When you support accounting software, you get a good feeling for how many different ways people pay their sales commissions. Some are straight forward, and some are so complex that they have to be done in a Excel.
Like most things that are motivating, simple is better with sales commissions.
Generally there are (to me) four rules that make sense to follow. Your best bet with salespeople is the same as it is with every other type of hire.
First, you need to find someone that is going to do the right thing for clients-regardless of how you pay them. Part of doing the right thing is truly understanding the clients issues and your potential solutions.
Second, paying only “when paid” makes sense. It is more difficult to compute but protects you when that once in a while a big check does not come in even though you’ve recognized the revenue and paid the commission.
Third, it is natural for anyone to work harder when their pay is tied to commission-whether or not they are the right person for the job. Large base salaries put the onus on you (the payer) to pay whether or not goals are met. Further, non-performance is not painful to the person so they are more apt to need to be let go potentially causing you unemployment expenses and the anguish of needing to have this conversation with the non-seller.
Lastly, commissions should be based on the profit they generate rather than the top line revenue. I’ve seen clients pay on the top line and then not adjust the commission down even when a discount had to be offered to win the business. If for simplicity, you opt to pay on the top line, make sure you make adjustments when discounts are made reducing profit.
For those of you that use Dynamics GP, we have found that a product by Ethotech, works quite well. Their claim is that they can reduce the amount of time working on commissions manually (speadsheets) can be reduced from an average of 204 hours per year to 36 hours per year.
I don’t know whether or not that claim is true, but I do know that the clients that have bought the Ethotech product have been satisfied with the time savings. If you use Dynamics GP and pay commissions, this datasheet is worth reading.
For those of you that use Dynamics SL, we have found few commissions programs we can not duplicate with either modifying the existing commission reports or in rare cases, creating a new one. SQL Reporting Services (SSRS) is also a nice tool for Dynamics SL reports, but requires the reports to be re-written since they come already written in Crystal.
SSRS reports in Dynamics GP are harder to develop as the table names have numbers in them and are not as intuitive as Dynamics SL, or Acumatica.