Revenue forecasting is an important aspect of financial management for any organization. Forecasts provide critical insights that offer guidance for managing cash flow, hiring budgets, potential investor conversations, and other key data points decision-makers need to plan for the future.
Of course, metrics such as overall sales and revenue generated, annual recurring revenue (ARR), expenses, payroll, etc. are focal points in forecasting formulas, commission totals also play a key role. Unlike traditional payroll which is a more stagnant and predictable expense, commissions can fluctuate. Additionally, commission structures are tightly intertwined with how revenue is booked, expanded, retained, and reported. Therefore, how commissions work through the finances of your business can have a significant impact on the accuracy of your forecasting.
Why Commission Pay Matters to SaaS Forecasting
In SaaS, virtually all business is built and retained through subscriptions. With recurring revenue being such a vital part of the SaaS business model, how commission pay is structured can have a significant role in how revenue is generated.
A commission structure can influence:
- Which deals sales reps prioritize
- How deals are structured and timed
- Whether sales reps focus on new ARR, expansions, or renewals
- The quality of booked revenue
Because forecasting focuses heavily on revenue and sales trends, how your reps are incentivized to sell directly shape these trends, and consequently the accuracy of future projections.
Below we’ll discuss some of the ways that commission operations can affect your organization’s ability to create accurate forecasts.
Commission Timing Can Distort Forecasts
One of the most common forecasting issues in SaaS comes down to timing – an issue that can be easily compounded with complicated commission pay schedules. For example, commissions that are paid before revenue is actually earned or in the company account can cause sales forecasting that can reflect inaccurate revenue realization due to potentially inflated numbers. This issue gets more complex when managing customer clawbacks or churn.
Commission timing can make a world of difference in how finance teams are able to recognize revenue milestones. If the timing doesn’t align, it can cause forecasts that look strong on paper, but then quickly weaken as adjustments start to get realized in the accounting books due to commissions getting paid out.
Manual Commission Processes Create Data Gaps
While most organizations utilize software or automation tools to help manage accounting, sales, and finance data, there can still be workflow gaps that require manual manipulation. These manual gaps in otherwise automated processes are where problems arise.
Any time there are spreadsheets involved, there is a risk for errors. We have talked about this ad nauseum, but spreadsheets are by far the number one culprit of inaccurate payments in commissions. Mistakes that occur as a result of these gaps in automation reduce confidence in the underlying data that will be used to payout commissions and then later for forecasting.
Incentive Compensation Plans Influences Revenue Quality
Commission pay doesn’t just affect how much revenue is sold, it directly influences what kind of revenue enters your forecast. As we mentioned above, the SaaS revenue model relies heavily on ARR and requires long-term contracts and commitments in order to succeed. Therefore, incentive design that rewards customer retention and product expansion can play a big role in sustainable revenue avenues.
Sales teams respond precisely to what they’re paid for. When commission plans favor and push for deal quantity versus deal quality, you’re essentially driving behavior that inflates short-term results while overall weakening long-term growth. This can cause forecasts that consistently overestimate future revenue.
Commission Accuracy Supports Forecast Confidence
Accurate commission data is a critical link between sales activity and reliable revenue forecasting. You need a solid foundation for tracking and reporting on both your sales data and commission calculations in order to produce anything remotely accurate or viable for forecasting trends.
Automated commission platforms play a key role in ensuring accuracy throughout the cycle of data by providing auditing tools that allow finance teams to verify numbers at every step. Core’s auditing tools not only guarantee accurate commission payments but ensure that your overall sales and revenue data stays accurate as well, regardless of how it’s transformed for forecasting. The bottom line: forecasts improve when finance teams can trust their commission data.
How Finance Teams Can Improve Forecasting Through Commission Pay
To improve and strengthen the quality of revenue forecasts, finance teams should treat commission pay as a forecasting input, not a downstream calculation. This starts with how your commission pay is structured, including how your sales reps are incentivized, the schedule in which you choose to pay your commissions out, and the availability and accuracy of your commission data.
First, as we touched on above, sales reps’ behavior is motivated by how their actions are going to impact their paychecks. Commission plans that reward customer retention, product expansion, and deal quality, ensure that your reps are focused more on maintaining happy customers and prioritizing quality leads instead of pushing through poor leads destined to churn.
Secondly, convoluted commission pay schedules are going to disrupt your financial flow. This problem can easily be resolved by ensuring that commissions are paid out only once the revenue is actually realized in your accounting books, rather than when deals are booked. This also encourages your rep to maintain interactions with your customers even after an agreement has been made.
Lastly, the availability of your commission data is crucial. Delays in posting your commission totals, or manual processes that risk the accuracy of your outputs, will greatly reduce the value of this data for forecasting. When data is accurate and available faster through automation, internal financial processes run far more smoothly.
By adjusting these components of your incentive compensation plan, you start to see a much more accurate depiction of your commission expenses in your analytics as well as forward-looking forecast models that provide a more realistic look into your future operations. When commission pay supports forecasting, predictability improves across the business.
The Role of Automation in Forecasting
Automation is no longer optional in commission processing – it’s essential. When commission pay is manual or inaccurate, forecasting becomes inherently less reliable. Core Commission offers a flexible, enterprise-ready platform that automates commission management and improves visibility across sales reporting and revenue forecasting. For SaaS finance teams, Core bridges the gap between sales activity and financial reporting, creating a stronger foundation for accurate forecasting.
Schedule a demo to see how Core Commissions streamlines commission management while delivering more reliable revenue forecasts.