What Makes Commissions So Complex?

by | Sep 14, 2022

The basic concept of commissions starts pretty simply. Each salesperson gets a cut of their sales. Maybe it’s a percentage or a set amount. Whatever the breakdown, it begins with a simple calculation. However, as organizations grow and diversify, a number of variables increase the complexity of that commission calculation.

More products and additional team members contribute to that complexity. Organizations introduce quotas, accelerators, and tiered rates to support goals and campaigns. As teams evolve, structures change and hierarchy commissions factor into calculations.

Eventually, the number of calculations required to run a single commission cycle reaches an unmanageable level. It results in an overwhelming job for a single individual. It’s time to automate.

If you’re trying to predict how complex your commission calculations will get, we’ve put together this quick guide to understand what may play a role. Here are the most common factors that make commissions more complicated.

More Things to Sell

As a company introduces more products or services to respond to customer needs, salespeople deal with more price points and packages. Depending on overall sales goals, each product or service may deliver a different commission rate, too.

Commission administrators dealing with a changing inventory must stay on top of sales prices and updated rates. Depending on how quickly new products are being added or existing products are changed, they may need to update prices monthly. If a change slips through the cracks, it could mess up an entire commission cycle.

Errors in a single cycle may not seem like a big deal but if not handled quickly, they can impact sales team motivation and morale. Additionally, such an outcome forces administrators to double their workload by returning to the calculations and hunting down those errors after the fact.

With commission automation like Core Commissions, an automated auditing tool helps catch those mistakes before they become costly errors.

A Growing Team

The goal of any sales organization is to grow. As a sales team evolves, it changes the structure and adds levels of hierarchy. Reps report to managers who report to directors. Each level earns a piece of that sales pie.

With the introduction of a more intricate sales team dynamic comes more commission calculations. Hierarchy overrides become a factor while splits across teams or departments may increase. If sales teams cross into other territories, rates may vary as well.

Each of these new components adds calculations to the fray. A commission administrator now has the responsibility to include each new rate, each new split, each adjusted rate, and more. It can be a lot to keep up with and it will continue to increase as more salespeople join the company.

Quotas and Goals

A growing company needs to continue to drive sales and move forward. Management often addresses this challenge with aggressive goals and quotas. Each salesperson is responsible for their own piece of the revenue puzzle. To gauge how well they’re performing, they’ll need to meet that quota their manager assigned them.

Quotas vary depending on the company and the department. It could be a set figure that a salesperson needs to meet. However, it could also translate to a number of products or services sold. However it’s set up, the employee generally needs to fulfill their quota in order to earn their full commission.

This benchmark system tosses another calculation factor into the mix. Now commission administrators need to know who has met quota before they can get their full commission rate.

Incentives and Motivators

Some companies aren’t satisfied with just meeting quotas. They want their aggressive salespeople to reach for the stars. To make that happen, an accelerator might be activated. This means that if a salesperson surpasses quota by a certain percentage, their commission rate increases.

Other incentives and motivators may pop up as well. Each one incorporates yet another complicated calculation into the sales commission worksheet.

Sales Competitions

During difficult seasons or after the launch of a new product or service, an organization may initiate a sales competition. In these competitions, reaching a certain lofty sales quota or selling a number of new products triggers higher commission earnings. It may unlock a higher rate or an additional bonus. The purpose is to motivate salespeople to drive even more sales.

Not only do competitions unleash even more complex calculations, but they’re also temporary. So a commission administrator needs to stay on top of the timeframe set forth for the event. The calculation needs to be factored in as soon as the competition starts and removed immediately after it ends.

We have good news! While all of these factors are often in the cards for any growing business, there’s a better solution than adding more spreadsheets to the stack. Core Commissions simplifies and automates all of these variables for businesses of any size.

Let us walk you through all our commission automation software can do for you. Set up a demo with us and we’ll show you firsthand how we make even the most complex commissions manageable.

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