We hear it all the time. A company has an extremely elaborate or complicated incentive compensation plan and is looking for a software provider that can handle its highly complex rule logic. While every incentive compensation plan can be unique – and just about anything goes when it comes to designing one – there are still standard building blocks that are foundational to how companies create their compensation plans, making them less unique than you might think.
With that in mind, even when your compensation plan feels completely unique, there are standard commission rules that show up again and again across industries and business models.
Commission Rules We Get Asked to Automate the Most
Having been in the industry for over 20 years now, we have truly seen it all, but these are some of the most common rules we are asked to automate.
- Standard Commission Rates
- Tiered Commission Rates
- Commission Splits
- Quotas
- Chargebacks
- Recurring Commissions
- Manager Overrides
- Draws
- Product-Specific Rates
We’ll walk through each of these in more detail below, including how Core’s rules engine is equipped to automate these calculations without any manual adjustments or input.
Standard Commission Rates
Starting with the basics, almost every incentive compensation plan starts with a standard commission rate. For every deal, an agent will earn a percentage of either the total sales revenue, the profit margin, production amount, or other commissionable value.
Core automates these commission rates by applying your predefined payout rules to eligible transactions and incorporating the additional conditions that determine how and when those rates should apply.
Tiered Commission Rates
Tiered commissions are one of the most common ways companies reward increased performance. As a rep reaches specific sales, revenue, production, or other performance thresholds, their commission rate increases. That initially simple calculation from earlier starts to get a little more complicated.
Of course, the actual structure can be much more complicated. Some plans apply the new rate only to the production within that tier, while others apply the new rate retroactively to all eligible production once a threshold is reached. Commission tiers can also be set on varying schedules, such as monthly, quarterly, or annually.
Core automates tiered commission rates by applying different payout rules based on defined thresholds and the specific logic of the compensation plan. Whether a business uses incremental tiers, retroactive tiers, or different performance periods, the rules can be configured to match the way commissions are actually calculated without any manual manipulation.
Commission Splits
Commission splits allow everyone involved in finalizing a sale to get compensated accordingly.
A simple example might be a 50/50 split between two sales representatives, but splits can also be based on roles, products, territories, contribution levels, or other factors. The percentages may change depending on the transaction, and a single transaction may involve multiple reps, support staff, and managers.
Core automates commission splits by calculating and distributing commissions across multiple reps or payees based on the split rules defined in the compensation plan. Split percentages can be tied to different roles, transaction attributes, or other conditions, allowing businesses to automate more than a simple fixed percentage split.
Quotas and Performance-Based Rules
Many compensation plans tie commissions or incentives to quotas and performance goals. A sales rep may need to reach a certain level of sales, revenue, production, or another performance metric before becoming eligible for a particular payout.
Quotas can also be used alongside other commission rules. For example, a representative may earn a standard commission rate until they reach 100% of quota, then receive an accelerator once they exceed their goal.
Core automates quota and performance-based compensation by incorporating quotas, performance thresholds, attainment levels, and other metrics directly into commission calculations. This allows payouts to be based on actual performance data and ensures that the appropriate rules are applied as reps move through different levels of attainment.
Chargebacks
Chargebacks are another common component of commission plans, particularly when a commission needs to be reversed after it has already been paid.
This might happen when a customer cancels a contract, a sale is reversed, or an account closes before a commission becomes fully earned. The challenge is determining exactly how much should be charged back, when the chargeback should occur, and which rep or transaction it should be associated with. Some plans may only chargeback a portion of the commission, while others may recoup 100% of the commission.
Core automates commission chargebacks by applying defined rules when a transaction meets specific chargeback conditions and incorporating those adjustments into subsequent commission calculations. Instead of manually identifying previously paid commissions and determining how much needs to be reversed, businesses can build their chargeback logic directly into the commission process.
Recurring Commissions
Recurring commissions are common in businesses where revenue continues after the initial sale, including subscription-based, SaaS, insurance, and other recurring-revenue models.
Instead of paying a commission once, a rep may continue earning commissions as long as a customer remains active. The plan may also specify how long those payments continue, when eligibility ends, or whether the commission rate changes over time. Generally speaking, the initial sale generates a higher percentage rate than subsequent commission earnings.
Core automates recurring commissions by applying rules based on the timing, eligibility, duration, and other requirements defined within the compensation plan. This can include ongoing commissions tied to active accounts, policies, subscriptions, or other recurring revenue sources.
Manager Overrides
Manager overrides allow managers or other levels of leadership to earn additional compensation based on the performance of the people they oversee.
For example, a sales representative might receive their standard commission while their manager receives a 2% override on the representative’s eligible sales. Larger organizations may have multiple layers of overrides, with different rates applied at different levels of the organizational hierarchy.
Core automates manager overrides by applying additional commission rules based on organizational hierarchy, individual performance, team production, or other defined criteria. Multiple levels of management and different override structures can be incorporated into the same compensation process.
Draws
Commission draws provide a way for companies to provide guaranteed or advanced compensation while still reconciling that amount against commissions earned.
For example, a sales representative might receive a $5,000 monthly draw, which is then compared against the commissions they actually earn. Depending on the plan, the draw may be recoverable, non-recoverable, or subject to other conditions.
Core automates commission draws by incorporating draw amounts, eligibility requirements, reconciliation rules, and other conditions into the compensation process. This allows businesses to calculate earned commissions alongside draw payments and determine how those amounts should be handled according to the plan.
Product-Specific Rates
Not every product, service, or transaction necessarily earns the same commission. Many companies use different rates based on what was sold.
A representative might earn 10% on one product, 7% on another, and a flat bonus for a third. Other plans may use product categories, carriers, SKUs, service types, or other attributes to determine the appropriate payout.
Core automates product-specific commission rates by using product and transaction data to determine which commission rules and payout rates should apply to each transaction. This allows businesses to create different compensation rules for individual products, product categories, carriers, services, or other attributes without manually calculating each variation.
The Rules May Be Unique. The Building Blocks Usually Aren’t.
As we mentioned above, how each company incorporates these rules into its specific compensation plan is often unique, but the same basic foundations still apply. All companies assign different percentages or set certain eligibility rules, but the standard building blocks are still there. Core’s platform is built to support all of these basic tenets of a compensation plan while remaining flexible enough to handle even the most complex combination of formulas, exceptions, and requirements.
Core automatically works through each applicable calculation in your compensation plan, taking all rules, conditions, and adjustments into account before producing a final commission total for each pay cycle – all with just a few button clicks.
Schedule a demo to see firsthand how Core can automate your unique commission rules.