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5 Best Ways To Build Commission Plans

By May 19, 2020 No Comments

When determining how to calculate a sales commission plan, the person in charge usually decides which method they’ll use. Generally, a finance manager or accounting manager accepts the challenge and designs a methodology. More often than not, the commission rules incorporated into that plan don’t take the commission administrator or the sales representatives into account.

After over 15 years of working with commission plans, we’ve learned a thing or two about what makes commission calculations work. It depends on the organization, how many payees are involved, and the number of levels of seniority. But a few things are universal for any commission plan.

A finance manager reviews metrics and calculations to set up a commission plan for a sales organization.

More often than not, the commission rules incorporated into a compensation plan don’t always take the commission administrator or even the sales representatives into account.

When creating a commission calculation plan, a manager needs to consider many different objectives. Universally, we’ve found that there are five principles that play the biggest part in shaping an effective commission strategy. We’re sharing those with you below.

5 Principles in Shaping Commission Calculation Plans

  1. Keep It Simple. In fact, simplicity reigns supreme as the best method when it comes to anything related to compensation. The commission calculation methodology returns every single month and it needs to be easily understandable for the person tasked with calculating those numbers. It also must be clear to the people receiving compensation. A good commission plan motivates the sales team. Part of that requires that the sales team fully understand what they need to do to earn a commission. Overcomplicating commissions prevents that flow and often only frustrates and demotivates your employees. 
  2. Customize It To Your Organization. Whatever the methodology, it needs to work for that specific organization. Take the unique needs of the business, its products, and its sales goals (as well as historic sales) in mind when considering how a commission plan will break down. A good plan addresses not only how sales reps earn commissions but how they can increase their commission throughout their career with that company. In order to attract top talent, the plan should also reflect competitive wages for sales representatives within that industry and from that part of the country. 
  3. You’re Not Reinventing the Wheel. Commission plans have been in place at companies all around the world for as long as there have been sales jobs. Getting overly creative in the way a commission plan is set up can be detrimental. It might become too complicated or too convoluted to understand by anyone who didn’t set up the plan themselves. Look to existing plans at successful companies that do what your company does and learn from those examples. 
  4. Keep Your Payees and Administrator In Mind. The person mapping out the plan needs to look at it from the perspective of payees and administrators. Will it effectively motivate the sales team while also providing a logical breakdown of how to pay them without generating disputes month after month? It’s worth noting that processing commission calculations involves merging data from multiple sources, setting up a huge hurdle for administrators each month. Brainstorming ways to tackle that challenge with the commission administrator directly could improve the plan overall. It may also result in a plan that executives will appreciate more due to its ability to motivate and drive sales.
  5. Don’t Cut Corners. Approaching a commission plan with the goal of saving money will ultimately waste resources and funds. Be prepared to set up a commission plan that invests in your sales team. Remember that the more the company pays them, the more products they are selling for the company. And a plan that aims to save money over driving sales can risk increasing turnover both in the sales department and in the role of the commission manager who may grow frustrated with complicated commissions meant to save a few pennies. Any money saved will likely get spent in recruiting and training new staff. 

Since we have experience working with all types of commission plan methodologies across multiple industries around the country, we’re happy to help. Our powerful and flexible tools respond to any commission plan, no matter how complex it may be. Core also gives payees access to a sales portal so they can explore their progress toward goals and better understand how and why they’re getting paid commission.

Drop us a line and let us know if you’re interested in working with us.

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