What is commission management?

Commission management hero image, man sitting at desk reviewing paperwork

Commission management includes the process of tracking, calculating, and paying commissions to sales reps. It is an essential part of any sales compensation plan with the ability to make a big impact on the motivation and performance of sales reps, as well as those who oversee compensation.

Take Executive Vice President Of Revenue Operations Dennis Dube, for example. 

Dennis leads EverView’s 100+ person sales team. Today, they use QuotaPath to set up commission structures and automate commission tracking. 

But that wasn’t always the case.

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Before implementing our help, Dennis and his team calculated commissions manually for 80 reps under one of 35 compensation plans.

“At the time, sellers didn’t know how much their paychecks would be until they received those checks,” Dennis said. 

What’s more, a survey revealed that his reps spent two hours per week trying to track and calculate their earnings in Excel. Plus, half of them didn’t understand their comp plans or how they earned commissions.

These survey results, and a text message on a Saturday that read “If you don’t approve a commission calculation within the next hour, then our sellers won’t get paid on time,” led Dennis to QuotaPath. 

“It was then that I knew it was time to get a better system in place,” Dennis said.

What’s more, after adopting QuotaPath, EverView had a record sales year

A well-designed commission management system can help to ensure that sales reps are motivated to sell, and that they are compensated on time for their efforts. 

Solutions like ours can also help to track the effectiveness of the sales compensation plan and showcase where adjustments are needed. But maybe even most importantly, it can remove the need for any panic-fueled texts on a weekend for those who oversee commission payments. 

Read on to learn more about commission management.

Commission Management: Understanding the basics

First, we’ll start with the basics of commission management. 

You should begin your compensation strategy by setting clear goals and objectives that align with your organization’s key north star metrics.

As an example, if gross revenue retention (GRR) is your company’s biggest focus, your compensation strategy should support that across every role. 

In practice, this would look like account executives earning higher commission rates on multi-year contracts and higher bonuses for sales development reps who qualify leads that classify as your ideal customer profile. For account management, you could incentivize GRR by paying higher bonuses or commission rates on early renewals or those that convert from monthly to annually, or annually to multi-year. 

Some other best practices include: 

Set clear goals and objectivesThe first step in sales commission management is to set clear goals and objectives. What do you want your sales reps to achieve? Once you know what you want to achieve, you can start to design a commission plan that will help you reach your goals.
Choose the right commission structureThere are many different commission structures to choose from, including revenue-based, consumption-based, and shared territories. 
Set the right commission ratesThe commission rates you set will determine how much money your sales reps earn. Set rates that are fair and competitive and understand that the average standard commission rate in SaaS is 10%.
Track and report commissionsPreferably with a commission tracking system like QuotaPath so that you can eliminate the heavy upkeep of a manual process and reduce errors. 
Pay commissions on timeDon’t put yourself in a position that Dennis found himself in. Pay your commissions on time to keep sellers motivated and productive. A tool like QuotaPath can help you ensure your team meets payout schedules. 

Still, if you achieve all of the above, expect some challenges. 

sales commission calculator template

Free Sales Commission Calculator Template

A free spreadsheet to simplify the commission tracking process. Track what you or your team have earned in 4 inputs.

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Common challenges

Common challenges when it comes to sales commission management include over complex plans, manual processes, and lack of compensation visibility across the team. Below, we delve into each one. 

First up is the complexity of commission plans. 

Out of a survey we conducted with 400+ RevOps, Finance, and Sales executives, 30% ranked “maintaining simplicity” as the biggest challenge during the sales compensation plan design process.

That’s because leadership tends to complicate commission plans as companies scale — which leads to errors and disputes. This often leads to misalignment of sales activities, distrust from reps on how they’re paid, and illogical comp plans that double dip on pay or motivate incorrect selling behaviors. An example of this might occur when a company pays a higher commission rate on a product they plan to sunset versus a new product.  

Manual processes also pose challenges. According to data from last year, 60% of businesses still rely on spreadsheets to manage commissions, which can be time-consuming and error-prone. When errors happen, reps are more likely to quit. In fact, we found that 66% of companies reported losing between 1-9%of their salesforce to commission errors every 1-2 years. 

Lack of visibility marks another challenge and one that Dennis’s team experienced first-hand. Sales reps often don’t have visibility into their commissions and how they’re calculated. When they don’t understand how they’re rewarded for performance, how can leaders expect them to perform? 

Another issue that’s popped up over the last decade is compliance. ASC 606 revenue recognition compliance introduced new accounting standards that called for businesses to account for commissions in new ways. This has led to confusion that the use of spreadsheets for manual tracking and amortization scheduling has contributed to. 

Fortunately, all of these challenges can be mitigated with the help of trusted sales and commission tracking software.

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Effective commission management implementation

You’re probably thinking, “Okay, but can automated commission management really address all these challenges?” 

Yes, if implemented correctly.

An effective commission management implementation will typically include the following: 

  • Compensation plans that are simple, logical and fair
  • Reps have visibility into commission calculations and when to expect payouts
  • Sales compensation stakeholders have access and custom views based on roles and responsibilities
  • Individual tasks in the commission management system are surfaced with quick access to complete
  • Full onboarding delivered in a timely manner
  • Friendly user interfaces appropriate for various roles in commission processes
  • Insights into sales compensation strategy effectiveness
  • In-app collaboration to resolve disputes, address questions, and more
  • Ability to save, duplicate, and edit compensation structures to quickly add or remove new teams, sellers, or comp plans
  • Forecasting features that enable leadership and sellers to see real-time attainment and earnings progress and future forecasts based on pipeline

Most importantly is leadership’s compensation communication plan of your organization’s  strategy and any changes throughout the year. This will help to build trust and understanding between your team and your sellers.

To see if QuotaPath will work for your organization, chat with our team today. 

Fairness and transparency in commission management

In addition to a successful implementation, your company should base your commission management philosophy off two key principles: fairness and transparency.

What is fairness in commission management? Fairness in commission management means that all sales reps are treated equally and that their commissions are based on their performance. This means that the commission plan should be clear, concise, and easy to understand. It should also be aligned with the company’s overall goals and objectives.

What about transparency?

Transparency in commission management means that sales reps know how their commissions are calculated. This means that they have visibility into the factors that affect their commissions, such as the sales goals, the commission rates, and the calculation methodology.

Both of these pillars are vital to your selling team. 

First, they help motivate and retain sales reps. When sales reps know that they are being treated fairly and that their commissions are transparent, they are more likely to be motivated to sell and stay with the company.

Second, fairness and transparency help to build trust between sales reps and the company. When sales reps trust that the company is treating them fairly, they are more likely to be open and honest with the company. This can lead to better communication and collaboration, which can ultimately benefit the company.

Third, fairness and transparency help to avoid disputes. When sales reps understand how their commissions are calculated, they are less likely to dispute their commissions. This can save the company time and money in the long run.

Streamline commissions for your RevOps, Finance, and Sales teams

Design, track, and manage variable incentives with QuotaPath. Give your RevOps, finance, and sales teams transparency into sales compensation.

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How to ensure your fair and transparent

To ensure fairness and transparency throughout your commission management process, create a clear and concise commission plan. Make sure your reps understand how their commissions are calculated and show the math behind your comp plan. 

You should also provide your sellers with visibility into commissions so that they can check to see what they’re getting paid on and peer into the calculations behind each deal to clear up questions on upcoming commissions checks.

Pro-tip: recruit the help of QuotaPath to do so. 

Lastly, include a session on your commission management system as part of your new hire onboarding for employees across RevOps, Finance, and Sales. This will help ensure that they know how commissions are being calculated and tracked, and, of course, how to use it.

See how this Business and Data Operations Manager added an onboarding session to cover their compensation policy and processes using QuotaPath. 

Sales compensation report 2023 that says 90% of leaders don't trust their compensation structure with circle graph

Key features and benefits of commission management solutions

So, what are the main benefits of commission management solutions? We’ve mentioned several throughout the article, but here are the key value adds:

Improve compensation management process efficiencyGive leaders and individual contributors automated access to accurate commission calculation, tracking, and payouts. Eliminate confusion and questions by providing a source of truth and surface urgent tasks so that each stakeholder knows what to do and where to do it. 
Visibility increases trust and motivation When reps can see how much they have earned and how they are being compensated, trust between your sellers and those who design the compensation plans will increase. (Did you know 75% of sales reps don’t trust they are paid fairly?) Plus, if they can see that the next deal advances them over their attainment target and unlocks a new commission tier, you can bet they will be more motivated to reel the next deal in. 
Better reporting and insightsTrack the performance of your team as well as the effectiveness of your compensation plan using analytics and insights from a solution like QuotaPath.
Up your accuracyIncrease the accuracy of your commission payouts by integrating your CRM or invoice system with QuotaPath. All data will pull directly from what is listed in your CRM. If there’s a number error, it doesn’t stem from QuotaPath but rather something in the CRM. 
Stay compliantCommission management solutions can help to improve compliance with tax laws and other regulations, such as ASC 606, which can protect the company from legal liability and audits.

Try QuotaPath for free

Try the most collaborative solution to manage, track and payout variable compensation. Calculate commissions and pay your team accurately, and on time.

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Future trends in commission management

Finally, what can you expect over the next few years from commission management tools? We’re already seeing an uptick in AI (think: ChatGPT) language processing to support comp plan design. 

In fact, over the past two week, two companies have introduced AI capabilities for setting up commission plans. While ours is not technically AI, we have a library of 20 free customizable and trusted comp plan templates that you can build to your business model and automate in QuotaPath. 

Another trend we’re noticing is with mutli-year accelerators for account executives and account managers.

Multi-year deals tend to be better for the company. With current economic conditions, predictable revenue growth is more important toward profitability.

Andrew de Geofroy, SVP, of Global Revenue Platform for Quantive

Executed in an AE comp plan, this might look like a standard commission rate of 10% on 1-year deals, with accelerated rates of 12% on 2-year contracts, and 15% on 3-year congrats. On the renewal side, you might see an AM earn 8% on a multi-year deal (or grab a flat bonus for converting an annual customer to a multi-year), versus 4-5% on a 1-year renewal. 

Our third trend relates to SPIFs

SPIFs have always been popular in sales to quickly motivate or change a specific selling behavior. More frequently, however, we’ve encouraged (and noticed) companies leveraging SPIFs to test potential changes to upcoming compensation plans. So, want to see if a 2% increase in a commission rate will impact the number of multi-year contracts? Test it out for a quarter with a SPIF first before adding it into your plan. Maybe you’ll find you need to increase the rate in order for your reps to ask for longer terms. 

Additional reading

5 sales compensation shifts that have unfolded throughout Q1

Read 5 trends

In conclusion, the biggest thing to remember regarding the future of commission management is that technology is on your side. 

Make your process more efficient for you and your team  with QuotaPath. 

To learn more, schedule time with our team or start a free trial

FAQs:

How does a commission management solution help streamline sales compensation processes?

A commission management solution can help streamline sales compensation processes in a number of ways, including:

  • Sales performance management: Companies with sales incentive programs can use commission management solutions for sales performance management. Using attainment leaderboards and forecasted earnings from pipeline, leadership can get a quick pulse on real-time team performance and what’s to come.
  • Automating commission calculations: A commission tracking solution can automate commission calculation, which can save time and prevent errors when it comes to commission payout.

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  • Tracking sales activity: By integrating with a CRM, a commission management solution can track sales activity automatically to ensure that commissions are calculated correctly and that sales reps are compensated fairly.
  • Providing visibility into commissions and incentive compensation: A commission management solution can provide visibility into commissions, commission reconciliation, as well as your sales compensation planning process. This can all help to bolster sales force motivation, rep accountability to track their progress, and fair commission allocation to ensure compensation plans are equitable and fair.
  • Managing compliance: A commission management solution can help to manage compliance with tax laws and other regulations.

    Read: What does ASC 606 revenue recognition mean for commissions?
  • Reporting and analytics: A commission management solution can provide reporting and analytics, which can help to track the effectiveness of the sales compensation plan and to make adjustments as needed.

Streamline commissions for your RevOps, Finance, and Sales teams

Design, track, and manage variable incentives with QuotaPath. Give your RevOps, finance, and sales teams transparency into sales compensation.

Talk to Sales

How do commission management software handle complex commission calculations?

Compensation technology can handle complex commission calculations by using a variety of methods, including:

  • Rules-based calculations: Rules-based calculations are based on a set of rules that are defined by the company. These rules can be used to calculate commissions based on a variety of factors, such as the type of product or service sold, the amount of revenue generated, and the number of deals closed.
  • Formula-based calculations: Formula-based calculations use mathematical formulas to calculate commissions. These formulas can be used to calculate commissions based on a variety of factors, such as the sales price of a product or service, the cost of goods sold, and the profit margin.
  • Algorithmic calculations: Algorithmic calculations use algorithms to calculate commissions. These algorithms can be used to calculate commissions based on a variety of factors, such as the customer’s lifetime value, the number of leads generated, and the number of sales opportunities created.

The specific method that is used to calculate commissions will depend on the complexity of the commission plan and the needs of the company. However, commission management software can typically handle even the most complex calculations with ease while providing transparent commission tracking.

How can businesses choose the right commission management solution?

When choosing the right commission management solution, you should consider:

You can try QuotaPath’s commission automation for free by signing up for a free trial (no credit card required).

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