whenever more than 1 payee receives commissions from a single sale, you have a split. This can be an “obvious” split between 2 reps who worked together on a deal (ex: a BDR plus an Account Executive). Or it can be more subtle split – ex: your VP of sales also gets an override commission on all deals. In any case, it’s important that you identify those splits when defining your commission structure, especially in terms of financial impact and overall cost of commissions.

Should Some Reps Be Guaranteed A Commission?

Guarantees are common for reps who’ve recently joined a sales organization but haven’t had time to build their customer base. You can choose to temporarily “pad” their commissions using either:

• Non-recoverable draws – ex: they will receive a minimum $2000 commission each month for the first 3 months on the job. This guaranteed amount is forgiven and never has to be repaid.
• Recoverable draws – ex: they will receive a minimum $2000 commission each month for the first 3 months on the job. This is advance money which must be repaid over time

Recoverable draws can be quite complex because you also must also define a repayment schedule. For example, should commission advances be repaid as quickly as possible, or over a longer period?

Do You Withhold Commissions Until You Get Paid?

Some companies announce commissions early (ex: when deals close), but delay payment of commissions until payment is received from customers. For example, they want to tell their reps that they earned $5,000 in January based on closed deals, but that commissions will be paid later when payment is collected (which could be later in January, February, March, etc. – or possibly never).

This earned vs. paid dual approach to commissions is more complex as you have two event timelines to deal with (a closed timeline vs. a paid timeline):

• Declaring commissions as “earned” makes you liable to pay them in some jurisdictions – even if you did not collect payment
• The two timelines (earned vs. paid) makes it harder to provide reps with clear monthly commission statements they understand
• It can be challenging to track staggered payments, correlate each payment to past earned commission statements, and retroactively update rep statements

With an automated solution, this dual approach is possible, but keep in mind the tradeoffs and additional complexity. Often, you’re better off either:

• Paying commissions upfront (while penalizing future commissions when payment does not come through)
• Declaring AND paying commissions when you get paid

Which Sales Are Eligible?

To calculate commissions correctly, you must define which sales are eligible for your commission component. For example, you could choose to exclude taxes and shipping from revenue eligible for commissions. Or you could exclude certain products as non-commissionable.

Finally, you have to choose whether reps will be credited based on their own sales (ex: they own the opportunity) or based on a team or territory (ex: the ZIP code is within the sales territory they own, or the component is for a sales VP). This will determine whether your plan is based on individual results vs. team results.

What Is Each Sale’s Effective Date?

To calculate commissions correctly, you must define a commission effective date for each sale. For example, when calculating commissions for January, which sales are eligible? Those whose payment date was in January? Or those whose closed date was in January?

The effective commission date may vary depending on the role. For example, BDRs may be paid commissions based on when they created opportunities, while AEs may be paid commissions based on when they closed opportunities.

In all cases, make sure your chosen effective date cannot change. For example, if someone can edit opportunities in your CRM system, and keeps updating the close date, you may be fooled into paying commissions for the same sale multiple times. One time in January, then again in February, etc. Commission software like Sales Cookie will detect those situations and alert you.

How Should Returns / Cancellations / Refunds Be Handled?

It seems a bit unfair to allow reps to keep commissions for sales which later result in a refund or cancellation. The easiest way to deal with refunds is to apply a negative revenue amount to the period during which the refund occurred.

Suppose that, in January, a rep received a commission for a $1000 sale. In February, this $1000 sale was refunded. Simply apply a negative -$1000 to the rep’s February total revenue. This will reduce commissions accordingly and is equitable. This approach also lets you penalize rep attainment for the cancellation period.

Some organizations prefer to identify the original commission amount associated with the refund (ex: $10 was paid for the original $1000 sale) which is a clawback. However, this can increase complexity and generate more administrative overhead. And, sometimes, there isn’t a clear commission amount associated with each sale (ex: because your commission structure uses tiers or because you pay bonuses). As explained above, an easier approach is often to apply a -$1000 in revenue to the period of the refund, which is also better for tracking.

Do You Have Recurring Sales / How Do You Track Them?

If you have recurring sales, do you pay commissions upfront? Or do you pay commissions incrementally each time you receive a recurring payment from your customers? If so, the most important question is – how you represent recurring payments within your sales data?

If you use an Accounting system such as QuickBooks, you likely have separate record tracking each payment’s exact amount and date. However, if you’re using a CRM system such as SalesForce, you may only have a single opportunity, with an expected payment frequency and start date.

In this case, consider adding a cancellation / end date to your CRM records, so you can stop payment of recurring commissions if a customer cancels or stops paying. Also, you will likely need to automate because sifting through deals to determine which ones should yield a commission each pay period will quickly become tedious.

Is Your Commission Structure Compliant?

As per accounting regulations (ASC 606), if commissions are paid for deals whose associated delivery of service exceeds 1 year, you must amortize the cost of commissions over the contract’s duration. Make sure your finance team has all the data they need to correctly capitalize and expense commissions.

Also, to minimize legal risk, your commissions should be legally protected. This means providing a clear description of incentives to your sales team, and getting them to agree to terms and conditions (ex: e-signature). Also make sure to take into account edge scenarios such as employee termination, FMLA leave, sales interns, update to quotas, etc.

In Conclusion

That’s it! In this blog post, we describe a process to determine stakeholders, identify components, improve accuracy, and ensure compliance with standards. Using Sales Cookie, you can automate every aspect of your incentive program – tiers, splits, clawbacks, compliance, territories, and much, much more. Visit us online to learn more.

Most Popular Solar Commission Structure

The most solar sales commission structure is organized around roles:

• Canvassers
  • Flat commission for each confirmed appointment
    • Typically a flat $50-$200 per confirmed appointment
  • Flat commission for each appointment leading to a sale
    • Typically a flat $200-$800 per sale
• Solar Sales Reps
  • 50% upfront commission
    • Typically 50% of $300$-$500 per KW for their own sales
    • Typically 50% of $200$-$350 per KW for referred sales
  • 50% upon project completion
    • Same as above
• Territory Managers
  • Override commission for all managed employees
  • Typically $30-$60 per KW (based on hierarchical rollups)

Some of the adjustments you can make to this scheme include:

• Adjusting the amount [paid upfront] vs. [upon project completion]
• Adjusting commissions paid for [own sales] vs. [assisted sales]
• Adjusting commissions based on [total KWs sold]
• Adjusting commissions based on the [per-KW sale price]

Other Solar Commission Structures

We’ve also seen other schemes including:

• Canvassers: $200 per lead + 1% of project total
• Canvassers: $15 per hour (base salary) + $50 per appointment
• Canvassers: $500 bonus when booking X+ appointments within a month
• Canvassers: $1000 commission draw for the first month
• Solar Sales Reps: $50K base + $350-$500 per KW (depending on price sold)
• Solar Sales Reps: $50K base + flat $1000 per sale
• Solar Sales Reps: $40K base + 3% of sales price
• Solar Sales Reps: $500 gas bonus after selling 2 deals

This depends on how wide a safety net you want to provide to your reps, and whether you want to use 100% commission-based reps vs. employees with a base salary.

Challenges Of Solar Sales Commissions

The main challenges we see around solar sales commissions are:

• Incorrect calculations. Calculating commissions correctly can be difficult if they depend on the price sold, number of KWs sold, and own sale vs. assisted sale.
• Handling employee churn. A typical solar sales business has reps constantly moving in and out of the workforce. You need to keep track of who needs to get paid when.
• Implementing rollups correctly. Due to an ever changing employee base, this can be tricky to deal with, especially if you have multiple layers of management.
• Manually generating, archiving, updating, and distributing commission spreadsheets. You need to provide enough visibility, otherwise your reps will leave.
• Unexciting commissions. Most solar sales commission structure don’t include bonuses or stretch goals, so it feels like grunt work.

The solution is to automate. Using a solution such as Sales Cookie, you can automate all calculations, eliminate the need to manually generate spreadsheets, and provide real-time visibility on commissions to your reps. You’ll also gain the agility needed to easily change your commission structure and make your incentive program more exciting than your competition.

Making Solar Sales Commission Plug-And-Play

As soon as you present your solar incentive plan to your team, they will put their own data in a spreadsheet and start calculating their own commissions. They’ll keep looking at their own spreadsheet every day and keep bugging you about commission amounts, expected payments, etc. The alternative is for you to manually generate spreadsheets for them, which is a significant headache and often inaccurate, but a necessary evil to avoid legal disputes and to remain compliant.

Instead, you could use commission software. First, your reps are going to generate a commission statement anyway, so you might as well make it easier for them by providing them with online real-time commission statements. Second, using a software solution, you and your reps will gain real-time visibility on commissions. Third, you’ll ensure that all calculations are fast and accurate (especially if you have multi-level rollups, or if your commissions depend on multiple factors). Finally, you’ll become compliant with accounting standards and be able to run through various “what if” commission scenarios.

Please visit us online to learn more. We look forward to helping you automate your incentives using commission software!

#1 – Pay for individual results when individuals drive success

There is only one justification for paying commissions: motivating your sales force to deliver stellar sales performance. For this reason, it is especially important to define “success” (is it based on revenue, profitability, growth?) and to identify who within your sales team drives this “success”. Do groups of people work together to close deals? Or are reps selling directly to customers? If success is driven by individual contributors, commissions should be paid based on what reps do, and actions they perform. In this case, make sure your goals are not based on collective, territory, or team metrics. For example, Joe’s commissions should be based on deals directly closed by Joe (not deals closed within Joe’s territory).

#2 – Encourage collaboration and teamwork when it makes sense

In other sales environments, sales do not happen unless reps work together to close deals. In this applies to you, your commission structure should promote team synergy and take into account each contributor’s involvement. For example, reps could be paid 8% of revenue (because they influence each deal’s amount), while their account manager could be paid a flat $500 (because their role is that of a facilitator whose effort doesn’t depend on the deal’s size). If a higher degree of collaboration is required to close deals, consider splitting commissions between roles, or defining team-based goals (ex: shared quotas). Also, think ahead, and make sure you have a way to mitigate situations where an individual gets sick or quits, negatively impacting all members of the team. Plan Bs do matter when using shared commission models.

#3 – Pay for results directly under the seller’s control

Sometimes, reps get lucky and land juicy deals through sheer luck. Also, if you have renewals, it is common for reps to be credited with deals without getting involved. When reps actively work to close a deal and demonstrate contributing activity, it makes sense to pay a commission. Otherwise, the sales event should not be commissionable because it is not under the rep’s control. Note that we are not saying that commissions should be based on effort. Commissions can and should be based on results. However, only sales which derive from direct and observable action should count. Allowing commissions to be paid based on luck (or through passive “vesting”) will hurt you in the long term, because your reps will feel this is not a fair environment. In short, if there was no action, there should be no commission.

#4 – Adjust commissions based on sales aggressiveness & sales impact

If you are selling auto parts, sales activity may be fairly routine, such as dealing with a constant stream of orders. If you are selling actual cars however, each sale is more significant, and requires a higher degree of involvement from each rep. For this reason, commission rates should be higher. The more aggressive your reps must be, the larger the commission should be. The more impactful the sale is, the larger the commission should be. This helps ensure your reps are properly motivated to close deals which are riskier or require more energy. This rule may also be applied to sales to new customers vs. to existing customers. Think in terms of risk, level of involvement, and impact.

#5 – Pay commissions as soon as possible

Many organizations choose to pay commissions only when they get paid. This is a workable structure, and sometimes a necessary one (ex: because you receive payment incrementally). At the same time, commissions will feel disconnected from sales, especially if customers pay months later or often fail to pay. From a rep’s perspective, it can also be a bit of a nightmare. Your reps must now track which deals closed months ago, which ones have been paid, which ones are still pending, etc. Do you want your reps to oversee collections? One alternative is to pay commissions upfront (when deals close), and claw back commissions when payment isn’t received. This requires you to vet deals properly so that only those with a high probability of being paid are marked as closed. This will streamline your commissions and motivate your reps to close more deals as they feel the immediate effect of commissions.

#6 – Use goal-based commissions to drive results

When designing a commission structure, you can use flat rates (i.e. pre-defined aka absolute commissions), or you can use attainment-based tiers. While setting goals is always tricky, commissions cannot be motivating unless you have targets. Your targets do not necessarily need to be sales targets (quotas). They could also be payout targets and specify how much you should be earning in commissions. However, just paying flat rates (ex: based on SKUs) without any target is not exciting, and it will not generate any extra sales motivation you are paying commissions for. Even an indicative goal is better than no goal.

#7 – Have no more than 3 metric per role

Your reps are trying to figure out which sales-related actions they should perform to maximize their commission payout. If you have too many commission components (more than 3 per role), you are sending a confusing signal regarding priorities, and making it a complicated game of chess. Also, each component’s weight should not exceed 20%, otherwise your reps will consider them meaningless. Keeping the number of metrics under 3 not only sends a clear message about sales priorities, it also makes your commissions easier to audit and improves transparency for your reps. In conclusion, your reps are too busy to deal with 5 concurrent goals or think about various weights when assessing potential commissions.

#8 – Include both downside risk and upside gain

The best commission plans avoid over-punishment while creating clear lines of demarcation between great performance, okay performance, and poor performance. The only way to do this is to provide some upside when delivering strong sales results, and a penalty when failing to meet standards. We recommend setting goals such that 20% of your reps exceed them, 20% fail to deliver, and 60% fall in-between. This also helps you keep track of who is doing well and who is struggling. We also recommend meaningful accelerators such as a 1.5x rate (or higher) for meeting goals, and 0.8x rate (or lower) for underperformance. You can decide whether the accelerator should be applied to all sales, or only sales exceeding goals. Both options are reasonable and motivating.

#9 – Match measurement periods to sales cycles

To measure commission-related sales performance, you have different options. You could measure sales monthly, quarterly, annually – and pay commissions based on this schedule. Or you could use a year-to-date, or quarter-to-date approach. To identify the best model, you must first analyze your sales cycle. For example, if you are selling cars, sales will happen within a very short period (days). However, if you are selling enterprise software, the time to close a deal may take much longer (months). By aligning your sales commission program to your sales cycle, you can define reasonable sales goals, and essentially bundle commissions and deals. Note that the attainment period can be different from the payment period. For example, you could use quarter-to-date attainment, but monthly payouts.

#10 – Make volume metrics your primary metric

It is very tempting to add all kinds of MBO goals when defining a commission structure. For example, you could add secondary goals based on customer satisfaction, profitability, interactions, etc. The way it will be perceived by your reps however probably is not what you expect. To them, those MBOs feel like distractions, or make them feel you are trying to nickel-and-dime them by adding various “factors” affecting their commissions. Also, it is going to be difficult for your reps to meet both revenue goals plus various MBO goals. For this reason, your primary metric should be a volume-based metric. Depending on the role, this metric could be a number of deals closed, total revenue, total profit, appointments booked, etc.

In Conclusion

In this article, we shared some of our learnings from analyzing hundreds of commission structures. We listed 10 best practices which we hope will help you streamline your sales commission program. Please reach out or visit us online to learn more about how you can automate your entire commission program.

This is NOT a trivial setup because the underlying commission structure must take into account two competing timelines:

• One timeline establishes potential commissions based on bookings
  • Ex: as reps close more deals, their commission rate change because of accelerators, quota retirement, etc.
• One timeline establishes due commissions based on collections / payment
  • Ex: when payment is received for a deal, a corresponding earned commission amount should be issued to the rep

This approach can make rep statements more complex. For example, consider the example below. Deal A was closed in January, but only paid much later in June. Deal C was both closed and paid in January.

What should your rep’s January and June commission statements show? Will your reps be able to understand what’s happening given the two event timelines? Will they be able to track unpaid deals and verify that their commission statements are correct?

Part 1 – Attainment

First, we must assign a commision amount to each eligible deal. Let’s say that our commission structure follows a simple pattern (shown below). Once quotas have been retired, a commission accelerator kicks in. Commissions accelerate to 12% of revenue in lieu of the baseline 10%.

Below, three deals were closed in January. Deals A & B should be paid at the 10% level. Deal C however should be paid at the 12% level. This is based on total attainment for January. Deal C crossed a quota threshold, and so qualified for an accelerated 12%.

For our commission structure to work, we must remember the commission rate for each deal based on attainment. The goal is to establish commission rates which will then be applied (much) later when we receive payments. Here is what we need to remember:

• Deal A = pay at 10% (based on January attainment)
• Deal B = pay at 10% (based on January attainment)
• Deal C = pay at 12% (based on January attainment)

Note: in practice, things tend to be a bit more complex. For example, a blended tier may need to be applied to deal C because it crossed 2 tiers.

Part 2 – Payment

A naive approach is to think of payment events as simple release triggers. From this naive point of view, paying an invoice is enough to trigger payment of the deal’s established commission amount in full.

In reality however, things are often more complex:

• Deals may be paid incrementally (in portions)
  • Ex: there were 2 staggered payments for a large deal
• Invoiced amounts may be different from deal amounts
  • Due to rebates, discounts, credits, taxes, etc.

Therefore, each paid invoice should NOT act as a simple trigger which pays the original deal’s full commission. Instead, we should lookup the commision payout rate previously established for the deal, and apply this commission rate to the invoice’s paid amount. This solves the issues listed above where payment is received incrementally, or doesn’t quite match the original deal’s amount.

So here is the formula we want to use: [Commission] = [Deal’s Attainment-Based Payout %] * [Invoice Paid Amount]

Matching Payments To Deals

To implement the “pay commissions when we get paid” strategy, we often must work with two systems:

• A CRM system (ex: SalesForce) which shows when each deal was closed
  • We use CRM deals to calculate booking-based attainment, and establish a commission rate for each deal
• A billing system (ex: QuickBooks) which records payments by customers
  • We use paid invoices to lookup a previously established commission rate, and apply it to the invoice’s amount

Now, if you can use one system for deal tracking and payment tracking, hats off to you! For example, if invoices get created immediate as CRM deals get closed, no need to involve your CRM system in commissions. You could track bookings based on open invoices, and collections based on invoice payments, so commissions only need 1 system.

Things get more complicated if you receive payments incrementally. In this case, we have no choice but to deal with 2 systems – one tracking deals and one tracking payments. We also need a way to correlate payments to deals, as this is required to perform lookups across systems. This ideally should be using unique identifiers.

For example, it’s reasonable to have a deal ID within each paid invoice. It’s NOT reasonable to try to fuzzy-match things based on customer names, amounts, or dates. Often those will be slightly or very different – for example:

• Customer is “Blue Sky LLC” in SalesForce
  • But customer is “BlueSky” in QuickBooks
• Amount is $1000 in SalesForce
  • But amount is $500 in QuickBooks due to a rebate

We highly recommend recording the deal ID (ex: SFDC opportunity ID) in your invoice workflow so that the matching process can be robust and fully automated. This will also eliminate the risk of incorrect payment-to-deal matches.

Rep Owed Balances

Consider the following scenario:

• Deal A worth $100 in commission was closed in January, and has NOT been paid yet
• Deal B worth $100 in commission was closed in January, and was paid in February

Some organization have a concept of “owed commission balance” which records how much money would be paid to reps should all their pending deals get paid. In our example above, the January owed balance would be $200, while the June owed balance would be $100. Unfortunately, there are a few issues with this approach:

• In reality, some deals will never be paid, so rep owed balances will increase without bound. Of course, you could periodically remove old deals so that their owed balance doesn’t get out of control, but this is more admin work for you and it’s confusing.
• Rep balances don’t help your reps because it’s just an aggregate. How useful is it to know that you are “owed” another $5000 across 13 deals from January, February, March, etc.?
• In some jurisdictions, it’s risky to declare commissions as owed. You might be liable to pay those balances should a lawsuit arise in certain US states.

So how can we make it work? The solution is to provide clear visibility on all withheld deals to your reps, and to expire older deals which will never be paid.

Our Approach at Sales Cookie

At Sales Cookie, we use a flexible approach:

• We create a commission plan which calculates estimated commissions based on deal attainment. Sales Cookie remembers the estimated payout and commission rate for each deal and each payee.
• We then create another commission plan which calculates earned commissions based on paid invoices. Sales Cookie provides a function which automatically determines the estimated commission rate for each deal and payee.
• We show all transactions whose earned payout is less than the actual payout while allowing you to expire old deals which will never be paid.

Here is the magic function to lookup previously estimated commissions. It performs a lookup by payee and deal ID to determine the estimated commission rate. The commission rate can then be applied to the invoice’s amount. This works well if you receive payment incrementally for the same deal, for example.

In terms of reporting, reps can now see how much money they could earn on each deal, and how much they got paid on each deal.

Reps can also see which deals are awaiting payment, as well as their balance:

Here is the corresponding plan configuration:

What To Watch For

Here are some of things to watch for when using a “pay when we get paid” model.

First, your are increasing complexity. We know that you are trying to make things look exciting to your reps and show them how much money they could earn as soon as they close a deal. However, you are also making their commission statements more fragmented and more complex by delaying payment of commissions. You must also ensure that deal IDs are available in payment records to ensure correct matching of payments to deals – this may not be trivial.

Second, your reps could game the system. For example, if they close a lot of deals which will NEVER be paid, they might start getting commision accelerators based on artificially inflated bookings. Now you’re paying commissions at a higher rate, even though many deals which contributed to acceleration will never be paid. This would NOT be a problem if both attainment and payment were based on collection dates (i.e. paid invoices). In other words, if payment is never received, you granted higher attainment which will never be offset.

Therefore, consider the following two alternative approaches:

• Pay commissions upfront (i.e. as deals close), and claw back commissions if you don’t receive payment from customers
  • This also makes it possible to apply negative attainment to the next period
• Use payment dates as a way to establish both attainment-based payout rates and issuance of commissions
  • This effectively ensures you only work with one timeline (not two)

In Conclusion

In this blog post, we described how you can calculate and pay commissions when you get paid. This increases complexity, but using proper tracking and the correct model, we can ensure success. Sales Cookie provides advanced capabilities to automate this type of complex commission structure. There are still some tradeoffs you should be aware of when choosing this model, however. Please visit us online to learn more!

• Crediting reports (ex: which territory closed the most deals?)
• Attainment reports (ex: which reps met their quota?)
• Payout reports (ex: how much did AEs earn last month?)
• Revenue analytics (ex: what is my customer churn rate?)
• Survey analytics (ex: how do reps rate their commission accuracy?)
• Amortization reports (ex: how can I comply with ASC 606?)
• Manager dashboards (ex: how did my team perform last month?)

This said, we also realize it’s impossible to provide the exact report you had in mind because you’ll want specific groupings, labels, filters, visualizations, colors, etc. This is why Sales Cookie integrates with award-winning solutions such as Microsoft Power BI and Tableau Software. Let’s see how easy it is to visualize sales commissions using Tableau!

Connecting To Sales Cookie

First, login to your Sales Cookie account and copy your API URL (under profile settings). Your API URL includes a key embedded within it, so you never need to provide a user name / password to connect from Tableau to Sales Cookie’s cloud solution.

Next, start Tableau and add an OData connection. Simply copy your API URL and choose No Authentication. The key within your API URL authenticates you. Do not share your API URL with anyone! Your commission data is encrypted at rest and over the wire.

Choosing Entities

Tableau now shows a list of entities you can use to build commission reports. Simply drag them to the right pane. You can also drag them onto other entities to indicate that they are related.

Tableau will ask you to describe each relationship. Microsoft Power BI automatically detects relationships. With Tableau, you have to do this manually, but it’s very easy. Below, we linked Calculations with Calculation Results. Calculation Results specify aggregate commission payout information (per calculation and per payee).

For Calculations, we selected field “Id”. For Calculation Results, we selected field “Calculation Id”.  Each Calculation Result’s “Calculation Id” field points to a Calculation by its “Id”.

We can further help Tableau and specify that the relationship is one to many. Each Calculation has a unique Id. However, multiple Calculation Results may point to the same Calculation. This step is optional but can reduce the number of queries made by Tableau.

Building A Report

Next, let’s build a simple report. We’ll drag the Calculation’s “Name” field to rows, and show a sum of Calculation Result “Value” fields (value = payout). We now have the total payout per calculation as a table:

Of course, we can change the display to something more exciting like this. This just takes one click. We could also have chosen pie chart, bar chart, etc.

Adding More Entities

Next, let’s add more entities are connect them. First, let’s add the Plan entity. Each Calculation references a single Plan. We’ll also add Transactions, Calculation Commissions (which are per-transaction payouts), Calculation Credits (records assignment of transactions to reps / teams), and System Users (representing payees).

A lot more information is now available to Tableau! We can now create more interesting reports such as this one. Can you commission software do this? Sales Cookie can!

In Conclusion

Many commission software solutions offer very limited reporting capabilities. Sales Cookie offers many reports out of the box, but also lets you analyze your commissions using powerful BI analytics tools such as Tableau or Microsoft Power BI. Visit us online to learn more!

• Automate your commission calculations
• Increase payment accuracy
• Eliminate the need to manually generate and distribute commission spreadsheets
• Provide a commission dashboard to each rep (with their own payouts, goals, etc.)
• Manage rates, bonuses, and quotas
• Legally protect your sales commissions
• Ensure compliance with accounting requirements (ASC 606)

Connecting To Stripe

This takes about 2 minutes. First, login to your Sales Cookie account, or sign up for a free trial. Next, go to Settings > Connections, and add a connection to Stripe.

Next, enter your Stripe API key. Your key will be double-encrypted (i.e. it will be encrypted inside an encrypted Microsoft Azure database!). Your key cannot be read back by anyone. It will be used to retrieve sales data from Stripe.

Importing Stripe Sales

Commission software solutions need a copy of sales data to calculate commissions. Go to Transactions > Add Transactions, and select Stripe as the data source.

Next, choose the type of records you want to import. You can import charges, invoices, or refunds. To import multiple record types, repeat the import operation multiple times.

Next, Sales cookie will retrieve sample data from Stripe, and ask you to map fields. For example, if you have a custom field called “Sales Rep” within your Stripe invoices, you’d map this field to the “Owner / Sold By” category. In the example below, we mapped the amount to the “Revenue” category.

Next, all your sales will be imported within Sales Cookie. Our commission software implements an hourly data sync. It incrementally retrieves new sales records from Stripe and automatically adds them to Sales Cookie.

Filtering Stripe Sales

You probably only want to pay commissions for eligible sales (ex: excluding cancelled invoices or failed charges). Go to Transactions > All Transactions, and build a filter to select eligible sales such as this:

Next, save your query and give it a name such as “Eligible Sales”:

Configuring a Plan

A plan is just a way to pay commission (ex: commission component). We configure plans for 99% of our customers. Sales Cookie has so many options so this saves you time. Also, many commission structures are quite complex and require careful configuration within our software. However, here is a simple walkthrough.

Let’s start by creating a new plan:

Go ahead and click Next > Next > Next to quickly create the commission plan:

Next, navigate to the Limits tab, and specify the filtering query you previously created:

Next, navigate to the Targets tab, and specify commissionable users. For example, this could be all users tagged as “Sales Executives”:

Next, navigate to the Incentives tab to add attainment levels and payouts. For example, this pays 5% of revenue with no attainment required:

That’s it – your plan is ready!

Calculating Commissions

We’re now ready to calculate commissions! You can set your calculations to run automatically, or you can submit calculations manually. Each calculation will process eligible sales within a chosen calculation period (ex: Q2). Each calculation will calculate commissions for all AEs in one shot. No need to generate spreadsheets manually, one at a time! Here are some sample calculations:

If you open these calculations, you can review all the deals credited to each rep and their payouts. You can also publish credits and payouts to rep dashboards:

Viewing Rep Dashboards

Sales Cookie eliminates manual generation / distribution of commission spreadsheets. Commission statements are available online to each rep for each pay period. For example, they will see something like this:

Or like this:

As well as their credited sales, payouts, etc.

For managers, additional views are also available:

Reviewing Commission Spend

We can also analyze our commission spend vs. revenue. For example like this:

Of course, you can build more sophisticated reports and dashboards:

Crediting The Correct Reps

Your Stripe data may not specify which rep should be credited with each sale. Here are different strategies you can use to solve this problem:

• For invoices, you could rely on Stripe’s custom properties – ex: set a custom property called “Sales Rep” on Stripe invoices as you create them
• For charges, your Stripe integration could set metadata fields – ex: set a metadata field called “Sales Rep” on Stripe charges
• You could decide to manually label each Stripe sale record within Sales Cookie by editing it and setting the owner
• Finally, you could use some dynamic crediting logic which we’ll configure for you – example:
  • All sales within region “WA” should be credited to “John Doe”
  • All sales for product “Soap Bar” should be credited to “Jane Doe”
  • Otherwise, lookup a named account list to and credit reps by customer name

In Conclusion

• Automate calculations of commissions
• Better manage commission numbers such as quotas, bonuses, and rates
• Provide a dashboard to every rep with their goals, statements, and payouts
• Eliminate manual generation of commission spreadsheets
• Ensure proper tracking and change management
• Legally protect your incentive program
• Deliver compliance with accounting standards (ASC 606)
• Improve payment accuracy

But how is commission software built? What’s happening under the covers which makes it possible to deliver those capabilities? Let’s take a look at key mechanisms used by incentive software to automate commissions.

A Structured Framework For Commissions

Your commission program probably depends on various numbers such as commission rates, thresholds, draws, quotas, etc. Your commission structure likely also includes rules such as payout formulas, splits, rollups, overrides, etc. Finally, you probably also implement a process to approve plan, review payouts, initiate payroll, etc.

As a whole, your commission structure might look like a confusing “soup” (with various numbers, rules, and workflows floating around). However, there is always some logic behind the apparent madness. Commission software provides a structured framework to represent and fully automate your commission structure. This is what allows you to click and calculate commissions (in one-shot) across all reps.

Commission Calculation Components

Here are some components used by commission software like Sales Cookie to automate calculation of commissions:

Sales Cookie implements a sales processing pipeline to calculate commissions. Eligible sales records go through different processing steps to calculate commissions. Each step comes with a default behavior which works for most commission structures. However, you can customize each step and plug-in your own custom logic.

The sad reality is that most commission software products make limiting assumptions about commissions. For example, they assume there will be a per-deal payout which isn’t always the case. Those poorly designed solutions hard-code commission behaviors, which limits flexibility. As a result, they can only automate a small percentage of real-world commission structures. Sales Cookie, on the other hand, can automate 99% of commission structures because it provides total flexibility at each step.

• Step 1 – Filtering
  • First, the system must ensure that the right sale records are being processed. For example, if you’re calculating Q1 commissions, you probably only want to process sales within this time period (not Q2 sales!). You may also only want to process paid deals, only “closed won” deals, or apply some other criteria. This first step can be performed by applying a predefined transaction filter (ex: status = closed AND isPaid = true). For more advanced scenarios, you can define your own filtering logic (even a full-fledged script), and decide real-time whether a deal is eligible or not. For example, you could calculate each deal’s margin, and decide if the deal should be eligible based on margin.
• Step 2 – Valuating
  • Second, we must assign a value to each eligible sale. Often, each deal’s value simply is its revenue. Indeed, many incentive plans are based on revenue. However, if you pay your reps based on how many appointments they book, you need to count events instead. Each deal’s value no longer is its revenue. Instead, each deal counts as 1 point. Other commission structures use profit (or more complex metrics) to value each transaction. Sales Cookie gives you full control over the valuation process. You can run advanced formulas to calculate each deal’s value. For example, you could perform catalog lookups to determine a deal’s value based on its product category and calculated margin.
• Step 3 – Crediting
  • Third, we need to credit deals to the correct “owners”. Owners could be individual reps, or they could be teams / territories (depending on your plan’s structure). Crediting simply means attribution. For example, if a sale occurred within the Seattle area, it may need to be credited to the “Pacific Northwest” territory. And if Joe and Sarah closed a deal together, they might each receive a portion of the deal (split). Most of the time, the owner will already be specified within your sales data. For other cases, you can leverage a feature called dynamic crediting. An example would be a rule to lookup a product SKU to determine the correct owner. Finally, crediting is the step during which we perform hierarchical rollups.
• Step 4 – Attainment
  • Fourth, we need to determine attainment towards goals. Very often, attainment is determined by calculating the total value of deals credited to each rep (or team). The sum is then compared to a quota or threshold. For example, if revenue is your valuation metric, attainment could be each rep’s total revenue. If the number of booked appointments is your metric, attainment could be each rep’s total count. Sales Cookie supports more exotic ways to determine attainment. For example, if you wanted attainment to be based on the average call duration of booked appointments, you could do this. Or if you wanted to rank reps based on profit (ex: sales contest), you could also do this.
• Step 5 – Rewarding
  • Fifth, we need to calculate and assign payouts. Often, attainment will impact payouts. Many incentive plans have multiple attainment bands. Attainment bands can have different accelerators, bonuses, commission rates, etc. Sales Cookie can handle all those scenarios. Note that the rep who was credited with a sale isn’t necessarily the person payouts should be assigned to. For example, you could assign rewards to their managers. Or you could decide that payouts should be shared with team members. In some cases, rewards are global (ex: cash bonus). In other cases, rewards are per-transaction (ex: per-deal commission). Sales Cookie lets you calculate payouts in sophisticated ways using advanced formulas and scripts. You can even execute SQL queries, which run on a virtual set of sales transaction credited to each rep (or territory).

Finally, commission software implements a giant iteration loop. In your configuration, all you need to make sure is that all 5 steps are configured correctly. Once configured, the system calculates payouts across all reps in one-shot. This means you no longer need to manually generate commision spreadsheets one at a time. Even better, Sales Cookie uses parallel processing within the Microsoft Azure platform. Most calculations therefore run very quickly.

Time-Dependent Variables

As previously discussed, your commission structure likely includes various numbers such as rates, thresholds, quotas, bonuses, salaries, variables, etc. One aspect which complicates things a bit is variability of numbers over time. In most real-world environments, commission-related numbers change all the time. For example, rep quotas could change as they leave Q1 and enter Q2.

To bring order to this chaos and automate calculations, Sales Cookie provides time-dependent custom variables. In Sales Cookie, each commission-related number is tracked as a time-dependent variable. You can define variables on users, on teams, on plans, or globally.

Each variable is assigned a name (ex: @@Quota), and can take different values for different time periods. In your configuration, you simply provide values, and then refer to the variable name. Sales Cookie automatically pulls the right value for the variable based on the time period you’re calculating for.

For example, let’s say you have a quota like this:

We can define a variable called “@@Quota” like this:

Now this variable can be referred to anywhere – for example in a per-transaction formula like this:

That’s all your have to do within your configuration! When you run a calculation, the system automatically goes through all 5 processing steps, and calculates the correct commission for each eligible deal. The formula above will lookup the correct value of @@Quota for each rep and for your chosen calculation period.

One more thing. Some of your reps may transition into new roles mid-period. They might also join a new team. Here too, Sales Cookie lets you specify effective dates to define team membership and plan eligibility.

Finally, commission software tracks all changes made to your numbers and configurations. This can be done using an audit log and other techniques. For example, Sales Cookie takes a full snapshot of your configuration each time you run a calculation.

Storing Commission Data

Commission software must be able to store things in a database – payouts, users, teams, etc. Key entities include:

• Users
  • This table stores authorized users and their roles
  • Users could be full admins, limited admins, or payees
  • Example: Joe and Jane are both payees
• Teams
  • This table stores territories and teams
  • This table also records your team hierarchy
  • Example: team Oregon and Washington are under team NorthWest
• Transactions
  • This table stores all sales events (orders, opportunities, invoices, etc.)
  • Example: order #123 from SalesForce
  • Example: invoice #abc from QuickBooks
• Plans
  • This table stores incentive plans and their configuration
  • A plan is a commission component (“a way to calculate commissions”)
  • Example: [AE quarterly bonus]
• Calculations
  • This table stores all calculations
  • Each calculation represents the submission of a plan for a given time period
  • Example: [AE quarterly bonus] > [Q2 calculation]
• Calculation Credits
  • This table tracks attribution of transactions to users or teams
  • Each record points to a transaction and credited entity
  • Example: Joe was credited with order #123 within calculation [AE quarterly bonus] > [Q2 calculation]
• Calculation Commissions
  • This table tracks per-transaction commissions (for plans using this model)
  • Each record points to a payee and calculation credit
  • Example: Jane should be paid $10 for order #123 within calculation [AE quarterly bonus] > [Q2 calculation]
• Calculation Payouts
  • This table tracks payouts (in aggregate) per payee
  • Each record points to a payee and credited entity
  • Example: Jane should be paid $593 for 2540 orders credited to Joe within calculation [AE quarterly bonus] > [Q2 calculation]

Sales Cookie provides the ability to combine transaction data from multiple data sources – each with different fields. We call this concept a data pool. For example, you could import opportunities from SalesForce, plus invoices from QuickBooks, plus appointments from a CSV file. All records can be manipulated individually – or processed together while still retaining their original fields.

Equipped with the right schema, we can view commission data in an infinite number of ways. Here is a simple report we generated using Microsoft Power BI by typing a simple natural language query (“total commission payout by beneficiary email by plan“). Can your current commission software do that?

Here is another simple commission report generated using Tableau this time – the sky’s the limit when it comes to reporting using Sales Cookie:

A Commission Workflow Engine

Finally, you probably implement core commission-related workflows such as:

• A user enrollment workflow, where reps must agree to terms and conditions to become eligible
• A plan approval workflow, where compensation administrators design incentive plans, test outcomes, and deploy them
• A statement verification workflow, where compensation administrators verify calculated payouts before release
• A manager approval workflow, where managers have an opportunity to review and approve statements

Sales Cookie implements such core workflows to reduce administrative overhead. Here is an example of a simple manager approval workflow. The interface is designed to be intuitive. All your managers need to do are toggle approval statuses.

Please note that many organizations implement custom workflow rules in addition to core commission workflows:

• Some have unique escalation or reminder policies
• Some require reps to first approve statements, then managers
• Some require managers to first approve statements, then reps
• Some require multi-level approval (ex: manager then VP)
• Etc.

Even though commission software automates core commission workflows, infinite variations are possible. Organizations with custom approval workflows should consider adopting a general-purpose workflow solution (ex: Nintex, K2, etc.). This can then be applied to other approval workflows such as procurement, travel, vacations, etc.

In Conclusion

Sales commission software such as Sales Cookie provides:

• A structured yet extremely flexible framework to calculate commissions
• Time-dependent variables to capture all commission-related numbers
• A data schema to store every aspect of commission calculations
• Core commission management workflows to reduce administrative overhead

Visit us online to learn more and automate your commissions!

Some of the commision structures which cross my desk are very successful and fuel fast business expansion. Others include endless layers of complexity which confuse reps without any clear benefit.

Do you feel that your commission program is EXCITING? Or is it merely another complex tax on your business? Here is what I’ve learned about successful commission structures from some of the world’s fastest growing sales organizations.

• Their commission structures promote clear sales behaviors
• They’ve managed to eliminate commission “roller coasters”
• They always pay commissions accurately and on time
• They keep their commissions exciting through personalization

Test #1 – Does Your Commission Structure Promote Clear Sales Behaviors?

To motivate reps, we must first analyze the process by which reps evaluate their potential payouts and take action. For example, let’s say you have a per-product commission rate table. Product A comes with an 8% commission while product B comes with a 9% commission. Let’s say there is an additional 1% kicker for meeting quota as well. Seems pretty reasonable and quite straightforward in terms of structure!

However, your reps will wonder why product A only comes with an 8% commission when product B comes with a 9% commission. Where did these percentages come from? Who made the decision? Was it the VP of sales or finance? Are these rates negotiable? Are these rates fair? Are they competitive? Are they the same for everybody? Do they represent some secret margin calculation?

More importantly, are your reps really going to check their rate table to decide which product to sell? Since the upside is only an extra 1%, will they find it their worth putting in more effort to sell product B instead of product A? The answer is no. They’ll sell what they can, and what customers want. This type of commission structure is designed to contain costs. It doesn’t do much in terms of promoting specific sales behaviors.

On the other hand, a commission structure which pays a $100 for closing 3 deals, $500 for closing 7 deals, and $2000 for closing 12 deals does promote a clear sales behavior – i.e. don’t worry about the amount, and close as many deals as possible. Obviously, this may not be what your business needs, but it’s a good example of a commission structure showing clear intent.

My recommendation is to pick a few critical sales goals, and make sure your commissions communicate a corresponding intent. Put yourself in your reps’ shoes and ask yourself a few questions. Which specific actions will allow me to increase my commissions? Is the extra commission worth the extra effort? If the answer is clear, then you’ve probably nailed it.

Test #2 – Does Your Structure Avoid Commission Roller Coasters?

When it comes to commissions, things can feel a bit like a roller coaster:

• What? You’re increasing my quota because I’ve done well?
• Yeah! Our main competitor has just gone out of business!
• Oops! Those product issues are going to hurt my sales.
• Why did you decide to split my territory into two?
• Wow! Amazon just told me they want to buy ASAP.
• Damn! I wasn’t able to close this deal by quarter’s end.

As a manager, you are responsible for creating a sales environment which is motivating but also sane. Your first goal should be to eliminate noise and distractions so that your reps can focus on methodical sales. Your second goal should be to make sure your reps are paid fairly, accurately, and on-time. Finally, your third goal should be to get them excited about potential rewards. Let’s start with the first goal – a sane sales environment with fewer distractions and less noise.

One type of distraction happens when your reps don’t trust their commissions. Inevitably, they will implement some type of “shadow accounting” to verify payouts and calculate their own commissions. This will result in disputes and significant time wasted. To create a sane sales environment, commissions must be transparent, accessible real-time, and easy to understand. As a first step, make sure your plan is simple to understand.

Let’s talk about the role of luck in commissions. Suppose that the territory you own (ex: the Pacific NorthWest territory) lands Amazon as an client. The beauty is, you never even reached out to Amazon! They signed up on their own without any involvement from you. It just happens that you own the territory. That’s called luck, and it can have a large impact on commissions.

Organizations should try to limit the impact of anomaly-creating luck. For example, you could use caps (although they should be high). Much better, you could also compensate your reps for effort (ex: number of appointments, number of customer visits, etc.) rather than just closing sales. Reps don’t like caps, but they do understand effort. If effort is part of your commission metrics, you will also inherit natural (and fair) limits to commissions.

To recap, compensation should also take into account effort and behavior – not just top-line sales. For instance, when one of our customers switched to a new commission structure, a portion of compensation was allocated to customer satisfaction, customer appointments, and customer retention. Reps understood what they had to do to increase their payouts because concrete sales actions would lead the way. They became more excited about potential earnings given a fair, level playing field.

A brief note on quotas. When a rep blows through his/her quota, it’s tempting to conclude that the quota was too low. It’s true that quotas do need to be adjusted over time. However, it’s also important to ensure reps don’t feel that unfairness plays a significant part in commissions. Resetting quotas too often can negatively impact sales motivation. Adjusting quotas is a sensitive piece of sales compensation, and it is prone to disagreement. Some will feel that failing to adjust quotas means that earning commissions will become too easy. Others will argue that raising quotas is just a way to penalize reps for strong performance. If you don’t need quotas, great!

Otherwise, cumulative quotas can help reps remain motivated during times when they might be struggling. Those reps will know that, even if they miss a goal along the way, future wins can help them reach their cumulative target next time around. Finally, draws can also protect vulnerable reps. You can decide whether these draws are recoverable (i.e. they must be repaid by future commissions) or non-recoverable (i.e. they are forgiven).

Test #3 – Are Commissions Paid Accurately And On Time?

One way to destroy goodwill in a sales organization is to make retroactive adjustments to commissions. Let’s say you earned a solid $5,000 commission. One week later, your admin shows up to tell you they want $50 back because of an error calculating commissions. Here are some of the things your rep might think:

• I’ve already spent this $50!
• Please get your act together…
• I did a great job, can’t you let it go?
• Are you going to ask me for another $50 tomorrow?

Another way to damage sales motivation is to pay commissions late. Like adjustments, delays in payment raise doubts about commission accuracy, sales ops competency, and even your organization’s financial stability. And it’s very possible that your reps were counting on this money to pay their own bills on time.

Some organizations institute a buffer / waiting period before paying commissions. Note that a planned waiting period isn’t the same thing as an unplanned delay. While it causes rewards to be a bit more disconnected from sales, a waiting period gives you time to check that commissions are 100% accurate and ensure they’re always paid exactly on time. Obviously, automation is also key in terms of paying commissions accurately and on-time.

Test #4 – Are Your Commissions Exciting Enough?

Sales reps have been paid commissions for centuries. All sales organizations use commissions for 3 main reasons. First, measuring the short-term output of a rep is reasonably easy. Second, sales reps normally work with limited supervision. Commissions give managers some level of control which compensates for their inability to check whether a rep is playing video games vs. actively selling. Third, sales reps typically have a larger appetite for risk. Therefore, a pay structure with more significant upside just makes sense to them.

To recap, your commision structure should compensate your reps for being risk takers. Various studies about sales behavior show that the more uncertain sales are, the more a rep’s pay should be based on commissions. Conversely, the more stable sales are, the more a rep’s pay should be based on salary. This is why industries with frequent / rapid sales (ex: door-to-door, canvassing, etc.) or which correlate directly with individual effort have a higher variable component.

In an academic setting, lower-performing students require quizzes at regular intervals to motivate them. On the other hand, top students will do fine when their grade is determined by a final exam. The same rules also apply to sales commissions and sales reps. To get the most output from a rep, the best option would be to tailor commissions to each unique individual based on their own preferences and way of getting motivated.

Some reps are more motivated by cash. Some are more motivated by recognition. Some are motivated by non-monetary rewards (ex: trip / vacation). Some respond better to annual bonuses. Some are more productive when focusing on a quota. Some view bonuses as purely transactional. Others perceive bonuses as a true form of goodwill between management and them.

Of course, defining one plan per individual would be quite difficult and costly to manage. There may be some water cooler discussions as well, with reps sharing detailed information about their compensation with others. This could raise concerns regarding fairness. One solution is to create a common commission structure with a few “twists” for specific individuals based on their own individual goals and response.

For some reps, winning an iPad may be more motivating than earning an extra $300. Some organizations may even experiment with novel approaches to see what works. Instead of stating “you need to close 10 accounts to get $500“, how about stating “you’ll get $500 unless you don’t close 10 accounts“? This is of course more of a curious experiment about rep psychology, but give it a try!

In Conclusion

To truly motivate your reps, automation and a working structure are equally important. Our observation of top performing sales organizations leads us to the following recommendations:

• Create intent-based commissions to promote specific behaviors
• Design commissions around 1-3 primary sales goals per role
• Take into account effort to reduce the effect of luck on commissions
• If using quotas, make them cumulative to allow for recovery
• Use temporary recoverable draws to protect vulnerable reps
• Add buffer time to help you consistently pay correctly and on-time
• Use a common commission structure but include personalizations
• Survey your reps to check how they feel about their commissions

For a free commission assessment, click here! To automate your sales commission program, please reach out. We’d love to help!

Searching for alternatives to XActly Express

Perhaps you were asked to upgrade from XActly Express to XActly Incent but don’t want to? Perhaps you’re curious about pricing from other providers? Perhaps you don’t want to commit to another long-term contract?

Perhaps you leveraged a third-party consulting company to configure rules and want to eliminate external dependencies? Perhaps you’re looking for a new user experience for your reps? Perhaps you simply want to explore other commission automation solutions?

Here are some of the reasons our customers adopt Sales Cookie:

• Affordable & transparent pricing
• No professional services & fees
• Features you’re looking for
• Next-gen customer interface
• Interesting features & capabilities
• Lots of system connections

Affordable & transparent pricing

In today’s day and age, you should NOT have to negotiate SaaS licensing costs. We feel that SaaS licensing should be simple and transparent. Sales Cookie has 100% transparent pricing. Our customers consistently tell us that our pricing is competitive. There is no long-term contract either (cancel anytime). You only pay for what you use. And yes – we can automate 99% of commission plans we’ve seen. We also pay great attention to calculation accuracy and software quality (ex: each time we update our software, we run 1000+ unique tests).

No professional services & fees

When deploying XActly Express, did you rely on third-party consulting for your initial configuration. Do you still depend on this third-party consulting company for maintenance – for example when you need to adjust your configuration? If so, Sales Cookie’s goal is to eliminate professional services fees and empower you to manage your commissions. Let me be clear – Sales Cookie has no setup fee / configuration fee. You’ll also receive unlimited support from our support team. How is that possible? Because we built a system that’s easy to manage. And we’re making it easier every day. You won’t have to go through some painful vendor selection to choose the right configuration partner. And you won’t be at the mercy of a middleman or consulting third-party with limited control over the software (and sometimes questionable expertise).

Features you’re looking for

Naturally, you may wonder whether Sales Cookie can reliably automate your commission structure. Perhaps you have tiers, accelerators, lookup tables, splits, overrides, recoverable draws, custom rules, rollup hierarchies, etc. Don’t worry – Sales Cookie can handle all this (and much, much more). Using Sales Cookie, everything can be expressed as a formula (ex: scoring formula, dynamic crediting formula, attainment formula, payout formula) and as a time-dependent variable (ex: quotas, thresholds, payouts, etc.). Even the most complex scenarios are supported – ex: inter-period transfers, sales contests, clawbacks, overrides, estimates, simulations, automated enrollment, e-signatures, etc. Take a look at our (long & growing) list of features here.

Next-gen customer interface

Sales Cookie is intelligent and uses a modern web interface. We want to help your reps feel like they’re working for the best company ever. Sales Cookie helps your reps feel that you really care about them, and makes their commissions accessible and transparent. If you’re looking for a fresh new look, Sales Cookie is ready for you. We’ll even build a POC free of charge for you (with your own data and plan logic) so you can really see what Sales Cookie will look like for you. Also, this allows you to make sure that we can indeed automate your (complex) sales commission logic.

Interesting features & capabilities

Sales Cookie offers some interesting capabilities you’ll enjoy using. Do you want to survey your reps to check if your incentive program is really working? You got it!

Looking to better understand your revenue, churn, acquisition, customer loyalty? Yes, that’s included!

Do you want to build a totally custom report with drill-downs, filters, etc.? Let’s go!

Do you want to become compliant with accounting standards such as ASC 606? Sure thing!

Do you want to empower your reps to submit disputes regarding their commissions and help your admins figure out how to best resolve them? Of course!

Lots of system connections

Sales Cookie has a concept of a “data pool” which allows you to combine data from many different data sources. For example, you could sync records from 3 different SalesForce reports, plus invoices from QuickBooks, plus appointments from a CSV file. Even though each data set has its own fields, you can query records across all data sources in commission logic while still referring to original data fields. Sales Cookie supports many native connections, but also many different APIs such as REST APIs, OData APIs, Web Endpoints, and much more! Here are just a few of those:

In Conclusion

If you’re looking for a serious alternative to XActly Express, Sales Cookie should be on your list. We look forward to giving you an in-depth demo and showing your the extensive capabilities we’ve created to automate your sales commissions. Get in touch, send us some sample sales data, and let us do the hard work!

What Sales Commission Software Is For

Sales commission software is designed to fulfill two key objectives:

• Easy administration. Make your commissions easy to manage. Make them flexible. Deliver correct calculations. Comply with standards. Pay reps on time.
• More visibility. Give your reps & managers real-time visibility on commissions. Make payouts transparent. Allow reps to monitor their progress towards goals.

To fulfill both objectives, all commission software include two key components: an administrative component, and a rep/manager component.

The Administrative Component

If you work in SalesOps, sales commision software is going to make your life much easier! The administrative portion includes:

• A way to properly manage commission plans and make your incentive program more agile. When choosing a solution, make sure the management interface suits your tastes and feels user-intuitive. Also, make sure there is enough flexibility – for example the ability to create one-off plans (ex: spiffs, bonuses, sales contests, etc.), and core features such as dynamic crediting, scoring, filtering, etc.
• A way to track payees, whether internal or external to your organization. This gives you the ability to manage plan eligibility, territories, job titles, team structures, user permissions, user enrollment, acceptance of terms and conditions, etc. The most flexible solutions understand those change all the time.
• A way to manage individual & team metrics. Metrics can be territory quotas, attainment thresholds, payout rates, bonus amounts, etc. Most systems include a way to bulk-upload metrics and define time-dependency (ex: “this rep’s quota was 100K last quarter, but 120K this quarter“, “this rep was a member of team of NorthWest until June“).
• A way to automatically fetch sales data from various CRM / accounting systems. This can be accomplished using various APIs or native connections. Ideally, you should be able to connect to your favorite CRM system once, after which data is automatically synchronized.
• A way to calculate commissions in-bulk (across your entire payee base). This process could be manual (it should only require a few clicks), or it could be fully automated (ex: automated daily re-calculation). A robust commission management system will also provide the ability to manually override / adjust commissions.
• A way to audit commissions – make sure there is:
  • A way to review commission payouts
  • A way to review crediting of deals to reps
  • A general alerting system (to deal with calculation errors, bad data, etc.)
  • A general audit log (to track all changes made to the system)
  • A way to manage currency exchange rates
  • A way to audit and manage the overall cost of your incentive program
  • A way to ensure compliance with accounting standards (ASC 606)
  • A way to ensure legal compliance (ex: user enrollment, e-signatures)

These core administrative capabilities is what allows you to focus on higher level tasks and eliminate messy commission spreadsheets. Commission software also eliminates the single point of failure when only one person knows how to calculate commissions. How so? Because, once automated, your commissions are fully documented as crediting rules, payout rules, filtering rules, rollup rules, etc. And any authorized admin can calculate without knowing all the intricate details.

A Rep & Manager Component

If you are a VP of Sales, this is for you! This highly visual component helps you motivate your reps, improve commission transparency, reduce shadow accounting, and eliminate disputes. The rep & manager portion should include:

• A way for payees to see real-time deals they were credited with, along with the ability to search them, download them, etc.
• A way for payees to see real-time which payouts to expect, review their progress towards goals, access historical statements, etc.
• A way for managers to identify commission trends, review attainment, compare individuals, and access aggregative & individual data.
• A way for managers to motivate their team through clear goal setting, gamification, or non-monetary badges / prizes.
• A way to centralize dispute management via self-service. Payees should be able to submit questions and track resolution.
• A way to handle multi-currency scenarios for payees whose currency is different from the organization’s default.
• A way to keep the information flowing – ex: rep surveys, post notifications, announcements, embedded docs, etc.

What Sales Commission Software Really Isn’t For

As we’ve just seen, good commission software can be incredibly powerful. If you’ve been using spreadsheets for commissions, it’s going to look like magic! But is it really the “all-in-one” holy grail of sales software? To make the best use of commission software, you must understand what it’s designed for, but also its limitations.

Sales commission software isn’t a viable replacement for a proper CRM

Commission software is specialized software which is entirely focused on automating sales commissions. Commission software doesn’t provide all the core features a good CRM or sales tracking system provides – such as the ability to create custom views, define custom entities, create new form templates, integrate with email clients, etc.

Commission software works with your sales data by pulling a read-only copy to automatically credit reps and calculate commissions correctly (as per your configuration). The advantage of this architecture is that you are not dependent on one specific commission solution. You can easily switch to another commision automation solution any time since your CRM system retains all your core sales data.

Sales commission software shouldn’t be your system of record or data cleansing repository

Sales commission software won’t help you deal with incomplete or inaccurate sales data. Commission software isn’t designed to merge contacts, find duplicate accounts, mark invoices as paid, etc. That’s the role of a proper CRM or accounting system. Sure – you can always upload messy data to your commission software and calculate commissions, but garbage in also means garbage out.

Before using commission software, you must ensure your data is complete and accurate. Commission software pulls sales data from existing sales systems, so it’s important for this data to be as accurate as you want your commissions to be. If you just have approximate amounts recorded on deals, you will get approximate commission amounts as well. This could prove costly and infuriate your reps.

Sales commission software shouldn’t drive your commission plan design

Commission software is ideal when you’re happy with your commission structure, but not happy with how manual or onerous the process is. If your commission structure in murky or unstable, it’s going to be near-impossible to automate things. To automate calculations, you must have crystal-clear clarity regarding all rules, amounts, thresholds, conditions, payouts, formulas, quotas, etc. Without knowing this precisely, how can you configure anything?

We recommend running calculations manually for one period before automating. This helps you verify all required data is available, and can uncover “gotchas” or missing exceptions. Without practicing it, your commission structure remains hypothetical. For example, let’s say you decide that commissions should be paid when you get paid. Do you even record payment dates?

In addition, while powerful, commission software can’t deal with unreasonable commission structures. I mean, those “I’m so special” commission structures, with endless rules / conditions / exceptions. First, unreasonable complexity can lead to conflicting logic. Second, those rules will continue to confuse your team, even if automated. Third, you’ll still want to audit results, and this will continue to take significant time.

Finally, the more complex your commission rules, the harder it is for you to track all the data required to correctly credit and calculate commissions. In short, commission software cannot compensate for an unclear or over-complicated structure. Finally, commission software makes it easy to create one-off exceptions / overrides. But if that is going to be the norm, then you won’t benefit as much from automation.

Sales commission software is not a revenue-reporting system

Commission software specializes in commission administration and commission reporting. Revenue is often an important, but not necessarily critical, metric for commissions. For example, a company could use multiple incentive plans – one based on revenue, one based on profit, and one based on a number of calls. In this case, revenue data is not utilized across all commission plans. This makes revenue-based reporting dubious.

We get it – the best sales commission software solutions provide advanced analytics capabilities. It’s tempting to leverage them to create revenue-related reports. But there is still a strong focus on commissions. Do you want to view total revenue by month? Well, you could, but it’ll be total credited revenue by month, which is a bit different. So, you’re better off running revenue-related reports within your source system.

In Conclusion

Sales commission solutions aren’t designed to replace CRM or accounting systems, but to work in harmony with them. Sales commission solutions are quite specialized. They should never be treated as all-in-one solutions because they focus exclusively on commissions, rep motivation, and incentive management.

We recommend developing a clear (successful) commission structure before automating. Once you have established a working incentive program, sales commission software will help you automate everything and increase your commission agility. Armed with full clarity regarding commissions, configuration will be a breeze.

It is also critical that your source data be complete, accurate, and up-to-date. Otherwise, garbage in will result in garbage out – never a good idea when calculating commissions. Finally, all commission software requires some degree of discipline in terms of managing commissions – after all, you’re still responsible for verifying payouts and cutting checks.

In our experience, the most successful companies use simple and transparent commission structures. They use commission software to provide real-time access to their payees and automate their commissions. Every day, new organizations leverage Sale Cookie’s advanced capabilities to deliver well-run commission programs to their team. Visit us online to get started!

• Manually generating & distributing spreadsheets is time-consuming
• Most spreadsheets are static and don’t provide real-time visibility to reps
• Individual spreadsheets don’t help managers understand team performance

Your reps close more deals every day, so why should they only receive 1 commission statement every month? And why should they have to search their mailbox to find their current and past commission statements? What if they are on the go?

Your reps should be able to login and access all real-time commission statements any time, from any device – commission software can help you with this. But what makes online statements so much better than static spreadsheets? Here are some requirements you may have thought about for your commission dashboards:

• Reps can review deals and easily verify payouts
• Reps can visualize how their commission is trending
• Reps can access current and past statements
• Reps can have real-time access to their commissions
• Reps can access their commissions from any device
• Reps can accept terms and conditions
• Reps can submit disputes / enquiries
• Managers can understand how their team is doing
• Managers can assess commission effectiveness
• Managers can motivate their reps

Can sales commission software like Sales Cookie really meet all these requirements? Let’s take a look and find out!

Reps can review deals and easily verify payouts

Reps should be able to effortlessly review all their deals. They should be able to sort, export, and search deals they were credited with. If there is a per-deal commission amount, it should be clearly stated. Sales Cookie’s commission dashboards are designed to help your reps review their commissions. Administrators can choose the list of fields visible to reps on their commission statements.

Reps can visualize their commissions many ways. For example, they can group deals by customer:

Or they can group deals by product and choose a different visualization:

In fact, they can group deals by any field in your data! They can also visualize deals over time:

In some cases, you may want to show an actual vs. estimated commission for each deal like this. For example, deals which haven’t been paid may show an estimated, but no earned commission.

Reps can visualize how their commission is trending

Your reps want to know how their commissions are trending. They also want to understand how each commission component contributes to their total payout. Here is how Sales Cookie does it:

Details for each commission component & period are only 1 click away:

Reps can access both current and past statements

One key advantage of online commission statements (vs. static spreadsheets) is that reps can easily access both current and past statements. Selecting a different period just takes one click:

For each selected period, reps can view:

• How much time is left
• Their sales target
• Their attainment level
• Their estimated or final payout

For example, if there is some time left before a commission period closes (or payouts haven’t been finalized), rep will see something like this:

All statements include a clear breakdown of commissions to help reps understand their payout:

Reps can have real-time access to their commissions

For reps to have real-time access to their commissions, you must first automate your commission process. Once it has been automated, re-calculation only takes a few clicks (vs. the hours manually generating spreadsheets normally takes).

For even more automation, simply enable daily re-calculation. Calculations now re-run daily, and rep online statements are automatically re-generated. Online statements show each rep’s latest deals and estimated commission. You can even have new calculations start automatically when a new period starts.

Now, your calculations are on auto-pilot. Your reps commission statements are updated daily without any manual intervention. Your reps can track their progress each time they close a deal. Daily updates also help eliminate the typical “mad scramble” associated with all reps receiving their commission statement at the end of the month. Daily updates reduce the risk of bad surprises for your reps and for you.

Reps can access their commissions from any device

Traditional commission spreadsheets (or PDFs) can be slow to load and render poorly on mobile devices. If statements aren’t available online, locating them using a mobile device may also prove difficult. Using a solution such as Sales Cookie, commission statements are always available online and “responsive”. They adapt to your mobile device’s dimensions (without having to install yet another mobile app):

Here is another mobile vs. desktop comparison:

Reps can accept terms and conditions

To legally protect your incentive program, you must define terms and conditions and enroll payees. Sales Cookie makes it easy to automate the enrollment process:

Creating terms and conditions is very easy as well. We even provide sample content to make it easy to assemble a commission agreement:

That’s it – your reps can now enroll directly from their commission dashboard:

Reviewing and accepting terms and conditions is effortless. Sales Cookie can even gather and record e-signatures from your reps:

Reps can submit disputes / enquiries

Even if your commissions are very transparent, your reps will inevitably have questions. The typical salesops admin is bombarded with commission-related emails & voicemails. Sales Cookie makes it easy for reps to submit enquiries directly from their commission dashboards. This allows you to centralize all commission-related requests.

Reps can track whether submitted issues are still active or have been resolved. They will be automatically notified when an issue is submitted or resolved. Sales Cookie even helps admins locate offending deals / transactions to facilitate resolution.

Managers can understand how their team is doing

Unless you generate more (consolidated) spreadsheets for them, managers must open individual spreadsheets to understand how everybody on their team is doing. Using Sales Cookie, commission dashboards include a manager view like this:

The manager dashboard empowers sales leaders to search for, export, and analyze commissions. For example, they can group commissions by team:

Or leverage many other views – such as this one with attainment percentages and trending information:

Managers can assess commission effectiveness

Using Sales Cookie, you can create surveys using different formats:

Survey questions appear directly on rep online statements:

Here is the same survey question, using a different format:

Now, your managers can determine whether commissions are working as expected:

Managers can motivate their reps

Using Sales Cookie, managers can add announcements directly on rep dashboards, and even award badges:

In addition, attainment visuals like this one help encourage your reps to reach for the next level:

In Conclusion

Old-fashioned commission spreadsheets are unwieldy, static, and lack many important features. Sales Cookie’s incentive dashboards can provide your reps and managers with real-time visibility on commissions. Visit us online to learn more!

• Managing commissions takes too much of your time
• You’ve experienced sales commission calculation errors
• You’re manually distributing sales commission spreadsheets
• You’ve lost good reps over sales commissions

Those are just some of the more obvious symptoms that something might be wrong with your commissions. To objectively assess your commissions and determine if you’re ready for automation however, we have to dig a bit deeper.

At Sales Cookie, we’ve created a self-assessment wizard. It is easy to use, completely free, and entirely anonymous. You can click here to start a free assessment. We’ll even determine your level of readiness towards automating commissions.

Your Administrative Overhead

Do you manually generate & send commission spreadsheets?

You probably realized that that commission spreadsheets don’t scale very well. Having to manually generate, update, distribute, and archive individual commission spreadsheets is very time-consuming. Also, commission spreadsheets quickly become unmanageable from a reporting or compliance perspective. But did you know there were ways to automate the entire process and eliminate commission spreadsheets? Using a solution such as Sales Cookie, your reps can access their statements online (real-time) without having to manually generate individual commission spreadsheets. Our advanced automation is designed to bulk-calculate commissions, easily verify payouts, and publish commissions to your reps.

Do you have a large volume of commission disputes / enquiries? 

A large volume of requests from your reps is unmistakably a sign that your commissions lack transparency, or aren’t accurate enough. Many sales operation analysts spend considerable time answering emails / voicemails from reps who didn’t understand how they were paid, didn’t have the right data to verify payouts, or experienced repeat calculation errors. To reduce the number of enquiries you deal with, you have to make it easier for reps to understand & review their payouts. You also need a centralized way for reps to submit detailed enquiries, such as Sales Cookie’s mini-dispute management system. We make it easy for reps to review their commissions, categorize issues, include relevant details, and help you automate resolution.

Is managing commissions taking too much of your time?

Any time you have a manual process which repeats itself, there is an opportunity to automate. The average salesops administrator spends ~20 hours per week managing commissions (including time generating spreadsheets, responding to reps, adjusting commissions, etc.). This is an extraordinary amount of time wasted on unproductive tasks, which also increases the total cost of ownership your incentive program. Automation can help ensure your time is spent on higher-value tasks. For example, using Sales Cookie, you can configure a single incentive plan, calculate commissions for say 100 reps in a few clicks, easily verify payouts, and publish everything to rep dashboards.

Your Reps & Their Commissions

Do your reps waste time self-calculating commissions? 

In our annual survey, we found that the average rep spends 2 hours / week verifying commissions. This time, wasted on “shadow accounting”, could have been spent on more productive selling activities. Unfortunately, unless your commissions are automated and online, your reps might not have the exact same data as you, so their own calculations often won’t match yours. This in turn wastes your time, as you have to do some research, investigate discrepancies, etc. To reduce the amount your reps spend verifying commissions, consider simplifying your commission structure and automating calculations to make them more transparent to your team.

Can your reps access their commission statements online? 

Unless your statements are online, your reps have to search for those statements (ex: in their mailbox). If they want to compare with the previous period, they have to search for the previous commission statement as well. And while on the go, they may not be able to access their commission statements since those aren’t available online. More importantly, they’ll never have real-time visibility on their commissions. Your reps close new deals every day, so why shouldn’t they be able to see how their commissions are tracking every day? Your reps don’t want to wait for a “final” commission statement at the end of the month. To satisfy their needs, you must be able to recalculate daily, and publish results available to them online. Only automated commission solutions can do this.

Are your reps usually paid their commissions on time? 

On average, organizations pay commissions late 20% of the time. Paying commissions late sends the wrong signal. Your reps might wonder whether your organization is financially unstable, whether you’ve got your act together, whether they can count on expected income to pay their bills, whether they can afford that new car, etc. Paying commissions late damages your credibility and makes commission calculations more suspicious. However, unless you’ve automated the entire process, manual recalculation will take hours. For example, revised sales data may require you to recalculate commissions one more time, resulting in late payment. Automation is the best way to ensure your reps are paid the right amount, one time.

Have your lost reps because of commission-related issues?

Here, we’re assuming that your incentive program is competitive, and that a rep only quit because he/she felt screwed over commissions. Losing good reps over commissions is the ultimate red flag. Unfortunately, the impact of losing a good rep is significant. Think about the thousands of dollars you will spend finding, hiring, and training a replacement. Not to mention opportunity costs associated with neglected or abandoned customer accounts. Finally, departing reps can sap team morale, poach employees, steal customers, and worse. Taking into account the total cost of losing good reps over commissions, automation is incredible affordable and a no brainer.

Your Commission Process

Can you easily make changes to your commissions? 

If you’re not able to make changes to your commissions, you won’t be able to promote the right sales behaviors. You have an commission agility problem. Over time, your commission structure is going to drift from what it should be. For example, you’d like to tweak commissions, but this takes too much effort, or could break things. Unfortunately, with commissions, change is the only constant. Roles change, territories change, quotas change, product catalogs change, margins change, commissions need to be adjusted, currency exchange rates change, etc. You cannot manage all these commission-related changes without properly tracking them. This means you need a system.

Do you often experience commission calculation errors? 

In our survey, 4.2% of payouts were later identified as overpayments due to a lack of automation. Because 8% of revenue on average is spent on commissions, commission calculation errors can prove costly. In addition, calculation errors can upset reps, investors, and executives. They can affect your credibility and your reputation. They can impact financial audits, and even result in fines. Only automation can ensure your payouts are correct because automation uses a systematic process to calculate commissions (from assigning a value to each sale, to crediting the correct reps). Automation also allows you to more easily review and audit payouts.

Are your reps required to accept terms & conditions? 

Unless your reps must formally review and accept terms & conditions, you are at increased risk of adverse legal action. For example, in many jurisdictions, declaring commissions as earned is sufficient for those commissions to be considered due, so it’s important to use the right terminology. Also, if you have different commission spreadsheets floating around, disagreements about payouts are more likely. Sales Cookie can enroll user, enforce acceptance of terms & conditions, and help ensure your incentive program is legally protected. In addition, Sales Cookie ensures there is only one version of the truth (not hundreds of floating spreadsheets with many edits).

Do your commissions comply with accounting requirements?

All organizations are now required to capitalize and amortize the cost of commissions. Any reasonable financial audit is going to uncover serious problems if you don’t follow the rules. Unfortunately, the amortization process is fairly complex because you need to a/ identify commission payouts b/ determine corresponding sales and c/ amortize the cost of commissions over each sale’s “contract duration”. For example, if your reps sell 2 year subscriptions, you must amortize the cost of subscriptions over a 2 year period. Sales Cookie offers tools to ensure compliance with ASC 606 and other related standards.

Your Automation Readiness

Do you have a system (ex: CRM) tracking all your sales?

Sales commission software is never a suitable replacement for a proper sales tracking system such as full-fledged CRM. Only CRM-like systems offer the breadth of features required to properly track sales (ex: creating opportunities, categorizing contacts, creating new forms, managing pipelines, etc.). Sales commission software is designed to pull data from your existing sales system, help you manage incentive plans, accurately calculate payouts, and publish commissions to your reps. There isn’t any good commission management solution which also provides excellent CRM features, so avoid looking for all-in-one solutions. Your goal should be to use both a best-in-class CRM system, and a best-in-class commission system.

Is your existing commission structure well-defined?

Commission software is there to help you scale – not help you figure out how your commissions should be structured. You should automate commissions only if they are fully defined (including all nitty-gritty details). Otherwise, you’ll just waste more time configuring commission software when you could have used pen and paper to better define your commissions. Commission software will provide much-needed commission agility, but only if your initial goal is crystal clear. We recommend calculating commissions manually for 1 period before automating, so you can uncover required exceptions / rules, and can fully validate your commission structure. This will ensure you’re ready to automate (in fact, we’ll configure everything for you free of charge once you have 100% clarity).

Do you have 8 or more payees?

If you just have 1 payee, it’s premature to deploy a commission software solution. You won’t benefit from the economy of scale offered by commission automation software. You’re better off calculating commissions manually without configuring automation. You might experience a net positive ROI with say only 3 payees, but there is an initial investment you need to make, and you’ll end up with one more dependency, so is it worth it? With 8+ payees however, you can be confident that automation software like Sales Cookie is going to save you considerable time because you’ll be able to calculate and publish commissions in bulk where manually generating spreadsheets was torture.

In Conclusion

Use our free self-assessment wizard to identify commission issues and determine if you’re ready to automate your commissions!

• They are extremely versatile
• They make it easy to combine data
• They let you summarize & visualize data
• They support complex formulas
• Everybody knows how to use them!

Opportunities for using spreadsheets are endless. This is why every organization uses spreadsheets to analyze sales, track financial information, and often manage commissions. When dealing with a simple commission program and a handful of sales reps, using spreadsheets to track commissions makes total sense. In fact, we used one of our free commission spreadsheets as a featured image for this post.

However, challenges typically emerge as commission programs mature. Here are some of the symptoms you’ll likely experience:

• Your work is becoming very repetitive in nature
• You spend more and more time generating & sending spreadsheets
• Reps want real-time access to their commissions
• Managers want visibility on their team’s performance
• Spreadsheet formulas are becoming increasingly hard to manage
• You’ve accumulated many different spreadsheet / versions
• You have financial reporting & legal compliance issues

Did you know there was a better way? In this article, we describe common challenges associated with using spreadsheets to manage commissions:

• Generation & distribution
• Versioning & time-dependency
• Transparency & reporting
• Accounting & financial compliance
• Calculation errors

Generation & Distribution

Let’s examine a typical manual commission spreadsheet workflow. You typically have one or more master spreadsheet, with some formulas and lookup tables. For each pay period and for each rep, you:

1. Copy a set of sales records to your master spreadsheet
2. Run through formulas to generate commissions
3. Generate a private copy for each rep
4. Delete information reps should not see within their own copy
5. Share spreadsheets with the right individuals
6. Archive spreadsheets

There is no way to generate spreadsheets “in bulk”. You’re generating individual commission statements from a template. If your sales force doubles, you will spend twice the amount of time generating commission spreadsheets. And you will need to do this over and over – forever!

Each time an adjustment is required, you must re-generate new spreadsheets, and share them once again. If sales data was incorrect or missing, you must start all over again. If the adjustment requires updating formulas, there is no way to document the change you’ve made. You might lose track of logic over time. You may also need to remember to undo “temporary” changes to formulas.

From a reporting perspective, individual spreadsheets are a bit of a nightmare. Sales managers may need to open 10 individual spreadsheets to review individual commissions. Unless you manually generate additional spreadsheets for them, managers don’t have a central way to understand their team’s performance. Managers don’t have a way to visualize trends, or to look at numbers in aggregate.

Finally, generating commission spreadsheets takes significant time, so you’re probably only going to do it once – when all sales data is available. As a result, your reps might wait an entire month before they can view their next commissions. This could mean bad surprises for you, for managers, and for your reps.

Compare this with an automated commission solution – using Sales Cookie, you can:

• Eliminate manual generation of spreadsheets
• Always use the latest sales data (synched from your CRM or accounting system)
• Calculate commissions for all reps in “one shot”
• Provide each rep with an online dashboard with their current & past statements
• Adjust commissions and document the exact reason
• Empower managers to review both individual and combined statements
• Generate reports spanning multiple reps and time periods

Here is an example of an online rep dashboard replacing manual commission spreadsheets. This only shows you ~10% of the functionality Sales Cookie’s incentive dashboards can deliver to your reps. Reps gain real-time access to their current and past statements, from any device.

Versioning & Time-Dependency

Using commission spreadsheets, what are some of the things which could change from period to period, and that you should keep a record of?

• New sales transactions
• New hires / terminated reps
• Commission adjustments
• Changes to formulas
• Changes to job titles
• Changes to various numbers (ex: salaries, quotas, commission rates)
• Changes to incentive plans
• Changes to currency exchange rates
• Changes to managers & territories

Spreadsheets don’t help you document those changes. All you can do is generate one more version of your master spreadsheets, with the “latest and greatest” formulas / lookup tables / sales data. To audit past commissions, you must locate the correct commission spreadsheet. You must then examine its content, review key numbers, and analyze how formulas were put together at the time.

Of course, you can leverage Excel lookup tables to manage time-dependent variables. For example, you could create a lookup table listing exchange rates and commission rates over time. You can then refer to this two-level lookup table in your formulas. However, this makes your formulas complicated. And you can’t version or track other changes (changes to formulas, changes to territories, changes to incentive plans, etc.).

Compare this with an automated commission solution such as Sales Cookie – you can:

• Define clear time-dependent variables
• Automatically pull the right value for the current calculation period
• Automatically track changes made to formulas, incentive plans, etc.
• Go back in time to view past payouts, rates, quotas, credits, sales, etc.
• Easily handle situations such a title changes, terminations, etc.
• Automatically track every change in an audit log

In this example, a per-rep, time-dependent variable called Quota has been defined (@@ means “magically pull the right value”). Sales Cookie will automatically pull the correct quota value for each rep for the period you want to calculate for. That’s magic!

Transparency & Reporting

When generating individual commission spreadsheets, you have two choices:

• Delete formulas and share spreadsheets
• Keep formulas and share spreadsheets

With the first approach, your reps won’t understand how their commission was calculated. They just have “numbers”, without a way for them to understand where they came from. The best you can do is include explanations / show intermediary numbers within individual spreadsheets. With the second approach, your reps may be confused by complex formulas. Most sales reps aren’t familiar with advanced Excel capabilities because that’s not their job. They also don’t have time to decode Excel formulas.

In addition, if a rep wants to compare their current payout with last month’s, they must locate their previous commission spreadsheet. If they are on the go, they may not be able to do this, unless your spreadsheets are accessible remotely. Even so, it may be a large download, and spreadsheets don’t render well on a mobile device.

Additionally, there is no good way for managers to understand how their team is doing. Sure, you can generate more consolidated spreadsheets for managers, but that’s more work for you. And remember – each time you adjust a rep’s commission, you should also re-generate, re-share, and re-archive manager spreadsheets.

Manually generating spreadsheets is time-consuming. You’re not going to do it every day. However, your reps are closing new deals every day! They want to know, real-time, which deals they were credited with, and what their commission may be. They don’t want to wait for a few days before payday to track their commissions.

Compare spreadsheets with an automated commission solution – you can:

• Define a clear set of commission components for each rep
• Auto-calculate commissions daily
• Allow your reps to see real-time how they are tracking against goals
• Allow reps to easily access their current and past statements online
• Deliver a mobile experience for reps who are on the go
• Empower managers to access individual statements
• Give managers global visibility on their team’s performance

Here is an example of a manager dashboard within Sales Cookie. Managers can visualize their team’s commission data many different ways. Of course, they can also access individual rep statements.

Accounting & Financial Compliance

Commission spreadsheets make it virtually impossible to comply with accounting standards. New accounting standards such as ASC 606 require organizations to amortize the cost of commissions over time – by any means, not an easy task. With commission data scattered around dozens of spreadsheets (with different versions and formulas), it’s hard to understand how one could pass even a basic financial audit. And given the fact that the average organization spends 8% of revenue on commissions (a form of employee compensation), commissions are guaranteed to be part of any financial audit. Failed audits can get in the way of investments or result in fines / penalties.

Another key aspect of compliance is legal compliance. Each US state enforces different legal requirements regarding sales commissions. In some jurisdictions, any commission declared as “earned” is owed and must be paid. Spreadsheets don’t help you deliver legal compliance because there is no way for reps to accept terms and conditions before they can view their payouts. Spreadsheets may seem convenient, but they come with significant legal risks. Ill-intentioned reps may leverage later corrected commission spreadsheets (or even fabricated commission spreadsheets) to support a claim that they weren’t paid correctly.

Compare this with a solution such as Sales Cookie – you can:

• Become compliant with ASC 606 requirements
• Avoid financial penalties / fines due to a lack of compliance
• Require reps to formally enroll in incentive plans
• Require reps to accept terms & conditions before they access statements
• Provide a single version of the truth which reps cannot alter

Here is an example of Sales Cookie’s financial compliance tool. Sales Cookie also makes it easy to draft commission-related terms and conditions, gather e-signatures from reps, submit & resolve disputes, and much, much more.

Calculation Errors

Spreadsheet formulas are notoriously difficult to troubleshoot. Should you be referencing cell range A7-A20, or A7-A21? What if someone adds another row of data or column? Is it still going to work – or is it going to break without you even noticing?

In addition, spreadsheets typically can’t connect to live sales data from your CRM or accounting system. Spreadsheets work with a stale copy of your sales data. This makes it difficult to deliver accurate commissions.

Calculation errors not only erode trust – they can be costly. Correcting calculation errors requires re-generating, updating, and sharing more spreadsheets. Some organizations have even experienced situations where hidden cells caused incorrect calculations or outright fraud.

To calculate commissions correctly, it’s critical to go through 4 specific stages, which only an automated solution like Sales Cookie can deliver:

• Valuation – correctly assessing each transaction’s value – for example, calculating margins, converting between currencies, scoring transactions, etc.
• Crediting – correctly attributing individual sales to reps / managers / territories based on their involvement in the sales process (potentially with rollups).
• Attainment – correctly assessing each measured rep or territory’s performance – for example comparing total attained revenue vs. quotas.
• Rewards – correctly calculating payout amounts and assigning them to the right person – for example, the territory’s manager.

This is well beyond what spreadsheets can do.

In Conclusion

Excel spreadsheets are amazing! However, they were never designed for mass-delivery of commissions to modern sales organizations. You already knew that spreadsheets wouldn’t scale, but did you know that automated solutions such as Sales Cookie could solve so many commission-related problems? Visit us online to learn more. We’d love to help!

Most sales organizations don’t deal with high-frequency / high-volume sales. Tracking thousands of sales in a CRM or accounting system is never a problem. Typically, each sale is tracked individually, in chronological order. Each sale is represented by a single record or granular entry.

Each sale typically also has an effective date (ex: closed date, payment date, etc.). To calculate commissions for a given pay period, choose a start/end date. Next, make sure only those transactions within your chosen calculation period are processed. Any commission automation solution knows how to do this!

Some businesses however deal with a high volume of sales transactions. Some may have millions of transactions per day. For example, for an online ad platform, each click may represent a “sale”. For this reason, it may not be possible to track sales individually. Instead, aggregates must be used to track sales. Here is an example showing total clicks per domain, tracked monthly.

So far so good. No need to use deductions to calculate commissions, yet. We can use the same approach as traditional sales departments, and simply process aggregate transactions within the period we want to calculate commissions for. Here is what our commissions might look like for January, February, March, and April (note the start and end dates).

Here’s the problem, though. Assume we’re now in May. What happens if thousands of January clicks were found to be fraudulent? Or if there some large customer refunds were issued for January sales? We’ve already paid January commissions! How can we fix commissions? A simple fix could be to apply a negative count to May’s totals, to make up for the January refunds.

However, there are two issues with this approach:

• Most high-volume sales systems simply don’t know how to do this. All they do is update January totals (ex: from 84,758 clicks to say 79,204 clicks) in a database. They can’t magically create another row of data with a negative count to apply to May.
• What if a rep exceeded their quota in January and received a bonus? Perhaps this bonus shouldn’t have been paid, based on our new knowledge of January totals. Applying a negative count to May totals won’t make commissions right because the bonus will still have been paid for exceptional performance, and won’t be clawed back.

One solution is to use deductions – i.e. always calculate commissions from the same reference point, such as Jan 1st:

• To calculate January commissions, process totals from Jan 1 to Jan 31st.
  • We don’t have anything to deduct at this point.
• To calculate February commissions, process totals from Jan 1 to February 28.
  • Deduct previously paid January commissions.
• To calculate March commissions, process totals from Jan 1 to March 31.
  • Deduct previously paid January AND February commissions.
• To calculate April commissions, process totals from Jan 1 to April 30
  • Deduct previously paid January AND February AND March commissions.

We’re now able to calculate commissions correctly, even though sales totals have retroactively been revised. Essentially, we’re constantly re-evaluating total commissions due from the beginning of the year, but subtracting what we already paid you. This ensures commissions are correct. For example, the January bonus we paid you for exceptional performance may be undone by later re-evaluations of what your commission should have been.

Using Sales Cookie, selecting an overlapping time period when calculating commissions automatically triggers deductions. Sales Cookie automatically detects the overlap and adds a deduction to avoid double-payment of commissions. Even better, you can configure advanced options to specify how deductions should work. You can choose a reference date and a deduction rule. Here is what calculations may look like. Note that the start date is always January 1st (our reference date).

On rep incentive dashboards, online statements will include a negative amount for each deduction, along with an explanation:

This approach works well, but can we improve further? There is one small downside to our approach. If we were to go back in time and recalculate January commissions, we’d get a different total from what we calculated in the past because January totals have been updated. We’ve lost knowledge of what January totals were in January.

This may not be a big deal if you always “move forward” with your commission calculations, and never need to go back in time to recalculate prior statements. However, it can be a good idea to consider the following approach if your sales tracking system supports it. Instead of blindly updating January totals, consider tracking multiple copies / versions of January totals:

• As of January 31st, the January total for house.com was X
• As of February 27th, the January total for house.com was Y
• As of March 31st, the January total for house.com was Z
• Etc.

This means keeping a snapshot of all totals for each period. It also mean we can go back in time and recalculate commissions (still using the deduction-based approach) for any point of time. We know – this point is a bit technical, but hopefully our explanation makes sense! Don’t worry if this was a bit confusing. This is not essential to the general approach of using deductions to deal with high-volume sales.

In Conclusion

Many high-volume sale systems don’t track sales individually. Instead, they work with aggregate data. Sometimes, this aggregate data needs to be retroactively adjusted due to refunds / returns / cancellations. Deductions ensure commission calculations remain correct. Using deductions, we constantly re-evaluate due commissions from a reference point, minus previous payments. Sales Cookie can help you automate this type of scenario. Click here for a free commission assessment!

Preserving Sales Motivation

Let’s face it. Some of your reps may miss their quotas through no fault of their own. You may even need to eliminate positions, which will inevitably discourage your sales force.

Sales commissions (even if reduced) represent the best way to motivate your sales force to keep fighting. Consider the following adjustments to ensure your reps don’t get discouraged:

• Lower quotas to reflect current conditions
  • Tell your team that you want to do the right thing and are lowering quotas. However, remind them that this is a quid-pro-quo. When the economy reboots, they should be prepared for quotas to go back up.
• Avoid excessive punishment of under-quota performance
  • For example, instead of paying no commissions under quota, pay a small amount (ex: 1-2% of revenue) to throw struggling reps a lifeline. To absorb the cost, reduce accelerator payouts, which are more justified in high-growth mode.
• Include draws for key employees
  • Draws are minimum commission guarantees. Normally, they’re only applicable to new employees during onboarding. However, assuming you have sufficient cash reserves, consider using draws to help retain top performers. Some of those draws may be recoverable – i.e. will need to be repaid.

Focus On Customer Retention

During a crisis, preservation can be a better strategy than expansion. For this reason, metrics which normally drive commissions, such as new business / new logo acquisition, can become less important than renewals or customer retention.

Sales commissions drive sales behaviors. Your reps want to maximize their earnings based on their understanding of how commissions are paid. Consider the following changes to protect your business:

• Reduce “new business” commissions
  • Often, new business deals pays higher commissions than renewals. Send a clear message to your team. New business is now less important than during 100% growth mode. Payouts will be reduced accordingly.
• Increase retention-based commissions
  • Most organizations pay lower commissions for renewals. In fact, some organizations pay no commissions for renewals! Consider introducing new retention-based performance metrics and increasing payouts for renewals.

Focus On Profitability

This may sound old-fashioned, but there was a time when sales reps wouldn’t earn commissions until they paid for themselves (i.e. their sales paid for their salary). This is an option of last resort, but it can make sense during difficult times because you can’t lose money on commissions.

The broader theme is – focus on profitability where you previously encouraged growth. Consider the following to deliver a sustainable incentive program which pays for itself:

• Switch to profit-based commissions
  • Consider switching from a revenue-based commission model to a profit-based commission model. You don’t necessarily need to pay a percentage of profit. You could still pay a percent of revenue, with this percentage variable depending on margin.
• Establish a commission baseline
  • If there is a way to identify a break-even point where a sales rep has paid for their own salary, you may elect to use it as a baseline for paying commissions (or for paying a more substantial commission rate).

Eliminate Commission Waste

If you’re experiencing a slowdown in sales activity, now is an excellent time to regroup and automate. This is especially important if you’ve been overly generous with commissions because “business was good”, or if you overlooked overpayments because it didn’t really affect the bottom line.

During tough times however, paying commissions for under-performance is a sin. You can’t afford to overpay because of calculation errors either. And you certainly can’t afford to waste hours generating / revising / sending / archiving commission spreadsheets.

In addition, this is an opportunity to gain a competitive advantage. Using Sales Cookie, you can:

• Eliminate commission spreadsheets
• Accurately measure sales performance
• Automate all commission calculations
• Motivate your sales team to deliver more
• Ensure compliance with legal and accounting standards

Please visit us online or reach out – we’d love to help!

Those organizations aren’t bogged down by ad-hoc incentive commission structures – those with with countless “special rules” accumulated over time. Instead, they use streamlined commission structures. They’ve learned to scale their sales operations, and have established systematic ways to calculate sales commissions.

In this article, we’ll show you how you can organize your commission structure the same way as those fast-growing sales organizations. Without further ado, here is the magic formula those winning sales organizations consistently use to calculate commissions. Don’t worry, we’ll explain everything!

Ad-Hoc Commission Structure

At the opposite side of the spectrum, ad-hoc commission plans include many special rules, often accumulated over time. For example:

• If Joe closes more than 100K in revenue in a month, he’ll get an extra 5%, except for hardware sales which will be 3% – unless it’s a 3 year commitment. Also, customers A and B only count for 50% because “they’ve been with us for a long time“.
• Jane’s commission rate will be 8% for all sales. However, her commissions are conditional on her closing at least 10 hardware sales every month. However, if Jim helps Jane, then her commission rate is reduced by a factor which depends on the product category. But her hardware quota is reduced by the same percentage.

As you can see, those types of commission structures get “corrupted” over time. They increase in complexity as more special rules are added. For example, when a client approached us looking for help with their commissions, we reviewed their documentation. We received one commission plan description which was 14 pages long with 2 large appendixes listing 50+ special rules.

What does all this “fine-tuning” mean? Calculating commissions requires significant administrative time and remains error-prone. Reps have no way to understand their commissions. Nor do they have clear sales objectives. And many resent nickel-and-dime rules that cost more in overhead than they save in commissions.

Systematic Commission Structures

Our #1 most popular scalable sales commission structure is based on following principles:

• Define a payment frequency
• Define a variable for each rep
• Define targets (ex: quota) for each rep
• Calculate payouts using [attainment] x [variable]

Here is a simple example for account executives:

• Commissions will be paid monthly
• Variables for January are
  • Barbara: $9K on-target commission
  • Eric: $7K on-target commission
• Targets (quotas) for January are
  • Barbara: $120K in sales
  • Eric: $100K in sales
• Payouts for January are
  • If Barbara’s January revenue is $150K, her attainment is $150K / $120K = 125%
  • Therefore she will be paid 125% of her monthly variable = $11.25K

And another simple example for BDRs:

• Commissions will be paid quarterly
• Variables for Q1 are
  • Bob: $6K on-target commission
  • Sarah: $4K on-target commission
• Targets for Q1 are
  • Bob: 200 confirmed customer appointments
  • Sarah: 100 confirmed customer appointments
• Payouts for Q1 are
  • If Bob’s Q1 appointment count is 100, his attainment is 100 / 200 = 50%
  • Therefore he will be paid 50% of his quarterly variable = $3K

Here is an example of time-dependent sales targets:

Defining Multiple Goals

How can you have more than one sales goal, yet use this systematic approach to calculate commissions? Our best customers define various commission components, each with a different weight. For example, they might define goals like this:

• Component A – Renewal Revenue
  • 70% weight
  • Renewal quotas for January are
    • Barbara: $50K in sales
    • Eric: $60K in sales
• Component B – New Customer Revenue
  • 30% weight
  • New customer quotas for January are
    • Barbara: $70K in sales
    • Eric: $40K in sales

When calculating commissions, simply apply the weight to each rep’s variable before multiplying by the attainment percentage. For example, assume that Barbara delivered the following sales results in January:

• Renewals = $80K
  • Attainment is $80K / $50K = 160%
  • Payout is $9K (variable) x 70% (weight) x 160% (attainment)
• New Customers = $35K
  • Attainment is $35K / $70K = 50%
  • Payout is $9K (variable) x 30% (weight) x 50% (attainment)

Barbara probably focused more of her time on renewals because of the higher weight. She didn’t completely neglect new customer revenue, though.

Capping Commissions

Our commission model can still go off-rails. For example, if you defined a goal of 100 appointments per month, but a BDR successfully scheduled 500, do you really want to pay 500% of variable? What if overperformance was not sustained but temporary? What if this BDR leaves your organization next month and runs away with the money?

You can cap payouts, but should do so temporarily. For example, you could cap commissions for each pay period to 200% of variable. Obviously, some reps may be unhappy about caps. To address this concern, include a make-up adjustment. For example, at the end of each quarter, re-evaluate totals without any caps and pay the delta. This means that your caps are only temporary. In the end, you promise to pay in full.

For example, if a BDR scheduled 300 appointments in January (well above the 200 cap), he/she is still eligible to receive the full payout at the end of the quarter. However, if the same BDR only scheduled 50 more appointments in February and March, their overall total of 300 for the quarter will result in a more modest delta. This approach allows you to smoothen ups and downs.

Defining Minimums

Everybody in sales experiences a bad month or quarter. Sometimes it’s due to illness, a failed product launch, heavy discounting, competitive pressure, bad debt, etc.

This said, you may decide that commissions shouldn’t be paid if results just aren’t acceptable. For example, if 50% of target was met during an entire quarter, you could decide to pay nothing. Or you could decide to apply a reduced rate to our magic [attainment] x [variable] formula. You can still use the same “make up” correction at the end of the quarter. Therefore, if underperformance was only temporary, the punishment will be lifted.

In this example, a rep was punished due to poor January results. Even though the rep closed some deals in January, the payout was zero! Compensation was also capped in February. At the end of Q1 however, we can re-evaluate quarterly totals and pay the delta. This rep really made up for a poor January and won’t lose all commissions associated with January revenue, because the overall quarter total is OK. Also, the rep will receive some delayed compensation for the February cap.

Commission Structure Complexity

None of the tweaks we described compromise the robustness or integrity of our systematic approach to sales commissions:

• Defining multiple commission components is easy
• Adding temporary caps works great
• Setting temporary minimums is not a problem

The fundamental structure remains the same. And as we’ve seen previously, this approach works across a variety of positions (account executives, BDRs, territory managers, etc.).

Next time you’re thinking about adding one more “special rule” to your commissions, consider this:

• What are the true savings in terms of payouts?
• What is the incremental cost in terms of managing commissions?
• What is the impact on a rep’s understanding of payouts and key goals?
• What the message does adding the rule send to your reps?

In Conclusion

If you have a commission program with many special rules, it’s probably time to redesign it and adopt a more systematic approach. You can still retain a lot of flexibility using components, caps, etc. And don’t forget to reach out and start automating your commissions! We’d love to help.

• Brandon Bornancin helps over 50K reps fill their sales pipeline
• Mark Boundy helps organizations deliver more value from pricing to strategy
• Richard Harris optimizes sales funnels and solves key operational issues
• Don Peppers is a best-selling business author and sales & marketing expert

Make Commissions Simple But Rewards Big!

According to Brandon Bornancin, you must be willing to pay for results. Sales reps thrive on commissions, so make sure you’re paying big for great results. Don’t cut commissions, don’t get cheap with rewarding your people, and come in with the right compensation model.

Sales companies which cut commissions, or make commissions an impossible calculation, lose in the long run. You have got to make commissions easy, you have to make commissions simple to understand, you have to pay your reps on time, and you have to offer big potential rewards!

Consider keeping the types of rewards you offer to 3 or fewer. If you have too many competing goals driving commissions, your reps will need to figure out how to optimize their sales behavior across several metrics to maximize their payout. And that’s going to be a distraction.

When Sales Commissions Aren’t Paid on Profits, You Get What You Pay For

According to Mark Boundy, the majority of sales organizations have no profit or margin component in their sales compensation plans. The most common excuses are:

• Sales cannot control costs
• Profit is too hard to measure

Mark is championing profit-based incentive programs because they:

• Give sales leaders a seat at the table
  • Sales has more control over profitability than any other function within a company
• Align incentives between sales and the rest of the company
  • All you need is a “close enough” formula that drives the right behaviors
  • Incentivizing lazy selling/discounting attracts the worst kind of customers

Read our post about profit-based commissions – or reach out to Mark!

Keep Commissions Simple and Straightforward

According to Richard Harris, if a rep can’t figure out how much they are going to be paid within 5 seconds, you are doing it wrong. And if your first response to this comment is “Yeah, but Richard, we are a really special snowflake, and we have to do it this way. ” Well, then, you’re still doing it wrong.

If your reps cannot understand their commissions, they are going to be frustrated, become suspicious, or give up. They’re also going to waste considerable time calculating their own commissions or arguing about details.

And if you are still using old-fashioned commission spreadsheets in 2020, you’re making it complicated. Check out this blog post (it explains why they are so evil).

Incentivize Sales To Retain & Grow Relationships

According to Don Peppers, one of the biggest problems with the way most commission structures operate is that they give little incentive to the salesperson to work for the continued retention or growth of a customer relationship.  Instead, the compensation is all “upfront”, based on the acquisition process alone.

If a salesperson had an economic stake in a customer’s continued business, beyond the initial sale, then salespeople would do a better job of identifying those customers more likely to remain profitable over the long-term.

For example, you could include incentives which focus on customer retention. You could boost commissions for renewals. Or you could include a commission component which is based on customer interactions or overall satisfaction.

In Conclusion

Two of our 4 sales leaders above focused on keeping comp plans simple and easy to understand, while the other two focused on value and connecting payouts to profitability and customer experience. Consider reaching out to them for additional recommendations.

What is your primary goal as you assess your 2020 comp plans? What if there was a way to keep things simple but also include value as a driver of commissions? Finally, if you’d like to automate your commissions and make them more transparent to your reps, we’d love to help!

You probably know the IRS has adopted a new revenue recognition standard. All extensions previously granted by the IRS to comply with new accounting rules have now expired. As a result, all organizations must comply with the new standard by December 31st 2019. Has your accounting department ensured that your sales commissions are 100% compliant with IRS requirements? Sales Cookie can help you automate every aspect of your commissions – including ASC 606.

This article describes the whole process of delivering compliance for your sales commissions. We’ll show you how to generate accounting entries with proper amortization of sales commissions. Sales commissions represent on average 8% of all revenue, so lack of compliance can lead to major accounting problems. It could also prevent your organization from receiving new funding, require your earnings to be restated, or even result in steep fines.

The Road To Compliance

As per new accounting rules, you must correctly expense and amortize the cost of sales commissions. Amortization of sales commissions is not easy because it should be based on each deal’s duration. For example, if you sell some type of IT service, you may sell 1 year packages, 2 year packages, etc.

Typically, reps receive sales commissions on the basis of closing multiple deals. Often, each deal has a different duration. In the example below, a rep received a $1,200 commission for reaching his monthly quota. During this month, he was credited with 2 deals, each with a different amount and duration.

Step 1 – Capitalizing Costs

First, you must capitalize the cost of sales commissions. Assets which help generate income in the long-term are capital assets. The ASC 606 standard explains how costs related to obtaining a customer contract should be capitalized. From an accounting perspective, each sale (ex: invoice, deal, opportunity) is a contract. Therefore, most sales commissions qualify for capitalization because they are related to contracts.

To generate an ASC 606 report, our commission automation solution starts by asking you to choose which commission payouts to take into account. For example, you could decide to take into account all 2019 commission payouts. You also have the option to group payouts by date. For example, if Joe was paid some commissions on 2019-12-28, and some on 2019-12-31, you could decide to treat both payouts as “December payouts”.

Step 2 – Identifying Contract Durations

Ideally, capitalized commissions should be amortized over the duration of your relationship with each customer. This lifetime should include potential renewals, which are often impossible to predict. A more accurate method is to amortize commissions based on each contract’s lifetime. Any renewal will be amortized over its new term.

When generating an ASC 606 report, our commission automation solution asks you how you want to compute each contract’s duration. In the example below, the specified average contract duration is zero. However, some CRM opportunity records have a field called “ARR” which specifies the contract’s duration (in months).

Perhaps your sales data has fields which specify the contract’s duration (in days, months, or years). Or, perhaps, your sales data has fields with start and end dates. In any case, we can handle both scenarios. You can even specify multiple fields (this is useful if your sales data comes from different sources, each with its own fields).

Step 3 – Choosing An Amortization Schedule

Next, you must choose an amortization schedule. For example, you could decide that you’d like to generate the amortization schedule for the next 15 years. Or you could decide that you just want to generate the amortization schedule for the current year. You can also choose an amortization frequency (ex: amortize monthly, quarterly, etc.).

For contracts whose duration is 1 year or less, the “practical expedient clause” allows you to expense commissions immediately. If you decide to use this option, make sure that it is used consistently by your accounting department. You cannot use this option if some customer contracts aren’t treated the same way.

Step 4 – Generate Amortization Entries

Generate amortization entries is a complex process but we’ll walk you through everything. We recommend using an automated solution with ASC 606 reporting to improve accuracy and avoid painful manual work. If you pay commission on each deal, ASC 606 amortization is reasonably simple, although you may have a lot of data to process. Now, if you have payouts which are associated with multiple sales (ex: a cash bonus for attainment), ASC 606 amortization becomes more complex. We’ll describe how you can deal with this situation.

Start by identifying each commission payout and all associated sales transactions which led to it:

• For each commission payout
  • Identify its payment date
  • Identify transactions (ex: invoices, deals, etc.) which led to this payout
  • Identify each transaction’s contract duration
  • Group those transactions by contract duration
    • Determine the credited total for each group
  • Assign a portion of the payout to each group (pro-rating)
• Example for one payout:
  • Identify its payment date
    • On 2019-01-01, a $1,200 commission was paid to “John Doe”
  • Identify transactions (ex: invoices, deals, etc.) which led to this payout
    • A total of 4 sales transactions led to this payout (#1, #2, #3, #4)
  • Identify each transaction’s contract duration
    • Transaction #1 = 1 year contract worth $15,000
    • Transaction #2 = 2 year contract worth $25,000
    • Transaction #3 = 2 year contract worth $25,000
    • Transaction #4 = 1 year contract worth $10,000
  • Group those transactions by contract duration
    • Group A = 1 year duration
      • Transactions #1 and #4
      • Credited total revenue = $25K
    • Group B = 2 year duration
      • Transactions #2 and #3
      • Credited total revenue = $50K
  • Assign a portion of the payout to each group (pro-rating)
    • Group A gets a third of $1,200 = $400 commission
    • Group B gets two third of $1,200 = $800 commission

Next, expand each group over time, starting from the commission payment date, based on the group’s contract duration and amortization schedule. For example, suppose that we have decided to amortize monthly, here is how we would create amortization entries from each group:

• Group A
  • 1 year duration
  • Commission payment date: 01/01/2019
  • Pro-rated commission amount: $400
    • This is 1/3rd of $1200 in commissions
    • Because revenue for 1 year contracts represented 1/3rd of $75K in revenue
  • Amortization schedule
    • Jan 2019: 1/12th of $400 <- amortize over 12 months
    • Feb 2019: 1/12th of $400
    • March 2019: 1/12th of $400
    • Etc.
• Group B
  • 2 year duration
  • Commission payment date: 01/01/2019
  • Pro-rated commission amount: $800
    • This is 2/3rd of $1200 in commissions
    • Because revenue of 2 year contracts represented 2/3rd of $75K in revenue
  • Amortization schedule
    • Jan 2019: 1/24th of $800 <- amortize over 24 months
    • Feb 2019: 1/24th of $800
    • March 2019: 1/24th of $800
    • Etc.

Once you’ve generated amortization entries for all commission payouts, you can choose to keep them “as is” (in which case you have detailed amortization entries), or you can consolidate them (ex: grouping amortization amounts by quarter). We generate both detailed and consolidated amortization entries:

Our automated solution will generate a chart so you can visualize amortization over time:

We’ll even generate a chart showing the distribution of contract durations for sales transactions which led to commission payouts:

Step 4 – Entering Journal Entries

Finally! It’s time to convert your amortized entries into accounting journal entries. Here is a visual explanation showing how to input journal entries. As you can see, each amount is reported as a debit to an amortization expense account, and as a credit to an accumulated amortization amount. This keeps things in balance from an accounting perspective.

Here is some additional information you might find useful. To ensure compliance, the cost of commissions must be amortized over time. However, you typically pay for commissions immediately. This represents an EBITDA “add back” because the amortization of the commission’s expense is added back to EBITDA. This measure can improve earnings, but your Finance team will need to carefully track this.

In Conclusion

Special handling of sales commissions is required to comply with ASC 606 accounting rules. In this article, we described a detailed process to amortize sales commissions over time. To start automating your entire sales incentive program and ensure compliance, visit us online! We’d love to help.

Definition of Spiff

Obviously, you don’t want to lose credibility by using “spiff” incorrectly. However, it turns out that the word has no commonly accepted definition. An early reference to “spiff” can be found in a slang dictionary of 1859, referring to “The percentage allowed by drapers to their young men when they effect sale of old fashioned or undesirable stock”.

The most common modern definition seems to be either “Sales Performance Incentive Fund” or “Special Performance Incentive Fund“. We recommend using this definition to avoid confusion. You can also get a sense of what a spiff should be from expressions such as “spiffy” or “to spiff up”. In our opinion, a spiff should:

• Come from a special budget
• Represent secondary (not mainline) commissions
• Be limited in time
• Be exciting

Here are some sentences showing how spiff may be used in actual conversations:

• “She earned a spiff by signing up the most customers last month”
• “Our company just set up a $20K spiff fund for top performing partners”
• “All radio equipment sales come with a spiff next month”

Ways to Use Spiffs

To Support Partners

Many corporations establish special incentive programs for their partners. Typically they establish some type of a limited, time-bound slush fund, which is used to reward partners for attaining specific goals. For example, this could be signing up more than X customers during a month, or selling more than Y in goods within a quarter.

To Manage Inventory

Using spiffs, you can influence how products will be sold and prioritize sales. For example, you could setup a spiff to liquidate ageing products. Or you could setup a spiff to accelerate sales of newly introduced products or more profitable ones. You could even setup a spiff to encourage cross-sell, up-sell, or product bundling sales activity.

To Support a Campaign

If you have sales campaigns or initiatives, a spiff can help you support those efforts. Essentially, your spiff acts as a one-time promotion for your reps. A simple implementation could be “sell X, get Y extra in commissions”. You probably want the offer to be time-sensitive – both to feel exciting and to match your campaign’s duration.

To Acquire New Accounts

The backbone of your sales incentive program should NOT be spiffs. You don’t want to distract your reps from important goals based on, say, total gross revenue. However, spiffs can help deliver secondary goals, such as accelerating customer sign ups. Essentially spiffs can help you include lower-priority yet important sales goals such as new logo acquisition.

To Encourage Renewals

Once a deal has been signed with a customer, reps often move on to new pastures. However, for businesses based on subscriptions, renewals are critical. Including spiffs based on renewals can help your reps also focus on customer retention. Those spiffs are typically paid quarterly, and based on either renewal rates or renewal counts.

To Improve Communication

A spiff can be a great opportunity to create some excitement, and even improve communication. A well-designed spiff can generate a lot sales energy, focus reps on new goals, and create a reason for management to regularly communicate with the team how it’s doing (with some positive reinforcement). Many reps praise spiffs for creating a more fun environment.

To Fix Quotas

Setting up quotas correctly requires accurate forecasting, which can be challenging. When quotas are too high, organizations can choose to lower them. However, this sometimes isn’t the best option because it makes reps feel like their commissions are guaranteed regardless of results. For this reason, it can be appropriate to use spiffs to fill the gap left by incorrect quotas.

Designing A Spiff

This example shows what you need to think about when designing a spiff. You need to think about the spiff’s period, who is eligible, and agree on a budget. Also, you may need to create or update sales enablement content. We recommend using an automated commission management solution to deliver spiffs to your reps.

Disadvantages of Spiffs

Spiffs aren’t perfect. They should only be used as bolt-ons to a mainline incentive programs. They should only be used to address specific and unique business needs. Here are some risks and issues associated with spiffs when used incorrectly.

Dishonesty

Your reps may recommend the wrong product or solution to customers in order to earn a spiff. They may also try to manipulate numbers, for example by postponing customer sign ups to the next quarter in order to attain quarter-based targets. You don’t want to set up an atmosphere where dishonesty pays.

Routine

If you use spiffs too frequently (or they always look like the same thing), they may be perceived as a prerogative or create a sense of entitlement. It’s also quite easy for reps to lose interest if the incentive no longer feels special. For this reason, spiffs should be time-bound and unique.

Demoralizing

Perhaps some of your reps don’t know how to sell those products which qualify for a spiff. Or they may prefer methodical (steady) sales methods to one-off sales behaviors driven by spiffs. This can make some of your reps feel diminished, demotivated, or upset because they can’t take advantage of spiffs.

Poorly Implemented

If your spiff isn’t well implemented, there could be some finger pointing as goals are missed, generating negative feelings. In addition, if spiffs aren’t paid correctly, some reps are incorrectly disqualified, or spiff funds run out, your reps may feel cheated out a commission, which will backfire.

Distracting or Confusing

Your spiffs can become a distraction. For example, they could encourage your reps to sell what’s on the “spiff list” versus what customers actually need. Things could also get confusing if there are concurrent spiffs, and reps must figure out which one would benefit them the most.

What People Say About Spiffs

Here are some examples of what actual people say about spiffs on the internet:

Example #1 – “Any salesman that works at a dealership where the spiffs are more than the commissions should run like hell. They are taking advantage of you and your talent”

Example #2 – “A spiff program won’t solve for a larger root issue of having the wrong people, a flawed compensation plan, or ineffective sales management”

Your spiffs should be special, and should not represent the principal component of your sales incentive program. You should also not rely on spiffs to patch a faulty incentive program (ex: one with unreasonably low payouts).

Example #3 – “These companies are offering huge spiffs when their salespeople sell high efficiency HVAC products and accessories. I just do not like when […] tries to mislead consumers by exaggerating the savings generated by this equipment due to those spiffs.”.

Your spiffs should not encourage unethical behavior by promoting certain products when others are more appropriate for your customers.

Example #4 – “Are you a proven closer? Sick of being drip fed? Do you want to be paid the top rate of commission on the island plus spiffs paid daily? Do you want to work for a great company with a team ethic, no cherry picking?”

This company is trying to make commissions exciting using daily spiffs! Note the mention of “team ethic” immediately following that of “spiff” to reassure candidates that this will be a fair level playing field.

Ready to Automate?

If you’re ready for a more agile sales incentive program (for example, one which includes spiffs!), you need to automate. Using Sales Cookie, you can:

• Calculate accurate commissions for all reps using a simple “calculate” click
• Eliminate all manual generation / distribution of commission spreadsheets
• Provide each rep with an incentive dashboard – with their commissions, goals, announcements, enquiries, etc.
• Keep track of your current and past commission payouts, rep quotas, etc.
• Make it easier to change and manage incentive plans
• Improve accounting / legal compliance

Please visit us online to learn more!

To deliver an effective sales commission program, you must implement key administrative mechanics (ex: budget, compliance, payroll, etc.). However, taking the rep’s perspective into account is equally important.

You don’t want your reps to feel screwed out of sales commissions, start complaining, and quit. To avoid this, you must take into account sales psychology, and take control of your incentive program by deploying rep-focused countermeasures.

#1 – Why can’t you pay commissions on time?

Rep – I don’t care about your administrative delays. You don’t realize this, but I do have bills to pay! I don’t want to incur any late fees or end up in a bind. I’m also starting to worry about our company’s financial health since commissions are often paid late.

The fix:

• Leverage automation to enable fast re-calculation of commissions
• Pay the bulk of commissions now – deal with minor adjustments later on

#2 – Why are you trying with withhold my commissions?

Rep – Why are you telling some of my “earned” commissions won’t be paid until actual payment has been received from customers? It feels like you want to hold my commissions hostage. I want to get paid now. Obviously, I’m OK with a deduction if a deal falls through.

The fix:

• Avoid declaring as “earned” commissions which aren’t going to be paid immediately
• Consider paying commissions upfront – use clawbacks or deductions to handle cancellations

#3 – Where are those crazy quota numbers coming from?

Rep – The latest quota numbers look very challenging, to say the least… Are you trying to artificially reduce sales commissions by setting impossible goals? And who set those crazy quotas anyways – our investors, our CEO, our VP of finance, our VP of sales?

The fix:

• Clearly explain who was responsible for setting quotas
• Describe the methodology used to set quotas (ex: budget, forecasting, etc.)

#4 – Why are you trying to make commissions statements impossible to understand?

Rep – Why are you sending me Excel spreadsheets with 8 tabs and some hidden formulas? Can’t you realize I’m NOT an Excel expert? Which special conditions are you burying within those Excel formulas? Are you trying to nickel-and-dime on commissions?

The fix:

• Eliminate commission spreadsheets
• Simplify commission plans as much as possible
• Document and explain every calculation using examples

#5 – Why are there so many overrides?

Rep – I hate it when you manually cap eligible revenue for large deals. I don’t believe you should be able to arbitrarily override amounts like this. I’m also starting to wonder if others on the team aren’t getting preferential treatment through special overrides.

The fix:

• Make overrides truly exceptional (ex: require multiple levels of approval)
• Don’t cap compensation for large deals

#6 – Why is my commission payout trigger so high?

Rep – I understand NOT receiving any commission until I’ve paid for my own base salary. But why I need to reach such as high number before I’m eligible for meaningful commissions? As soon as I’ve paid for myself, I should start earning commissions.

The fix:

• Avoid all-or-nothing commission triggers
• Include a lower commission rate for lower levels of attainment

#7 – Why do you always forget to credit me for some deals?

Rep – I can’t stand it when I work hard to close a deal, but it somehow isn’t taken into account. Are our systems completely broken, or is this intentional? Do you really want me to spend hours calculating my own commissions to ensure they are correct?

The fix:

• Use an automated system to ensure proper crediting and calculations
• Provide reps with an easy way to check crediting of transactions

#8 – Don’t forget about my career!

Rep – Sales commissions are important to me, but I also want to know how I’ll be able to increase my overall earning potential. As my manager, don’t just focus on commissions. Help me reach for the next level and grow my career.

The fix:

• Some reps may seem obsessed with commissions, but they also have career goals
• Always talk about all aspects of compensation – base pay + commissions + benefits

In Conclusion

Even the most perfect incentive program can be hated by well-intentioned reps. It’s your responsibility to understand the rep’s mindset and deploy countermeasures to prevent confusion or anger. And, while you’re doing all this, delight your reps by investing in a fully automated sales commission solution!

• Managing your sales commissions is taking too much of your time
• Your commissions aren’t promoting expected sales behaviors
• Commission spend is taking an excessive toll on your business

Did we get it right?

The Case Against Sales Commissions

In this interesting article (“Why Sales Commissions Don’t Work – In The Long Run“), the author recommends eliminating sales commissions based on the following 6 arguments:

• Sales commissions don’t motivate from within
  • Sales education is more important than sales motivation
• Sales commissions sub-optimize rather than than optimize
  • Sales commissions are too focused on short-sighted numbers
• Sales commissions point fingers at people, not systems
  • Sales commissions measure people, but measuring systems is more important
• Sales commissions aren’t future-focused
  • Sales commissions are too focused on short-term results (vs. overall direction)
• Sales commissions aren’t based on learning
  • Sales reps require a fundamental understanding of goals & strategy
• Sales commissions aren’t best for the customer
  • Sales commission mechanics obstruct adjustments benefiting customers

The author successfully eliminated sales commissions, with a positive outcome for his organization:

As a result of eliminating commissions, we now see sales team members taking pride in their work and finding more joy in it. People no longer feel like they’re part of a cat-and-mouse game, in which they’re on the opposite side of the table from management. 

While we agree that eliminating sales commissions makes sense in some environments, we disagree that this makes sense in general.

First, let us state that there is no doubt that faulty sales commission programs wreak havoc on sales organizations. In fact, faulty incentive programs typically do a lot more damage than just “sub-optimize” or fail to “motivate from within“. Faulty sales commission programs:

• Fuel disputes between reps, management, and finance
• Cause reps to waste considerable time calculating their own commissions
• Create a feeling that the organization isn’t being transparent
• Generate significant manual work for finance teams
• Cause top reps to leave over commissions

Eliminating sales commissions is a sure way to make all those issues magically disappear. However, is abandoning sales commissions the right remedy, and what will be lost along the way?

To identify the appropriate remedy, we must first understand the problem. Very likely, the problem isn’t sales commissions per-se – it’s a faulty incentive program. Eliminating sales commissions means taking the easy way out. Crafting a well-designed incentive program is difficult, but it also is what it takes to run an A+ sales department!

The Case For Sales Commissions

In our opinion, in most environments, eliminating sales commissions doesn’t make sense. There is clear social proof that superior sales organizations thrive on well-targeted, powerful incentives. In addition, eliminating sales commissions can be hard to digest for many reps.

After you eliminate sales commissions, you will likely end up with a cohesive group of average performers (and a somehow happy sales culture). However, your top performers will be long gone. They will realize that they are part of a system where compensation is capped, and where their sales aptitude isn’t as valued as before.

By eliminating commissions, you’re also saying goodbye to some essential sales accountability. Unfortunately, with most sales processes, it’s quite easy to drop the ball. For example, a lack of timely follow ups with customers can easily cause sales to disintegrate. As the author in favor of eliminating sales commissions states, “I don’t believe in measuring people – period“. We strongly disagree with the premise that you should only measure systems and not people. Sales are driven by systems but also by people, and how they behave has a direct impact on the bottom line.

By eliminating sales commissions, you’re also giving up on valuable opportunities to motivate your reps. You’re saying that it’s never useful to personalize rewards. You’re making a statement that reps don’t deserve a stake in every sale. In our opinion, this contrasts with how most sales representatives’ brains are wired. Fulfilling high-level corporate objectives isn’t what most reps are after. They’re in it for the hunt, and for the kill.

Commenting on the author’s arguments against sales commissions:

• Sales commissions don’t motivate from within
  • What’s more motivating than earning a commission for every sale? It doesn’t prevent you from educating your sales force about your vision. Money talks.
• Sales commissions sub-optimize rather than than optimize
  • This only happens if your incentive program is rigid and isn’t refreshed based on new facts. Creating multiple incentive plans is also a great way to optimize across key dimensions.
• Sales commissions point fingers at people, not systems
  • Sales are driven by systems and by people. Don’t give up on measuring and rewarding individual sales accountability by eliminating commissions!
• Sales commissions aren’t future-focused
  • Great incentive programs include monthly, quarterly, and yearly components. They’re also based on challenging, yet realistic sales projections.
• Sales commissions aren’t based on learning
  • Well-designed sales incentive programs promote specific sales behaviors (ex: promote a new product). This in turns motivates reps to keep learning new facts required to sustain those behaviors.
• Sales commissions aren’t best for the customer
  • Sales commissions promote what’s best for the organization – not what’s best for customers. However, nothing prevents you from including incentives based on, say, customer satisfaction.

In Conclusion

Most organizations who choose to eliminate sales commissions do so because of a faulty incentive program. Managing sales commissions is too significant a burden, or has poisoned the well. Eliminating sales commissions is easier than trying to fix the problem.

However, eliminating sales commissions also means giving up on powerful incentives – incentives which superior sales organizations expect and thrive on. Don’t give up on your sales commission program! Visit us online to learn how you can automate your sales incentive program, motivate your sales force, and increase transparency.

So what can your organization do to minimize commission-related disputes and limit manual adjustments? How can you help your sales and finance team spend less time handling disputes, and more time on productive tasks?

Inquiries and Adjustments

Types of Inquiries

Most commission-related inquiries fall into one of the following categories:

• Plan inquiry – ex: a rep doesn’t understand how commissions are calculated
• Missing credits – ex: a rep expected to be credited for a deal but wasn’t
• Incorrect credits – ex: a rep expected a different amount for a deal
• Missing rewards – ex: a rep doesn’t understand why they didn’t earn a commission
• Incorrect rewards – ex: a rep believes that commissions were calculated incorrectly

Unfortunately, most organizations receive unstructured inquiries from multiple channels – email, phone, or in-person. A disorganized, multi-channel source of commision-related disputes can be a constant source of irritation and even overwhelm finance teams (or at least greatly impact their productivity).

Types of Manual Adjustments

Most manual adjustments are related to commission inquiries, and are handled by making either:

• Data adjustments – ex: update a deal’s revenue in CRM to be correct
• Commission adjustments – ex: grant an additional $100 in commission

It’s always preferable to adjust data and re-calculate commissions. However, without an automated system able to calculate commissions, it can be tempting to take a shortcut and only update payouts. Unfortunately, this can lead to problems discussed in more details below.

Minimizing Inquiries and Adjustments

Increase Transparency

If your reps don’t understand (or trust) how their sales commissions were calculated, they are much more likely to engage in various tactics such as:

• Shadow accounting – reps wasting considerable time calculating their own commissions, and then comparing their results with yours
• Pestering – reps constantly asking finance for various reports, clarifications about calculations, updates about deal crediting, etc.
• Bullying – reps putting pressure on finance to adjust commissions or using clever negotiation tactics to improve payouts
• Snooping around – reps trying to gather information about who gets paid what because they aren’t sure there is a level playing field

Here are some ways to improve commission-related transparency:

• Communicate – clearly notify reps each time your incentive program changes (with sufficient advance notice)
• Disclose – let reps understand how others in the organization are compensated (ex: make all non-manager commission plans public)
• Explain – explain how quotas were set, who set them, how commissions are calculated, and the reasons behind your incentive program’s design
• Update – provide each rep with access to a self-service incentive dashboard where they can review their progress and earned / past commissions

Automate Calculations

When humans (ex: someone in Finance) calculate commissions, your reps are much more likely to try to negotiate with those individuals – or assume that mistakes will be made. However, when an automated system is responsible for calculating commissions, those issues become less acute. Automated commission management solutions are typically perceived as a more neutral and more accurate. In addition, automation can streamline the way your organization receives and handles disputes.

Here is what automation can deliver:

• Accuracy – reps expect fewer errors because machines are calculating commissions – not humans
• Centralization – automation can standardize the way commission-related inquiries are submitted and handled
• Neutrality – reps no longer have a finance or accounting person they can bargain with to improve their commissions
• Progress – automation can provide the visibility reps need to trust their commissions, review progress, and avoid last minute surprises
• Resolution – automation can help categorize inquiries, while also helping admins resolve them by finding relevant facts (ex: finding matching deals)

Don’t Give In

As soon as your manual adjustments become more than exceptions, you’ve opened Pandora’s box. Sales reps have superior negotiation skills. They will inevitably try to negotiate if they know that manual adjustments are commonplace. Also, having to frequently resort to manual adjustments makes your commission program appear weak. Manual adjustments send a clear signal that commissions, as calculated, cannot be trusted.

So how can you close Pandora’s box?

• Re-calculate – instead of making adjustments to commissions, fix source data (ex: CRM data), and let your automated system re-calculate commissions
• Require approval – manual adjustments to commissions should be a big deal, and require meaningful approval (ex: VP-level approval)
• Redesign – most inquiries should be rejected, so if too many are accepted, it’s time to redesign your incentive program

Don’t Play “Earned But Not Paid” Games

Some organizations declare commissions as earned, but only pay them when payment is received from customers. For example, a rep could have $5,000 in “earned” commissions in January, but actual payment of commissions could be delayed until payment is received from customers (ex: in June, in July, etc.).

We strongly recommend not holding payment of earned commissions because it can increase the volume of inquiries submitted by reps. Here’s why:

• Reps typically have no visibility on cash receipt, so they’re more likely to constantly submit inquiries to finance
• Reps often have missing commissions because reconciliation between finance and CRM records is needed, but is often inaccurate
• Reps don’t feel it’s fair to declare a commission as earned, but not pay it – in fact, this is illegal in some US states

Have Clear Agreements In Place

A clear legal agreement can help minimize inquiries because it describes how commissions will be calculated, while addressing special scenarios (ex: a rep going on a parental leave). In addition, a legal agreement may prevent more serious disputes, such as those requiring legal action.

Here are some categories we recommend for any commission agreement:

• Plan objective – the raison d’être for your incentive plan
• Plan administration – who is authorized to make changes
• Plan eligibility – who qualifies for commissions
• Plan acknowledgment – how acceptance is confirmed (ex: e-signatures)
• Plan description – how precisely commissions will be calculated
• Hiring & departures – special conditions for new hires / former employees
• Leave of absence – special conditions for medical or personal leaves
• Recoupment of awards – special conditions related to claw backs
• Taxes – who is responsible for paying taxes

In Conclusion

Commission-related inquiries (and corresponding manual adjustments) can negatively impact productivity and compromise your commissions’ credibility. Fortunately, simple strategies are available to reduce their impact. It all starts with a clear legal agreement, reasonable transparency, and a healthy dose of automation. Visit us online to find how you can manage commission inquiries and automate your sales incentive program!

What Do You Mean By Quota?

Do you want to use quotas to:

• Define minimum acceptable sales performance?
  • With no payout under quota?
  • With punitive payouts under quota?
  • With a payout trigger once quota has been met?
• Define standard, on-target sales goals?
• Pro-rate revenue to calculate commissions?

Quotas As An Expected Minimum

Some organizations use quotas to specify the minimum acceptable sales performance they expect from their sales force. For example, an incentive plan could pay nothing while under quota. Or it could pay a punitive 2% of revenue while under quota.

Sometimes, only revenue or profit above quota is eligible for commissions. In other cases, the quota behaves as a retroactive trigger. Once the quota is met, all accrued revenue (including revenue under quota) becomes eligible for a payout.

Organizations which use quotas to specify minimum acceptable performance often refer to “quota retirement” to indicate that a rep has met quota – and so can start earning more substantial sales commissions.

Quotas As An On-Target Goal

Other organizations use quotas NOT as minimums, but to specify reasonable, yet challenging goals – essentially a norm. In this case, quotas simply define expected sales performance. Assuming this standard level of sales performance is delivered, reps should expect a corresponding amount called the on-target commission.

For example, you could define a monthly quota of $100K, which, if attained, will deliver a standard, on-target $5K incentive. However, because your quota now represents a standard (not the minimum acceptable), some reps could fail to reach quota.

For this reason, many organizations include other attainment levels, such as 50% and 75% of quota. Those attainment levels usually have different payout levels. Only reaching 100% of quota delivers the on-target expected variable incentive associated with “meeting goals”. Of course, you can still have higher level of attainment with juicier payouts!

Quotas As A Way To Pro-Rate Actuals

Some organizations don’t expect their reps to attain any specific quota. Instead, they use quotas as a “reference number” used to calculate commissions in a pro-rated manner. Those organizations typically do not use attainment levels in their plan’s definition.

For example, you could define a monthly quota of $100K, and an on-target commission of $5K. To calculate commissions, simply divide actuals by quotas, and multiply the result by the on-target commission.

For example, if a rep attains $50K during a month, they will receive 50 / 100 * 5 = $2.5K. If a rep attains $200K during a month, they will receive 200 / 100 * 5 = $10K. As you can see there are no attainment levels. The quota is just a number used to pro-rate actuals and calculate commissions. You can still introduce accelerators for higher levels of attainment.

Defining a Quota Period

Let’s talk about quota periods. Here are some options (we’re assuming a monthly schedule, but this would apply to quarterly quotas as well):

• Quotas which are set real-time
• Quotas which are set ahead of time
• Cumulative YTD quotas

Quotas Set Real-Time

In this model, you define quotas as you go. For example, you might start working on February quotas mid-January after observing new trends. This keeps your incentive program agile. However, there is recurring administrative and planning work. And, every period, you also have to communicate and justify quotas to your sales force.

Quotas Set Ahead Of Time

In this model, you pre-define quotas ahead of time. For example, each year, you would define quotas for January, February, March, etc. Some organizations define a yearly quota, which is then divided by 12. More sophisticated sales organizations adjust quotas based on known seasonal variations (ex: February is shorter, December is slower, etc.).

Cumulative YTD quotas (With Deductions)

In this model, you are no longer working with individual monthly quotas. Instead, you define cumulative quotas, from the beginning of the year. For example, a March quota could represent expected revenue from Jan 1st to March 31st. You then calculate March commissions based on the cumulative (Jan through March) amount, and then deduct commissions already paid in Jan and Feb (otherwise you’d be double-paying commissions for the same deals). One benefit of this model is that it automatically handles refunds or cancellations.

Setting Quotas

You’ve clearly defined how you intend to use quotas. Now comes the hardest part – setting quota values correctly. Different choices are available:

• Fixed vs. percentage quotas
• Per plan vs. role vs. individual quotas

Fixed Vs. Percentage Quotas

Using fixed quotas, thresholds are defined using absolute values. For example, you could define an incentive plan with the following levels of attainment:

• $0 – $100K  – 5% of revenue
• $100K – $150K – 8% of revenue
• $150K+ – 10% of revenue plus a cash bonus

Your implied quota in this case is $100K. Attainment thresholds are fixed values.

Using percentage quotas, thresholds are defined as percentages of a quota value. For example, you could define an incentive plan with the following levels of attainment:

• 0 – 100% – 5% of revenue
• 100 – 150% – 8% of revenue
• 200%+ – 10% of revenue plus a cash bonus

And you would then define a quota of $100K. This quota would typically vary depending on the individual or territory.

Per Plan Vs. Role Vs. Individual Quotas

Most incentive plans either define quotas at the plan level, or at the individual level. A few incentive plans define quotas at the role level (ex: all AEs share the same quota).

If your quotas are per-plan, using fixed quota thresholds make sense. Otherwise, if you want to use the same plan across individuals or territories, a percentage-based approach is a must. This approach lets you re-use the same incentive plan, but pull dynamic different quota values (which depend on the individual).

If you want to use individual quotas, be prepared for some data entry! As shown below, you may need to enter up many values per rep. Make sure to use a tool which makes this process easy. Your tool should also be able to specify the applicable time range for each quota value you entered.

Setting Appropriate Quota Values

Calculating commissions is a science, but designing commission plans is an art! Indeed, the reason why you have a sales incentive program is to motivate your sales force. Setting quotas correctly therefore requires an understanding of sales psychology, plus the ability to meet budgetary constraints, a knowledge of financial forecasting, and even some creativity.

We generally recommend the following:

1. Avoid aggressive under-quota punishment
   1. Some of your reps could give up mid-period when they could have contributed some effort.
2. Create various plans and run simulations
   1. Use a commission management solution capable of doing this.
3. Ensure reasonable attainment
   1. 15% of reps should fail to reach quota
   2. 70% of reps should reach quota
   3. 15% of reps should exceed quota

Quota-Free Plans

Do you need to use quotas for your incentive program? The answer is – not necessarily. Many successful commission plans have no quota. Those plans could:

• Pay commissions based on profit – no need for quotas!
• Define attainment thresholds & associated payouts without a “primary” quota
• Define business goals which, when attained, trigger bonuses
• Etc.

If you don’t feel like having a “very significant number” for your incentive plan, don’t use quotas. Nobody will blame you for, it and declaring your commission program as quota free may even improve your sales culture.

In Conclusion

Ultimately, it’s up to you to decide whether to use quotas or not, and which meaning you want to attach to them. Regardless, your sales force wants to understand how their commissions will be calculated, and how your quotas will be used. Visit us online to learn how you can automate your sales incentive program!

When Independent Reps Make Sense

Independent sales reps, also known as commission-only reps, are independent contractors who are paid sales commissions to sell yours products (or services) and represent your company.

Keep in mind that commission-only reps are independent business owners. Therefore, choosing to work with your organization is as much a business decision for them as it is for you.

Here are some situations where hiring commission-only reps make sense:

• You want to more aggressively pay for true sales performance – without impacting the more gentle compensation model used by your mainline reps.
• You want to extend your reach to areas where you do not have a physical presence, or where hiring full time employees could be costly or risky.
• You want to limit your overall employee salary mass, reduce liability associated with full time employees, or simply augment your sales force.
• You sell specialized goods (ex: medical devices), and so require sales employees with some unique domain knowledge.
• You simply want to experiment and compare the effectiveness of full time vs. commission-only reps.

Recommended Sales Commission Structure

The best way to create a meaningful incentive program for commission-only reps is to put yourself in their feet. Here are the main characteristics of a well-designed commission structure for independent sales reps:

• Independence – commission-only reps look for environments which offer minimal interference from you. If they were not independent-minded, they would not be commission-only reps.
• Unlimited – the best independent reps work for themselves because they believe they can deliver exceptional results which will exceed salary-based compensation models. For this reason, it doesn’t make sense to cap commissions.
• Fair – products which require heavy customer education, are harder to sell, or require more involvement (ex: travel) should result in higher commissions. The same applies if the sales cycle is longer, or sales are one-time only.
• Competitive – your independent reps aren’t necessarily loyal to your company – they are looking for the best commission package available anywhere. You’re not spending anything on their base salary, so be generous with their commissions!
• Flexible – initially, your sales commission package might look attractive. However, once your independent reps realize that your products are hard to sell, they may leave. Be ready to make adjustments.
• Manageable – often, independent reps receive different commission rates based on the product or service sold. You need to be clear about payout schedules, and properly notify your commission-only reps when incentives change.

Independent Sales Representative Commission Structures

With salaried reps, you have the flexibility of choosing a base vs. variable pay mix. As a result, a large variety of incentives is available to you. For example, salary-based bonuses, team sales contests, or non-cash rewards are all viable options. With independent reps however, you have one less degree of freedom (no salary), so your choices are more limited.

This table shows  typical commission structures for independent reps:

Notes:

• Any time you use profit to calculate commissions, you need a product or service catalog (with base costs) to calculate margins.
• If the revenue from some products is considered more valuable than that of other products, consider using a score-based approach.
• Accelerators mean that you pay different rates for different levels of attainment. Attainment payouts can be cumulative, or non-cumulative.

Commission rates for independent reps vary from 5% to 40%. In practice, most independent reps receive either ~25-35% of profit, or ~10–17% of revenue. However, many organizations with revenue-based commission plans also use scoring to handle the fact that some products may be easier to sell than others. For example, you could treat revenue from product A as worth 0.8x revenue, but revenue from product B as worth 1.2x revenue.

Independent Sales Representative Commission Issues

Here are some things to watch out for when hiring independent reps and setting up an incentive program.

• Discounting policy – because independent reps aren’t employees, your level of supervision is limited, making a clear discounting policy important. Also, consider using profit-based commissions to protect yourself from excessive discounts.
• Several masters – your independent rep could be also working for other entities. You may be competing with other companies for a slice of their time. If your own sales commissions prove disappointing, they could leave or de-prioritize you.
• Cheap, initially – your commission-only reps may be cheap – until they start closing serious deals! Commissions may at times look excessive. Refrain from capping commissions, but plan for unexpected wins (ex: using profit-based commissions).
• Misc. activities – your independent reps don’t want to spend time on normal sales activities such as sales meetings, sales training, etc. Unlike your full time reps, they don’t earn anything while attending a training session!
• Legal agreement – obviously you need a robust legal agreement. Consider using an automated commission management solution with e-signatures and user formal enrollment. You also need to deliver advance notice when changing incentives.
• Clear role – you will need to clearly document their rules of engagement. Do independent reps need to support existing customers? Is travel required? How much of it will be reimbursed? What about their cell phone bills?
• Repeat business – how do you want to handle repeat business? Should independent reps receive credit for upgrades, renewals, or add-on purchases? Should you only take into account one-time purchases?

Ultimately, your independent sales commission program must provide a win-win balance, which can be quite hard. With full time sales employees, a bad quarter typically isn’t enough for them to leave. They still have earned a base salary. And you can easily make some adjustments (ex: grant bonuses). However, with commission-only reps, you can’t afford to make any mistake with your incentive program’s design – they will be gone if you do.

Should Independent Sales Reps Have Quotas?

It depends on how you what you mean by “quota”, and how you use them. Some organizations pay zero (or highly reduced) commissions when under quota. Some organizations also use quotas to define accelerators or tiers such as:

• Under 100% of quota, 2% commission
• Between 100% and 120% of quota, 7% commission
• Between 120% and 140% of quota, 10% commission
• Etc.

Your independent reps don’t have a base salary to fall back on. However, it doesn’t mean they shouldn’t have sales objective. And, perhaps, you would like every member of the sales force to have a quota – this makes sense!

It’s perfectly OK to use quotas for independent sales reps to set goals. However, they should receive more reasonable commissions when under quota. It’s simple – if they fail to deliver, either they will quit (they need to earn a living, after all), or you will let them go (they are only contractors). Keep in mind that any commissions you would have paid them under quota would probably be lower than any salary you would have paid a full time rep.

Converting a Regular Incentive Program To Commission-Only Reps

Let’s say you’ve designed a well-working, battle-proven incentive program for your full time reps. Now, you want to convert it into an equivalent one for your commission-only reps. Converting your commission plans is actually not too difficult. All you need to do is define a hidden “virtual salary” for each independent rep. Next, adjust your commission payouts to make up for their zero base salary.

For example, let’s say you have this:

• Joe is a full time rep
• Joe has a 72K / year salary, so he gets 6K / month
• If Joe reaches 80% of quota, Joe will get an extra 6K in commissions (12K total)
• If Joe reaches 100% of quota, Joe will get an extra 10K in commissions (16K total)

Sarah is an independent rep with an equivalent level of experience (i.e. you would offer her a ~72K salary to join full time).

What do you need to deliver the same thing terms of sales commissions for your independent rep?

• Sarah is a commission-only rep
• Sarah has a 0K yearly salary, so 0K / month
• If Sarah reaches 80% of quota, Sarah should also get 12K in compensation
• If Joe reaches 100% of quota, Sarah should also get 16K in compensation

From this, you can see that Sarah’s commission rate should be:

• (12K – 6K) / 6K = +100% compared to normal when at 80% of quota
• (16K – 10K) / 10K = +60% compared to normal when at 100% of quota

So here you have it – a way to convert your existing incentive plans for independent reps. Of course, feel free to adjust rates to further motivate your independent reps vs. providing a “safety net” which makes up for having no base salary.

In Conclusion

In this post, we described situations where hiring independent reps makes sense. We also explained how to design a working sales commission structure. Equipped with a well-designed incentive program, you could build an army of hungry independent sales reps in different territories without increasing your salary mass. Visit us online to discover ways to automate your incentive program and always pay your reps the right amount – on time!

Sales Cookie already offers native support for many systems – including PayPal, QuickBooks, Dynamics CRM, SalesForce or HubSpot. This makes it possible for customers to integrate immediately without any dependency on Zapier. However, our new Zapier integration brings automated sales commissions to hundreds more platforms. In addition, customers can now fully automate payment of sales commissions to employees, vendors, and agents. We’re very excited about bringing even higher levels of automation to the world of sales commissions.

Configuring Zapier to send sales data to Sales Cookie only requires a few configuration steps and no coding is required. Using Zapier, customers can create simple workflows which are automatically triggered when a record is created or updated within their CRM or accounting system. Those workflows can then create sales transaction data within Sales Cookie. This ensures commission calculations always use up-to-date sales data. Once a calculation has completed, Zapier can in turn submit payment information to various systems, such as a payroll or accounting systems.

If you have sales commissions, it means someone has to get paid. So calculating commissions correctly is only half the job. Our integration with Zapier makes it possible to automatically process commission payouts. This helps sales reps get paid the right amount on time – a key characteristic of well-implemented incentive programs. We love the fact that it’s so easy to build a workflow using Zapier. No code is required – it’s like playing a game of lego!

No additional fees are required to use the Zapier integration. The cloud-based solution is available immediately at https://salescookie.com.

What Is A Sales Commission Structure?

A sales commission structure determines how you pay your employees, including:

• A set of  incentive plans
  • Ex: “Inside Sales Plan”, “Account Executive Plan”, “VP of Sales Plan”
• A list of eligible employees for each plan
  • Ex: all US AEs excluding managers
• A definition of eligible deals
  • Ex: only paid transactions whose account is marked as “strategic”
• A set of compensation goals (pay mix)
  • Ex: the on-target compensation is $100K base plus $50K variable
• A corresponding payout structure
  • Ex: three payment tiers, each paying a percentage of revenue

How To Assess Sales Commission Structures

To choose a commission structure, you must take into account various tradeoffs. Consider using a table such as the following to choose the option which makes the most sense to your business:

Here are some important metrics to consider:

• Alignment – how strongly commissions promote organizational sales goals
• Fairness – how fairly commissions reward true sales performance
• Motivation – how much commissions can motivate your team to deliver more
• Simplicity – how easy will it be to communicate your sales incentive program
• Predictability – how well can you forecast and control commission spend

Example #1 – Profit Based Commissions

This type of plan pays commissions which are not based on revenue, but based on profit (margin). Typically, they rely on a product catalog, which provides a base price for each product or service you offer. You can then pay commissions based on the difference between the price sold (total revenue) and the base price. For example, you could pay 6% of profit.

Some more sophisticated profit-based incentive plans use both a base AND a target price. The base price represents the product’s true cost. The target price represents the “expected sell price” for the product. You can then pay commissions using a combination – for example, 6% of the difference between the base price and cost, plus a more aggressive 12% of the difference between the target price and revenue. Learn more about profit based plans here.

Our scorecard:

• Alignment: High
• Fairness: Medium
• Motivation: Medium
• Simplicity: Low
• Predictability: High

Example #2 – Per-Deal Flat Commissions 

This type of plan pays a flat commission per deal. For example, you could decide to pay $150 for each closed opportunity. You could also decide to multiply this flat commission amount by the order quantity. For example, an order for 3 units would results in a $450 commission (i.e. 3 times $150).

Some more sophisticated plans combine flat commissions with tiers. In this case, payouts increase with the number of units sold. For example, you could pay $200 per unit (instead of $150 per unit), but only if 100 units are sold during the same month. You could also choose to vary the flat amount based on the type of product sold (this of course requires catalog lookups). And you have to decide whether the higher rate applies to all sold units, or only units above a given threshold.

Our scorecard:

• Alignment: Medium
• Fairness: Low
• Motivation: High
• Simplicity: Medium
• Predictability: High

Example #3 – Bonus-Based Commissions

This type of plan pays cash bonuses for attaining certain performance tiers. Those performance tiers may be based on revenue, profit, or a score (ex: number of opportunities closed). For example, you could pay a $1000 commission for exceeding $10K in revenue, but $5000 for exceeding $15K in revenue.

Note that all bonuses don’t need to be flat amounts. They can also be calculated as a percentage of salary.  For example, you could award a 10% salary bonus instead of a fixed cash amount. This can make it easier to automatically adjust bonuses based on seniority. Salary-based bonuses help you align commission spend with employee payroll, while encouraging employees to earn promotions.

Our scorecard:

• Alignment: Medium
• Fairness: Medium
• Motivation: High
• Simplicity: High
• Predictability: High

Example #4 – Revenue-Based Commissions

This type of plan pays a percentage of revenue, for example 8% of total revenue. In reality, most revenue-based plans have tiers (with accelerators), or even a minimum to attain (ex: a quota). Those tiers can be cumulative (ex: each tier pays a different rate for revenue within its band). Or they can be non-cumulative (ex: the highest attained tier determines the commission rate, which is then applied to all revenue).

If you’ve decided that a revenue-based approach is right for you, make sure you have a clear discounting policy in place. You definitely don’t want to end up in a situation where your reps sold large volumes with razor-thin margins (or even at a loss), while having to pay large commissions based on total revenue. While revenue-based plans are common, another issue is low predictability as revenue tends to fluctuate more than other metrics (ex: profit).

Our scorecard:

• Alignment: Medium
• Fairness: Medium
• Motivation: Medium
• Simplicity: High
• Predictability: Low

Non-cumulative tiered commissions

Example #5 – Team-Based (Or Split) Commissions

This type of plan pays commissions based on collective results. For example, your sales managers could be paid a commission based on their territory’s overall performance. Or you could pay commissions based on a shared metric (ex: a quarterly customer churn rate). Finally, you could decide to split commissions between individuals working together on deals (ex: an account manager and companion pre-sales engineer).

Now, each time you award a commission based on collective performance, you dilute its effect. Indeed, reps no longer have a 100% stake in “their” sales transaction. Some team members may choose to let others do the hard work. And you have higher potential for dissatisfaction if some individuals fail to contribute at the same level as others.

Our scorecard:

• Alignment: Medium
• Fairness: Low
• Motivation: Low
• Simplicity: Medium
• Predictability: Medium

Example #6 – New vs. Existing Commissions

This type of plan pays commissions differently for existing versus new business. You could introduce an additional bonus for bringing in new clients. Or the percentage of revenue paid may vary depending on the deal type (new vs. existing). Decreasing commissions for existing business helps ensure your reps don’t cruise or keep milking existing accounts.

At the same time, the lure of winning new accounts may force you to choose between spending your time servicing old clients and talking to new ones. Also, you need to decide what to do when a new account is transferred to a new rep (ex: because the previous rep left the company). Should it be treated as a new account?

Our scorecard:

• Alignment: High
• Fairness: High
• Motivation: Medium
• Simplicity: Medium
• Predictability: Medium

Example #7 – Recurring Commissions

This type of plan keeps paying commissions for deals which are recurring. For example, you could pay commissions in slices over a 12 month period because a year is the expected length of a subscription. However, if the customer cancels their subscription, the rep stops receiving commissions. This encourages reps to limit churn.

Note that you could also decide to pay a commission based on the contract’s value if the customer signs a multi-year contract. Finally, you could decide to include a bonus for renewals, or a penalty for cancellations. In all cases, we recommend representing each recurring transaction using a separate record in your CRM system in case amounts change (due to upgrades / downgrades / cancellations / tax changes).

Our scorecard:

• Alignment: High
• Fairness: Medium
• Motivation: Medium
• Simplicity: Low
• Predictability: High

Example #8 – Upfront Payment With Claw Backs

This type of plan assumes that “won” deals will in fact go through, that payment will be received from customers – and so allow upfront payment of commissions. Reps don’t need to wait for payment to be received from customers in order to receive their commissions. At the same time, those types of plans typically include a clause to recapture payment of commissions if money cannot be collected – i.e. a claw back or reversal clause.

Claw backs can be easy to manage – or they can be a real nightmare. The main deciding factor is whether you want to apply the cancellation to the original calculation period, or to the period during which you realized that payment would not come through. We strongly suggest using the second approach because the first comes with significant issues.

Our scorecard:

• Alignment: Medium
• Fairness: High
• Motivation: Medium
• Simplicity: Low
• Predictability: Medium

Example #9 – Plans With Draws

It takes time for any new rep to ramp up. New reps have the learn a new business, new products, new messaging, etc. They have to introduce themselves and form new relationships. For this reason, some commission plans include a guaranteed minimum payment. This type of minimum is called a draw. The draw’s amount could be fixed (ex: $5000 per month) or be based on salary (ex: 25% of monthly salary).

Draws can be non-recoverable, in which case the minimum payment does not need to be repaid. Draws can also be recoverable, in which case a balance is used to keep track of the amount of money owned by the rep to the organization. This balance is then repaid over time as reps receive larger commissions.

Our scorecard:

• Alignment: High
• Fairness: High
• Motivation: Low
• Simplicity: High (recoverable), Low (non-recoverable)
• Predictability: Low (recoverable), High (non-recoverable)

Example #10 – Plans With Both Earned Vs. Paid Commissions

Let’s end this post with one approach we would recommend avoiding at all costs! This type of plan declares commissions as earned, but only pays them over time as payment is received from customers. For example, a rep could have “earned” a $5000 January commission, but only be paid $3557 in January. Later, as payments are received from customers in February and March (for January deals), the rep receives incremental earned January commission payments.

This approach is problematic for several reasons. It results in fragmented commission statements. It is very difficult to calculate correctly. And it creates legal risks because some US states consider that any earned commission is owed and MUST be paid. There are better options available such as option #8 above, so there is little justification for this approach.

Our scorecard:

• Alignment: Medium
• Fairness: Low
• Motivation: Medium
• Simplicity: Low
• Predictability: Low

In Conclusion

In this article, we presented some winning sales commission structures, plus one you should avoid. We hope you’ll find one which matches your goals, and better understand tradeoffs associated with different approaches. Need more help? Reach out on our website. We’d love to help!

However, some important aspects of sales enablement are often neglected. For example, fully automated sales commissions, streamlined discount management, or fast data entry. In this post, we explore often neglected aspects of sales enablement programs.

Automated Sales Commissions

In the end, there’s only one thing which drives sales motivation: sales commissions! Surprisingly, most sales enablement programs don’t mention sales commissions at all. To truly enable your sales team, you must ensure that:

• Your incentive program is attractive, fair, and challenging
• Your reps clearly understand the potential for earning commissions
• Your reps are paid the right amount – on time

What this means is that your reps should be able to track their commissions real-time (online), with their sales goals constantly in front of them. It also means you need to automate your sales commission calculations so that you no longer have to rely on manual calculations or old-fashioned Excel spreadsheets.

Streamlined Discount Management

Discounts are often a bit iffy. It’s easy for your reps to waste valuable time waiting for management to authorize discounts. Negotiating discounts can also slow down conversations with customers. This can lead to painful misunderstandings or reduced profitability. Your reps might even lose some deals because they didn’t believe the necessary discount would have been approved. Defining a clear discounting policy is a great way to make your sales team more efficient. Another way to do this is to create an incentive program which pays commissions based on profit. Using this model, your reps are free to manage discounts because their commissions are based on margins.

Fast Data Entry

When the SalesForce core software development team wants to add a web page or API endpoint to SalesForce.com, they must prove that performance (in terms of user response time) will never exceed 2 seconds. Why is SalesForce so demanding of itself? Because most reps perform some type of data entry after each sales activity. To encourage your sales team to deliver proper tracking, your CRM system must be responsive. Perhaps it means it’s time to remove some of those custom fields and delete legacy data? Or perhaps it’s time to switch to a different CRM system altogether…

True Prioritization

Many sales enablement program focus on lead qualification, lead scoring, and lead prioritization. Many software vendors promise advanced scoring capabilities using Artificial Intelligence. Yet, this ignores more practical issues, such as the inbox overload syndrome. To truly enable your sales team, consider alternative approaches such as training your reps on how to use mailbox rules to triage emails, or defining clear customer response SLAs. Finally, if your reps use multiple communication channels (chat + email + phone), you must define priorities (ex: if there is a new chat session, stop all email and call back later; use chat only in the morning; etc.).

Meaningful Sales Data

Sales data – when readily accessible – can make sales departments more efficient. However, you need more than typical revenue data. If your reps are equipped with a knowledge of conversion rates, they can benchmark their performance. If they know how much time it takes to close a deal on average, they can calibrate their own efforts (ex: not spend too much time on a single deal). If they have access to support tickets, they may be able to react faster. Finally, given access to statistics about lost deals, they can avoid repeating the same embarrassing mistakes. In short, your reps need data – but it must be power data (not just revenue data).

Marketing Alignment

A strong alignment between your marketing and sales teams can decuple results. For example, if your sales team is always aware of new marketing promotions, they have many more opportunities to reach out to customers – or tip the scale and close more deals. Similarly, a constant feedback loop from sales to marketing can help marketing design better targeted content, more relevant messaging, and promotions which truly support sales. Does your organization have frequent [sales + marketing] pow-wows? Is it officially part of your sales enablement program?

Great Content

You know the drill. Most sales enablement program focus on great content, including:

• Case studies
• Playbooks
• Whitepapers / e-books
• Demo decks
• Competitive briefs

However, in today’s day and age, dynamic content is equally important, such as:

• Access to support tickets
• Email templates and sequences
• Website-driven notifications (ex: customer chat)
• Internal chat (ex: Slack, Microsoft Team)

Ease Of Use

Your incredibly well-organized content doesn’t matter if your reps don’t use it. To enable your reps, you must bring ALL the content to them – sales data, sales content, sales commissions, etc. Your reps don’t want to deal with 10 sales tools – they want to deal with 3. Anything you can do to embed content or data within your primary systems is worth the effort. There are of course technical limitations, but even well-placed hyperlinks can help.

In Conclusion

We’ve taken a unique look at sales enablement and focused on often neglected aspects such as:

• Automated sales commissions
• Streamlined discount management
• Fast data entry
• True prioritization

So, how complete is your sales enablement program today? If you’ve decided it’s time to improve sales enablement and time to automate your sales commissions, visit us online! We’d love to help.

For example, using Zapier, you could have Gmail send a notification each time a new opportunity is created in SalesForce. Or you could have PayPal automatically send payment each time you create an invoice in QuickBooks Online. Hundreds of cloud applications offer support for Zapier – from project management to e-commerce.

Zapier + Sales Commissions

Now, how does that help with sales commissions? To calculate commissions, Sales Cookie needs up-to-date sale transaction data (ex: orders, invoices, deals, opportunities, contracts, etc.). And once Sales Cookie has calculated accurate commissions, you need to pay your employees or vendors. This diagram explains key interactions:

Using our Zapier integration, you can:

• Automatically create sales transactions within Sales Cookie. For example, you could create a Zap which auto-creates a sales transaction when a new invoice is created in your accounting / CRM system. This way, you’re always ready to calculate sales commissions.
• Automatically process rewards when released within Sales Cookie. For example, you could create a Zap which auto-submits payment requests to your payroll / vendor management system. This way, you can fully automate payment of sales commissions.

Key Components

The Sales Cookie Zapier application offers two entry points to deliver the above scenarios:

• An action to create (or update) sales transactions within Sales Cookie
• A trigger to notify you that rewards have been released within Sales Cookie

If your goal is to add sales transactions within sales cookie, create a Zap which reacts to events in your accounting or CRM system, and calls our “Create Transaction” action. If your goal is to process payment of commissions, create a Zap which listens to our “Rewards Released” trigger, and then calls an action in your payment system.

Example #1 – Create Sales Transactions When SFDC Opportunities Are Created

In this example, our goal is to automatically create a sales transaction in Sales Cookie each time an opportunity is created in SFDC.

We selected SalesForce’s “New Opportunity” trigger. Next, we specified that Zapier should call into Sales Cookie to create a sales transaction. This requires mapping fields. For example, we mapped Sales Cookie’s “Unique ID” to SFDC’s “Opportunity ID”.

That’s it – every time an opportunity is created in SalesForce, we will see a new sales transaction in Sales Cookie. Total configuration time: under 5 minutes.

Note: for correctness, you should repeat the same process for opportunity updates.

Example #2 – Create QuickBooks Payments When Releasing Rewards

In this example, our goal is to automatically create payment records within QuickBooks when commission rewards are released within Sales Cookie.

We selected Sales Cookie’s “Rewards Released” trigger. Next, we specified that Zapier should create a payment record for each commission payout.

However, an additional in-between step is required. Indeed, we need to know which QuickBooks customer (vendor) to pay (and auto-create a new QuickBooks customer if we can’t find one).

Therefore, we must include a search step to find a QuickBooks customer matching the beneficiary specified by the Sales Cookie trigger. Don’t worry about figuring out everything – Zapier is smart enough to suggest adding the search step as soon as you connect Sales Cookie to QuickBooks!

Below is our QuickBooks customer search step in more detail. As you can see, the configuration is very simple. We decided to search QuickBooks customers by email address (not first / last name). We used the beneficiary email address provided by Sales Cookie (for each payout) to perform the search.

With our search in place, we can finally select QuickBook’s “Create Payment” action. We just need to map Sales Cookie’s payout fields to QuickBooks payment record fields. For example, we mapped Sales Cookie’s “Reward Value” field to QuickBook’s “Total Amount” field.

That’s it – every time rewards are released in Sales Cookie, we will see new payment records in QuickBooks. Total configuration time: about 10 minutes.

In Conclusion

Sales Cookie’s integration with Zapier makes it super-easy to calculate commissions using sales data from countless CRM and accounting systems. It also makes it possible to automate payment of commissions using your favorite payroll or vendor management system. With support for Zapier, you really have no excuse left NOT to automate your sales incentive program!

A totally different way to define sales goals is based on growth percentages. For example, if your incentive plan is quarterly, you could compare the revenue each rep was credited with their previous quarter’s revenue, so as to calculate growth. Then, you could define sales goals such as:

• <= 0% revenue growth = no rewards
• 0-2% revenue growth = 2% of revenue
• 2-4% revenue growth = 4% of revenue
• 4+% revenue growth = 8% of revenue

Other combinations are also possible, such as:

• Set goals based on % revenue growth, and pay a portion of profit
• Set goals based on % profit growth, and pay a portion of revenue
• Set goals based on % profit growth, and pay a portion of profit
• Etc.

Here is an example of how you can measure the same metric (here revenue) different ways:

And here is an example of how you may choose to reward your reps based on attainment:

Pros

One benefit of using % growth to set targets is that you don’t need to constantly revise or justify quotas. Your incentive program can run on auto-pilot because you aren’t using any arbitrary quota number. You are simply measuring growth from one period to the next – and so can re-use the same incentive model over and over again.

Another benefit of using % growth to set targets is that you can promote specific sales behaviors associated with high growth and expansion. Your reps will understand the importance of delivering net new revenue – vs. simply cruising or vesting revenue from existing customer accounts. Essentially, the stakes are higher.

Cons

What about the downsides, though? Consider major world economies. If a 2.1% growth is predicted, but a 2.3% growth is delivered, this is considered highly unexpected and greatly impacts the stock market. In other terms, a tiny change in delivered % growth is considered very significant. This type of sensitivity issue can make it difficult to set growth thresholds correctly.

Also, if a quarter was a bit slow, you could end up with negative growth. Does this mean you really want to pay zero commissions to your reps? Probably not. Psychologically, it feels painful to pay commissions for delivering negative growth. Yet, you probably need to include some type of compensation for what looks like poor performance. This can send the wrong message to reps.

Finally, unless your business is very mature, predicting the expected growth in revenue or profit can be very difficult. Usually, there is a high degree of variance (even from quarter to quarter, due to seasonality), so it can be challenging to design a working commission schedule based on % growth. We recommend checking past fluctuations in % growth to determine the stability of your chosen growth metric.

In Conclusion

Using % growth to to set targets can free your incentive program from quotas. However, it is a viable approach only if:

• Your measured growth is reasonably stable (ex: mature business)
• You want to promote more aggressive sales behaviors focused on growth
• You are willing to pay some commissions when delivering negative growth

Whether you want to use quotas or percent growth, you need a sales commission management which lets you evaluate different models and easily calculate sales commissions. Visit us online to learn more about how you can automate your entire sales commission program.

As Sales Cookie, we believe that the best way to deliver effective sales goals is via a well-designed sales incentive program. After all, sales commissions are the #1 driver of sales performance. To deliver an effective sales commission program, you must ensure that:

• Goals remain attainable yet challenging
• Sales reps understand goals and incentives
• Sales reps are paid the right amount, on time

Below are some scenarios where the above conditions aren’t met – and how to fix them.

You sales goals lack a meaningful incentive

Your sales incentive program is essentially your contract with your sales employees. If you ask your employees to deliver X, but your contract doesn’t specify any associated payment, it’s unlikely you will get expected results.

Goals which aren’t backed up by incentives often fail. Reps who are paid commissions always expect to be paid for performance. Sales goals without any associated incentive are essentially meaningless.

Your sales goals are too binary

Instead of defining binary goals (under quota you get nothing), try defining more progressive goals, each one with its own attainment threshold and associated rewards. This allows you to create a virtual goal ladder, allowing every member of your team to climb as high as possible. 

Also, defining sales goals and sticking to them makes sense, but too much rigidity can be limiting. If a goal no longer looks reasonable, or becomes misaligned with business priorities, it’s time to make a change to your incentives – even mid-period.

Your sales goals are unrealistic

Unrealistic goals are toxic because they often result in one of the following behaviors:

• Demotivation – “What’s the point? There’s absolutely no way I can reach my target.“
• Frustration – “These goals are totally ridiculous. It’s clear that Finance has no clue.“
• Anger – “Looks like they have money problems and want to steal our commissions.“.

The only way to define realistic sales goals is by constantly measuring performance. About 70% of your reps should be able to attain at least one goal. Another 15% should exceed this goal, and 15% should fail to attain it. In total, 85% of your work force should be able to reach or exceed their target. If it looks like it won’t happen, it’s time to update your goals.

Your sales goals are looking backward

While the past often predicts the future, sales goals should be inspirational and focus on what’s posible. So instead of relying on reporting to define future goals, try to define goals based on real-time forecasting – and keep adjusting. Focus on where you’re going and what the new priorities should be – not on where you’ve already been.

Your sales team wants to earn a larger commission this pay period than ever before. By telling them that you’ve defined goals based on past results, they will feel like the end result will be identical and predictable. Instead, make your team feel like they could win the lottery each time.

Your sales goals are based on collective performance

We get it – sometimes you do need to split commissions between individuals. Or you have no choice but to define goals based on team / territory performance. However, try to limit those whenever possible. Instead, try to define goals where closing even just one more deal will lead to higher commissions.

Each time you make a goal collective, you dilute its effect. Indeed, collective goals don’t make reps feel like they have a stake in each deal. Instead, it makes them more likely to “go with the flow”, and rely on others or general business trends.

In Conclusion

If your sales goals aren’t working as expected, consider the following:

• Ensure that each goal has an associated incentive
• Avoid binary goals and create a virtual goals ladder
• Constantly measure performance and adjust goals
• Set goals based on what’s possible (not the past)
• Avoid goals which reward collective performance

If you’ve updated your sales goals, and your incentive program is ready to go, it’s time to deliver on your promise to pay your reps the right amount – on time. Visit us online to learn how you can automate your entire sales incentive program.

Unfortunately, more and more sophistication quickly reaches a point of diminishing returns where reps are left confused, sales motivation is lost, and calculations become error-prone. Here is what you need to remember – to motivate your sales force, a/ they MUST be able to understand your commission program, b/ they MUST be paid on time, and c/ they MUST be paid the right amount. So how can you improve your sales commission program?

Rule #1 – Simplify

More often than not, special commission rules can be eliminated because doing so doesn’t impact spend, and because they have no influence on sales behavior. For example, suppose that you introduced retroactive claw backs. As a result, any cancellation should be counted against its original booking period. However, this leads to many complications, with no measurable benefit. Instead, you could choose to treat cancellations the same way as refunds – i.e. count them against the refund’s period. This simplifies the whole calculation process without affecting spend. More importantly, your reps will finally be able to understand their sales commission statements (it will no longer be fragmented) – and it doesn’t change the way your reps sell either.

In conclusion, to simplify your commissions, consider each special rule you have established in the past:

1. Would eliminating / simplifying this rule result in the same spend profile?
2. Would eliminating / simplifying this rule affect sales behavior at all?
3. Would eliminating / simplifying this rule allow reps to better understand their commissions?

Rule #2 – Improve Attainment

Industry statistics show that 80% of sales reps fail to meet quotas. Experienced sales reps expect this because they know the rules of the game. They aren’t affected by what they know to be unreasonable quotas. However, more junior reps may be demoralized when asked to deliver unreasonable sales results. To motivate your sales team to deliver more, you need to present them with challenging goals – goals which they can achieve and even exceed. To improve your sales commission program, try redefining what 100% quota attainment means – without changing your payout structure. About 70% of your reps should be able to meet quota. Another 15% of reps should be under quota (low performers). And another 15% should be above quota (high performers).

In conclusion, to improve goal setting and attainment, check the following:

1. What is the current quota attainment level for your reps?
2. Which 100% quota value would lead to 70% of reps meeting sales goals?
3. Which 100% quota value would lead to 15% of reps failing and 15% of reps exceeding sales goals?

Rule #3 – Fewer Cooks

Do you really need 4 reps to be involved in each deal? While team work is often required to win deals, in terms of commissions, too many cooks in the kitchen can be detrimental. First, commission calculations become more complex because they require splits. Second, each participant has a limited stake in each deal. Third, you may end up with no real “owner” (everyone expect others to take charge). Fourth, some of your reps may feel they didn’t get an appropriate share of total commissions. Fifth, this could cause you to double-pay commissions for the same deal. To address this issue, you must find a way to make each rep feel like they own 100% of a deal. One way to do this is by dividing mega-deals (whose commissions are split across 4 reps) into sub-deals, each associated with a single owner. For example, you could divide your single deal into a customer qualification deal (assigned to an SDR), a contract signing deal (assigned to an AE), etc. It’s a lot more motivating for reps to receive 100% of a smaller amount for a deal they own, versus 25% of a larger amount for a deal they share with 3 other individuals.

In conclusion, to reduce the number of cooks in the kitchen, check the following:

1. How many individuals receive commissions for each deal?
2. Is there a lack of ownership or reduced sales motivation because of splits?
3. Does it make sense to divide each deal into sub-deals, each owned by 1 person?

Rule #4 – Refresh Your Plan

Even a well-designed incentive program can get boring after a while. To renew sales motivation, your goal should be to introduce something new at least every quarter. One of the most exciting way to do this is by including non-monetary rewards. In terms of variety, non-monetary incentives beat cash. Within each category (ex: travel, dining, entertainment, gadgets, relaxation, memberships, classes, recognition, etc.), possibilities are endless. Even better, you can customize rewards based on each individual’s personality. Another exciting option to spice up your incentive program is sales contests (just make sure to keep them friendly). One key benefit of sales contests is that everyone gets to participate, but only a few receive a reward, therefore limiting spend. Also note that adding exciting incentives doesn’t require you to completely redesign the core of your incentive program. The goal is only to ensure your incentive program remains exciting and fun – at a low cost.

In conclusion, to make your commissions more exciting, consider the following options:

1. Introduce non-monetary rewards
2. Introduce friendly sales contests
3. Create personalize rewards

Rule #5 – Check With HR

When it comes to improving your sales commission program, your HR team can be your best friend. If some reps complain about sales commissions, it will more likely be to HR than to your sales leadership. In addition, your HR team can help you determine if your pay mix is correct, and whether your incentive program is competitive. Often, some sales incentive programs appear to function well (ex: commissions are paid correctly and on-time), but behind the scenes, reps are grumbling, employee churn is higher than it should be, or the pay mix isn’t optimal. Another way to improve your incentive program is by making sure roles make sense. For example, if an AE starts behaving like an SDR, it may be time to redefine the rep’s position and corresponding incentive plans.

In conclusion, to ensure your commissions make sense, check the following:

1. Has HR received any complaint regarding sales commissions?
2. Can HR provide benchmarks regarding employee churn, total compensation, etc.?
3. Are roles (and associated incentive plans) assigned correctly?

Rule #6 – Re-Align With Goals

Most businesses evolve within a fast-moving business landscape. New competitors emerge, prices change, new products are launched, promotions become available, etc. One way to improve your sales incentive program is to regularly check whether commissions are well aligned with sales goals. For example, if your new priority is to promote a recently launched product, it’s important for your commission plan to reflect this because it is the biggest influencer of sales behaviors. In other terms, the best way to communicate your priorities to your sales team is by changing the way sales commissions are calculated.

In conclusion, to focus your team on the right priorities, check the following:

1. Have key business goals changed?
2. Which sales behaviors are required to support those goals?
3. How can commissions be structured to best promote those behaviors?

In Conclusion

In this article, we described 6 ways to improve your sales commission program. However, we didn’t include the best way to improve it – automation! Visit us online to learn how you can automate your entire sales commission program in 3 days or less.

You already know how much NOT automating sales commissions is costing you – not just in terms of overall ROI, but also in terms of employee morale or ability to scale your sales force.

Unfortunately, while all in-house commission management initiatives start with good intentions, they typically fail to deliver acceptable results as changes are needed. Here’s why.

Insufficient Agility

Most businesses operate within a fast-changing business landscape. Their sales teams go through cycles of expansion and contraction. They have sales promotions, product launches, pricing changes, new territories, etc.

To respond to ever changing business needs, sales incentive programs must be highly dynamic. After all, sales commission programs drive sales behaviors. For this reason, making changes to your sales commission program should be quick and easy.

However, without a deep understanding of various sales incentive plans and their underlying logical structure, it’s quite difficult to create a flexible system where requested changes / new requirements can be satisfied incrementally. Most in-house design require significant code overhaul or re-design – even for apparently trivial changes.

And you can’t afford to wait several weeks for your IT team to make changes to (or entirely redesign) your in-house automation. Most IT teams are quite busy. Getting them to deliver changes to your in-house solution at the speed you need can prove challenging. What good is it to you if your IT team can only deploy requested sales incentives 8 weeks after launch?

IT Security

Sales commission data is highly sensitive data. To calculate sales commissions, your system must have access to all business transactions. It may also require access to additional confidential data, such as employee salaries, compensation information, etc.

It’s a major undertaking to implement a system which properly controls user access to a/ incentive plans, b/ commission-related data, and c/ payouts. For example, your plan administrators should have more access than payees, requiring your system to implement various security roles (ex: “full admin”, “plan admin”, “payee”). The same issue applies to sales managers (they should have some visibility on their team’s performance).

However, implementing adequate access control is just a first step. You also need to think about data retention, secure reporting, and change management. It’s unlikely your IT team will keep up with requests to make changes to incentive plans. It’s even more unlikely they will have time to implement proper at-rest encryption, data retention policies, a comprehensive audit log, etc.

Inevitably, adequate IT security will get in the way of delivering an agile, dynamic, responsive sales commission program. This may force you to compromise on agility vs. security – leading to difficult decisions (or more delays).

Frankenstein Solutions

Designing a comprehensive, flexible sales commission solution requires a unique architecture. It should be based on a data processing pipeline. It should break down the commission calculation process into independent phases such as filtering, crediting, assignment, etc.

Most IT departments will deliver a “working solution” fairly quickly. However, as additional requirements are added (ex: cumulative tiers, non-recoverable draws, split commissions, recurring deals), your in-house solution may start to fall apart – or morph into a Frankenstein-like monster. Your implementations may require questionable one-off “quick fixes”, or extensive system re-architecture to accommodate even minor changes.

You may also get into arguments with your IT team as they explain that “this type of change will take 8 weeks” or that “we don’t support this type of calculation”. Also expect some hidden costs down the road. Any IT system must be maintained, upgraded, or evolved over time. For example, you may have to move your in-house system to your new cloud provider as you migrate IT resources to the cloud.

In Conclusion

If you’ve decided to build an in-house sales commission automation, you already understand the cost of NOT automating sales commissions. However, in-house implementations can prove costly because it’s quite difficult to design a system which is resilient to change and delivers adequate security (access control, data retention, etc.). Visit us online to learn more about how you can automate a secure and flexible incentive program without writing a single line of code!

Whether you want to automate sales commissions or calculate them manually, you need to go through some analysis process to make sure you’ve taken everything into account and calculate commissions correctly. Simply repeat the following analysis process for each incentive plan you want to include in your incentive program.

What is your plan’s name?

This one is easy – simply give your plan a meaningful name which everyone will understand (ex: “AE – quarterly bonus”).

Who is this plan for?

Another easy one. Is this plan for all AEs? Should senior AEs be included? What about new AE hires? Should they be on a different plan?

What is this plan’s payment frequency?

You should identify your plan’s payment frequency (ex: monthly, quarterly, annual). Also, you should define when payouts should go out (ex: 2 weeks after the period’s end).

What is this plan’s data source?

Whether you call them deals, contracts, orders, invoices, purchases, opportunities, or transactions, you will need rows of data (records) to calculate commissions. You should identify a source of truth such as a system of record (ex: a CRM or Accounting system). If you don’t have a system of record, a CSV file may serve as a replacement.

Does this plan’s data source have the right fields?

It’s simply not possible to calculate sales commissions without the necessary supporting data. For example, if you only want to process opportunities whose stage is “closed won”, you should make sure that a corresponding status field is available. In some cases, supporting data may also come from users or from a product catalog.

Does this plan’s data source have unique IDs?

If you use a system of record (ex: a CRM or Accounting system), each record likely already has a unique ID. This unique ID can be used to avoid creating duplicates when making updates and clearly identifying each transaction. If your data source is a CSV file, consider introducing a unique ID. This could just be a sequential row ID, or it could be computed based on other fields.

Which data should be processed by this plan?

Most incentive plans shouldn’t process all rows of data when calculating commissions. Instead, they should only process qualified rows – ex: “closed won” opportunities. Besides the typical “closed won” filter, many sales commission plans have exclusions – ex: revenue from specific products should be excluded when calculating commissions.

What is the correct effective date field for your plan?

To calculate sales commissions for a given time period (ex: February), each row of data should have a corresponding effective date. This could be the date deals were closed, or the date when payment was received. In all cases, you should ensure this date remains immutable (once set) to avoid double-payment of commissions.

What are the correct crediting field(s) for this plan?

All plans measure either individual or territory performance. Your data should include fields which identify reps / territories to credit for each transaction. In some cases, multiple fields will specify a credited entity – ex: one field identifies an AE, another field identifies an SDR, and another field identifies a territory. The question is – for this specific plan, which crediting field(s) should be used?

Does this plan require crediting splits?

There are two types of splits: crediting splits and reward splits. This question is about crediting splits. If your plan will only credit one rep (or territory) per transaction, you don’t have a crediting split. Otherwise, you should specify rules to split transaction credits – ex: equal split, salary-weighted split, etc.

What are this plan’s performance targets?

Performance targets are sales goals which influence commission payouts. Some plans pay a flat commission for each credited transaction. Others have attainment thresholds, each with a different payout, accelerator, or bonus. Whether you call them quotas, tiers, or goals, you should define clearly how those performance targets are determined (ex: are attainment thresholds the same for all AEs, and what is their exact value?).

Are your plan’s attainment tiers cumulative?

If you do not have attainment tiers, simply skip this question. Otherwise, you need to further define your plan’s payment structure. Using a cumulative approach, each attainment tier pays rewards (ex: a % of revenue) based on its own “band” (ex: revenue), and we need to sum them all to calculate commissions. Using a non-cumulative approach, rewards are paid based on the highest attained tier.

Does this plan have draws?

If your plan should provide a guaranteed minimum to some reps (ex: because they are new hires and need to ramp up), you need a draw. Your draw can be non-recoverable, in which cases all commission “padding” you provide will be forgiven. Or it can be recoverable, in which case it will need to be repaid to your organization once reps start earning on-target commissions. In all cases, you should define a/ who benefits from the draw, b/ how draw amounts are determined (ex: fixed, based on salary, etc.) and c/ whether they are recoverable or non-recoverable.

If you have recurring transactions, how are they represented?

Many businesses have recurring transactions. Some organizations represent recurring transactions using a single record (each with a contract start date, and a recurrence frequency). Others represent recurring transactions using individual records (each with its own recurrence date). How you represent recurring transactions can have a great influence on how calculations must be calculated (learn more about this topic here).

If you have recurring transactions, how do you pay commissions?

Some businesses have recurring transactions but pay commissions upfront – ex: based on each deal’s total contract values. Other businesses prefer to pay commissions over time. Both have advantages and disadvantages. For example, paying commissions over time automatically handles cancellations. However, it can take some time for new reps to build a large enough basis of recurring commissions (learn more about this topic here).

How should this plan handle refunds (or failure to pay / claw backs / reversals)?

This question is not just about how you represent refunds / cancellations (ex: using a negative amount vs. using a “refund” transaction type with a positive amount). It’s also about the period against which any refund / cancellation should be counted.

Suppose that we’re in June, and that a January deal you already paid commissions for was (finally) marked as lost. Some sales organizations want to adjust already paid January commissions. This is not a viable strategy:

• Plans with attainment tiers do NOT have a per-transaction commission payout
  • Learn more about this topic here
• You will need to constantly re-calculate commissions for all previous periods
  • Ex: when in June, recalculate for Jan, Feb, etc.
• Your reps will likely never understand their sales commission statements
  • Due to fragmented deductions for Jan, Feb, etc.
• Payroll will need to make delicate adjustments for various past pay periods
  • Payroll will need to figure out “deltas” for Jan, Feb, etc.
• You are also increasing your legal liability
  • In some US states, it’s illegal to have deductions for commissions once earned

You’re much better off doing one of the following:

• Count refunds (or failure to pay) against the current period (not previous periods) OR
• Declare and pay commissions based the date when you receive payment from customers

Learn more about this topic here.

Does this plan declare commissions as earned – but holds payment of commissions for each transaction until you receive corresponding payment from customers?

Some sales organizations declare commissions as earned, but hold payment of commissions until payment has been received from customers. For example, they want to show commissions for January, but only part of those commissions will be paid out to reps because it is conditional on (later) receiving payment from customers for corresponding transactions. Unfortunately, this approach is flawed:

• Plans with attainment tiers do NOT have a per-transaction commission payout
  • Learn more about this topic here
• You will need to constantly re-calculate commissions for all previous periods
  • Ex: when in June, recalculate for Jan, Feb, etc.
• Reps will most likely not understand their sales commission statements
  • Due to fragmented payments for Jan, Feb, etc.
• Payroll will need to make delicate adjustments for various past pay periods
  • Payroll will need to figure out “deltas” for Jan, Feb, etc.
• You are also increasing your legal liability
  • In some US states, it’s illegal to declare commissions as earned but hold payment

You’re much better off doing one of the following:

• Declare and pay commissions based the date when you will receive payment from customers OR
• Pay commissions upfront, but implement a claw back as described above

How precisely are commissions calculated for this plan?

One final question! Here you should take time to specify exactly how commissions are calculated. If you already have spreadsheets, you should take the time to decode every formula. If “magic numbers” are used to calculate commissions, you should also explain where they came from. For example, if you have a quota of $103,940, how was it determined, and does it depend on the rep? To document your plan, take time to provide examples of actual commission calculations, step-by-step. Your team will thank you!

In Conclusion

In this article, we explained how you can break down any incentive plans into more fundamental components and covered some important “gotchas”. Whether you want to calculate commissions manually or automate the entire process, your analysis should prove worthwhile because it will a/ avoid calculation mistakes, and b/ greatly help other stakeholders (ex: sales ops, sales managers, legal, payroll).

Visit us online to learn more about how you can automate your entire sales incentive program!

Now, there are some situations where introducing some additional complexity makes sense. For example, it could be recoverable draws, because you need to help new reps ramp up. Or it could be commission splits, because some deals require teamwork. Or it could be clawbacks, because you need to protect the company from returns / cancellations / refunds.

This blog posts explains how to implement clawbacks correctly.

When Do Clawbacks Make Sense?

Clawbacks (sometimes also called reversals) give reps the benefit of the doubt and allow them to be paid earlier. Typically, clawbacks are used when you want to pre-pay commissions because deals have a high probability of closing. For example, you could decide to pay commissions immediately when a contract is signed (versus waiting for payment to be received from the customer – this could take months) or when an opportunity closes.

In short, you haven’t received payment yet, but expect to do so, and want to reward reps immediately so that they can focus on other deals in the pipeline. By paying commissions before payment is received, you reduce the time window between a/ closing a deal and b/ receiving corresponding commissions. Making your reps wait for payment can make them feel that commissions are “disconnected” from deals (due to delays required to receive actual payment from your customers).

Now, you also can’t afford to pay commissions for deals where customers cancel or fail to pay! You also want to make sure reps can’t game the system by prematurely declaring deals as “won” when they know that collection may be at risk. In short, you need some type of defensive countermeasure to handle failure to pay. Enter clawbacks.

How Not To Implement Clawbacks

One approach is to apply clawbacks retroactively. For example, let’s say that in January, you paid a commission on a January deal. In June, you learned that the customer went out of business and never paid. You now what to “reverse” commissions you paid for this deal in January. One possible approach is to try to claw back the commission amount you paid for this deal. This is called a retroactive clawback.

This is a reasonable approach but you should be aware of potential issues:

• Sometimes, there isn’t a specific commission amount associated with each transaction. Why? Many tier-based plans do not have a commission amount per deal. This is true if you pay different rates using the “portion” method. Learn more here.
• Reps may end up with more fragmented commission statements. Their June commission statement will include June deals, but also individual “reversals” for previous periods (ex: Jan, Feb, etc. cancellations). Your reps will also want to check if reversal amounts match original amounts paid months ago.
• There may be some liability issues. In some US states, it is illegal to take back commissions which have been declared as “earned” or have already been paid. Unless you have a legal department able to keep up with various US state legislations, your exposure could be higher.
• This clawback approach only works if you pay per-sale commissions. Otherwise, to determine correct commissions, you should re-evaluate commissions for all past periods affected by a cancellation. For example, if you paid a $5000 bonus in January based on attaining $500K in sales, it’s possible this bonus should NOT have been paid based on (later discovered) cancellations.

Let’s elaborate on the last point. Consider our same example of a June commission statement, with a single canceled January deal. To make sure the reversal amount is 100% correct, you would need to:

• • Identify the deal’s original booking date (January) and rep
  • Calculate the new (lower) January total revenue for the rep
  • Lookup your January quota & tiers for this rep
  • Calculate a revised (lower) January total commission
  • Calculate a negative January commission delta (adjustment)
  • Work with payroll to execute this negative January adjustment
  • Explain the negative January adjustment in June commission statements

Now suppose that in June you had cancellations not just for January deals, but also for February & March deals. It gets messy. Commission software such as Sales Cookie can automate this process for you. For example, if you issued a specific per-deal commission amount, we can lookup the original amount and issue a corresponding negative claw back. But if you paid a bonus (based on overall January attainment), you do need to fully recalculate affected past periods.

How To Implement Clawbacks Correctly

One approach is to stop trying to handle cancellations in a retroactive manner. Instead, simply track cancellations as new sales events with a negative amount, and apply them to the period during which the cancellation was confirmed.

Consider the same example. We’re in June and just discovered that a January deal was cancelled. You’d then record this cancellation as a negative deal, with a June (not January) effective date. June commissions will be penalized because of this cancellation. The main difference is that you are doing it non-retroactively.

As a result:

• You now have clear commission statements your reps can understand
• You’ve eliminated significant operational complexity (see above)
• You are treating a cancellation the same way as a refund
• You are eliminating legal risk associated with clawbacks
• You’ve greatly simplified your commission structure

This simplified approach is quite good but it’s not perfect. For example, if you paid a bonus (or higher commission rate) based on total January attainment, and you want to clawback this bonus based on cancellations, then your only choice is to recalculate past periods and deal with payment deltas. Otherwise, our recommended simplified approach (modeling a clawback as a forward refund) will save you significant pain.

Setting Cancellation Dates (Bad) vs. Creating Negative Deals (Good)

If you use the more difficult approach (retroactive clawbacks), you’re probably setting a “cancellation date” field on deals. Each time you have a cancellation, you must locate the correct original deal, and set a cancellation date. Locating the correct deal isn’t easy if your sales tracking system (ex: SalesForce) is different from your payment tracking system (ex: QuickBooks). Often, names and amounts don’t match exactly between systems. For example, you could be processing a cancellation from “Blue Sky”. But on the original deal , the customer was “BlueSky LLC”.

Compare this approach vs. creating a new negative deal for each cancellation:

• You no longer need to match records between systems to stamp a cancellation date on the right record. Instead, each time you have a cancellation, create a new negative deal with information found on the cancellation. From a commission perspective, it doesn’t matter if the customer name is slightly different from what the original deal had.
• Revenue reporting within your sales system will be more correct. If you just stamp a cancellation date on a deal, total revenue will be incorrect. If you create new deals with a negative amount, total revenue will be correct as you’re recording the cancellation.
• Creating new negative deals not only ensures a clawback, but also applies a penalty to revenue attainment. Simply stamping a cancellation date on an old deal does not deliver any penalty to revenue attainment since it’s just a date.
• Creating new negative deals lets you deal with partial cancellations. Stamping a cancellation date on deals doesn’t give you an opportunity to specify an amount (unless you add another field to track this, which means more work).
• Commission statements are going to be more clear for reps. Your reps won’t have to verify that claw-backed commission amounts match original ones. They’ll just see a list of negative deals, reduced attainment, and negative calculated commission amounts.

Another Viable Clawback Option

In some cases, cancellations cannot be tracked as new sales events. Indeed, some sales systems don’t create new rows / records when a refund occurs. Instead, the original sales data is updated.

For example, suppose that you had the following sales in January:

Later in June, a refund was issued for a January sale. Unfortunately, the system you’re using isn’t creating a new row for June (with a negative amount). Instead, it’s updating January rows with revised totals!

A good way to handle this scenario is to use deductions to calculate commissions. Using deductions, you always take into account all sales starting from a reference date (ex: year start). You can lean more about this approach here.

For example, to calculate January commissions, use January sales. To calculate February commissions, use January AND February sales – but deduct already paid January commissions. To calculate March commissions, use January AND February AND March sales – but deduct already paid January AND February commissions. Etc.

Essentially, each month, you’re re-evaluating total commissions due from year start. Because you’re deducting what you previously paid earlier during the year, you’re paying the correct amount. This approach allows you to handle situations where past sale data is constantly being revised.

In Conclusion

Clawbacks make it possible for your reps to be paid earlier while still protecting the company from returns. They make sense if receiving actual payment from customers can take a while. Clawbacks also help your reps feel that your incentive program is “responsive”. When they close a deal, they don’t need to wait for months to receive their commissions.

However, an incorrect clawback implementation will leave you trapped in a web of unmanageable complexity. It’s more difficult to attribute clawbacks retroactively. A retroactive approach can cause operational, transparency, and legal issues. By treating cancellations the same way as forward-looking refunds, you can implement successful clawbacks which also penalize attainment. If your system cannot record cancellations as new events, consider using deductions.

All in all, consider the following when dealing with a clawback:

• When a sales doesn’t go through, is it enough to just clawback the original commission amount? What if this deal increased attainment and caused other deals to be paid at a higher rate or triggered a bonus?
• How simple vs. accurate do you want to be? Are you OK clawing back the original commission amount and simply forgiving the extra attainment provided by the cancelled deal? Or do you want some punishment in regards to crediting and attainment?

Don’t get scratched by a defective clawback implementation, and visit us online to learn more about how you can automate your sales incentive program!

What do you mean by sales transaction?

In our terminology, a sales transaction is any commissionable event. Sales transactions can be orders, invoices, contracts, opportunities, purchases, sales receipts, etc. It seems quite reasonable to expect some “commission amount” to be associated with each transaction, such as:

A per-transaction commission amount helps reps understand they have a stake in every sale, increases sales motivation, and simplifies analytics (ex: total commission paid by product, total commission paid by customer, etc.).

So why are you saying there may not be a per-transaction commission amount?

Many incentive plans have attainment tiers. For example, we could decide to pay 5% of revenue under quota, 8% of revenue at 100% to 150% of quota, and 10% of revenue above 150% of quota.

In this post, we assume that you want your tiers to be cumulative (i.e. progressive). For a given rep, part of their sales will be paid at the 5% rate, part of their sales will be paid at the 8% rate, etc.

The next question is here is whether you want to:

• Apply each tier’s percentage to a portion of total revenue within each tier?   OR
• Apply each tier’s percentage to transactions which fall within each tier?

You can learn more about both approaches here. In this post, we assume that you want to apply rates to the portion of total revenue within the tier. For example, for each rep, you’d like the portion of their attained revenue under quota to be paid at 5%. And you’d like the portion of their attained revenue between 100% and 150% of quota to be paid at 8%. Etc.

For example, suppose that we had the following transactions during the month of June:

• Transaction #1                        $50,000
• Transaction #2                        $25,000
• Transaction #3                        $30,000

Collectively, this represents 105K in revenue. Assume our quota is 100K. Therefore, we must pay 5% of 100K (revenue under the 100% quota zone), and 10% of 5K (revenue in the 100%-150% quota zone). As you can see, some portion of transaction #3 is in the under-quota zone, and some portion of the same transaction #3 is in the above quota zone. So what exactly is the commission for transaction #3? Hard to say.

Worse, we could decide to re-arrange transactions (ex: they all occurred the same day), and use the following order instead:

• Transaction #2                        $25,000
• Transaction #3                        $30,000
• Transaction #1                        $50,000

Nothing has changed except for the order. Collectively, this still represents 105K in revenue. Therefore, we must still pay 5% of 100K (revenue in the under-quota zone), and 10% of 5K (revenue in the 100%-150% quota zone) – the same commission as before. However, it is now transaction #1 which “sits” between two quota zones, and so has a different amount associated with it. Ooops!

In conclusion, using cumulative tiers and the portion method means there isn’t a clear per-transaction commission amount. They contradict one another.

Need another proof?

Not convinced? Let’s suppose that there were some refunds. Your transactions now look like this:

• Transaction #1                        $50,000
• Transaction #2                        $25,000
• Transaction #3                        $30,000
• Transaction #4                        -$25,000
• Transaction #5                        $25,000
• Transaction #6                        -$25,000
• Transaction #7                        $25,000

Below we’re showing the cumulative total. We are now crossing our quota threshold of 100K multiple times! So what exactly is each transaction’s commission? Of course, we can play the same game as before and re-arrange transactions (banks do this!) to get various results. So here you have it – another proof that using cumulative tiers and the portion method means there isn’t any per-transaction amount.

What is the solution?

Let’s say you REALLY want to have per-transaction commission payouts. Instead of paying commissions based on the portion of revenue within each cumulative tier, you can pay commissions based on which transactions fall within each cumulative tier. Then, we can calculate (and show) a per-transaction commission amount.

Keep in mind that transactions which “sit on the fence” between two tiers will have their entire amount counted towards the higher tier (and so be paid at the higher rate). Also keep in mind that we’ll first need to arrange transactions chronologically to determine which transaction falls within each tier.

Enough said. Let’s configure per-transaction commissions for each tier. Note that we selected the option to only process transactions within each tier. We’ll pay 5% for transactions which falls within the lower tier, and 7% for transactions which falls within the higher tier.

We now have a per-transaction commission we can show on incentive dashboards.

 Can we improve further?

With the approach outlined above, transactions which “sit on the fence” (i.e. overlap two attainment levels) have their entire amount evaluated at the higher tier. However, it is possible to use blended rates where the transaction is magically split into two as it crosses tiers:

• Portion #1 – a portion of the transaction is evaluated as below the threshold tier
• Portion #2 – another portion of the transaction is evaluated as above the threshold tier

Sales Cookie can do this automatically for you. Simply select this option on your plan:

There is a tricky situation where a single (large) transaction causes the running total to cross multiple tiers. In this case, Sales Cookie will split the same transaction multiple times, each tier receiving a portion of your large transaction.

Here is an example where a transaction was split in two. One portion of revenue was paid at the 5% rate, and another portion of revenue was paid at the 7% rate. About 90% of this transaction’s amount qualified for the 7% rate, and about 10% qualified for the 5% rate.

In Conclusion

Many organizations want each sales transaction to have an associated commission amount. When using cumulative tiers which pay a portion of total revenue, there isn’t a clear per-transaction commission amount. Simply re-arranging the order of transactions proves this.

Customers who require per-transaction commission amounts should NOT use cumulative attainment tiers which pay a portion of total revenue within each tier. Instead, they should use per-transaction commissions. Payouts will then be based on which transactions fall within each tier. Transactions which “sit on the fence” between two tiers will have their entire amount counted towards the higher tier (and so be paid at the higher rate).

One improvement consists in enabling blended commission tiers. Sales Cookie will then magically split commissions for you as they cross tiers. All you have to do is apply a payout rate to each tier. Your reps will see a portion of each overlapping transaction being processed at a different rate.

Visit us online to learn more about commission split, attainment tiers, and more!

Reason #1 – Increased Risk

A common issue associated with sales commission spreadsheets is an increased risk profile:

• It’s easy to send them to the wrong person. It only takes a incorrect email address auto-complete to send sensitive compensation information to the wrong rep.
• Most reps aren’t Excel power users, and so default to printing them. As a result, commission spreadsheets are often left on employee desks, in printer rooms, etc.
• Most accounting departments generate one master spreadsheet, then filter rows for each rep. Unfortunately, simple filtering leaks data – row deletion is required.
• As spreadsheets are sent back and forth (ex: following a correction request), reps can tamper with formulas, or add invisible cells which compromise results.
• Unless Accounting methodically archives every revision, sales commission spreadsheets can create financial compliance and reporting issues.

Reason #2 – Time-Consuming

Another issue associated with sales commission spreadsheets is the amount of time required to generate them – but also to distribute them and make adjustments:

• Accounting must generate one spreadsheet per rep. This typically requires careful deletion of rows from a master spreadsheet to create a rep-specific version.
• Accounting must distribute spreadsheets to participants. It takes time to password-protect spreadsheets, carefully prepare & verify emails, etc.
• Accounting must also re-generate spreadsheets each time a correction is needed. For example, if a rep found a missing deal, full re-generation is typically required.
• Accounting should also verify that formulas and data have not been tampered with during back-and-forth exchanges, and archive all versions for auditing purposes.

Reason #3 – Not Interactive

Sales commission spreadsheets lack interactive features which modern sales departments expect:

• Spreadsheets are rows of data – not performance dashboards. Reps typically can’t review enrollment status, sales goals, attainment levels, terms & conditions, etc.
• Reps can’t review commission statements when on the go. Spreadsheets are usually dense, and poorly suited to mobile devices. Also, they can require a large download.
• Reps can’t review historical performance. To compare their latest commissions with previous periods, they must find and download older spreadsheets.
• Reps cannot submit inquiries about rewards, crediting, etc. As a result, Accounting is bombarded with requests (using different formats, and from various channels).

Reason #4 – Not Transparent

Finally, sales commission spreadsheets just aren’t very transparent. Formulas may be correct, but they will likely reference some cells, which in turn reference other cells. And so, we often find that even those employees who authored commission spreadsheets get confused about how everything was put together.

Worse, most sales reps aren’t Excel power users, and will either give up trying to understand formulas, or will spend too much time calculating their own commissions to make sure results match. This typically results in a higher volume of inquiries to Accounting (ex: request for clarifications), plus time wasted in “shadow accounting”.

Finally, sales commission spreadsheets are not very transparent because they do not include terms and conditions for getting rewards. They aren’t transparent because they are often generated at the end of a pay period, when most reps want to see how they are progressing, and what their commission may look like.

In Conclusion

Sales commission spreadsheets increase risk, are inefficient, and lack transparency. They also fail to deliver the interactive components of a streamlined sales incentive program – such as the ability to submit inquiries, enroll in plans, review progress, or access terms and conditions.

Some organizations attempt to fix this by generating complex spreadsheets with many tabs, each explaining how commissions were calculated. This still doesn’t address key problems such as time-consuming generation, painful delivery, limited mobile access, or the inability for reps to review progress.

The good news is that, using Sales Cookie, you can automate your entire sales commission program. Each rep gets a personalized incentive dashboard where they can access all their commission-related information. And we integrate with many systems such as Dynamics CRM, HubSpot, QuickBooks, PayPal, SalesForce, etc.

Visit our website to learn more.

Sales Cookie can calculate sales commissions from QuickBooks Desktop data (including the Pro and Enterprise editions). Synchronizing data with QuickBooks takes a few minutes to configure. Each sales representative gets an online incentive dashboard which they can use to check credits, verify payouts, and more. Reps can connect from a computer, or from a mobile device.

Using Sales Cookie allows you to leverage our crediting and calculation engine. As a result, your reps are paid the right commissions, on time. It’s also easy to make changes to your incentive plans or to generate reports. Complex types of sales commissions – such as incentive plans with splits, draws, or formulas – are supported. Here are the steps to follow:

• Verify QuickBooks Desktop readiness
• Register for a free Sales Cookie account
• Add a connection to QuickBooks Desktop
• Add users & transactions from QuickBooks Desktop
• Create sales incentive plans
• Run commission calculations
• View incentive dashboards
• Generate commission reports

Note: Sales Cookie also supports QuickBooks Online. In fact, establishing a connection with QuickBooks Online is even easier than using QuickBooks Desktop!

Verify QuickBooks Desktop Readiness

To calculate sales commissions, you must first select a data source. This could be QuickBooks Desktop, it could be your CRM system, or it could be a CSV manual import. One key advantage of using QuickBooks Desktop as a data source for sales commission calculations is that amounts and payment status are often more accurate. Indeed, most CRM systems do not automatically sync with financial systems, so amounts or payment statuses can be outdated / incorrect. For example, an invoice may show as paid in QuickBooks Desktop, but unpaid in CRM, which can result in errors when calculating sales commissions. Or amounts may be incorrect.

However, to calculate commissions using QuickBooks Desktop, we’ll need to credit each sales transaction (aka deal, order, invoice, contract, etc.) to users or teams / territories. What this means is that your QuickBooks Desktop tenant should include a custom field which specifies a rep or team / territory. This custom field can be a text field or a dropdown. You can use any type of identifier (ex: user name, employee ID, email address, etc.). If multiple reps or teams / territories need to be credited, create additional custom fields. If you are paying sales commissions based on territories alone, you may not need to add a custom field as existing fields such as “State” or “Country” may be sufficient.

This video shows you how you can add a custom field to QuickBooks Desktop records such as invoices or sales receipts. Creating a new field should lead you to the form below. Once you have created the custom field, you still need to display it (ex: on invoice form templates).

Sign Up For a Free Account

Simply click here and select “Login” in the top right corner. Next, click on the “Sign up” tab (as shown below). If you sign up with a social account (ex: LinkedIn), you won’t even need to confirm your email address!

Add a Connection to QuickBooks Desktop

In Sales Cookie, go to [Settings -> Connections] and add a connection to QuickBooks Desktop by clicking on the “Add” button:

Next, follow all the steps: