Commissions motivate sales representatives to perform better and achieve sales goals. They are usually included as a part of a sales rep's total compensation and, in some cases, their entire compensation is in the form of commission.
Since a number of criteria determine the commission to be paid out, such as the commission plan (tiered, split, or flat rate), commission quota, and applicable taxes, this process can be fairly complex and possibly inaccurate, if handled manually.
To ensure accurate and timely commission payments, businesses can use commission software. The tool automates commission calculation and helps make timely payments to reps.
Here's what we'll cover:
What is commission software?
Commission software helps automate the calculation and tracking of commissions based on a business' commission model and other defined metrics, such as frequency and taxes.
The software ensures the accuracy of the commissions and helps make the process transparent.
Commission statement in QCommission (Source)
Common features of commission software
In this section, we will look at some of the most common features of commission software. These features will help you understand the basic capabilities a solution must offer for effective commission management.
||Set rules and calculate the commission for each sales rep. Define parameters and metrics for the calculation, such as goal fulfillment, applicable taxes, and maximum limits. Calculate commissions as per the preferred commission model—flat rate, split, or tiered.
||Track commissions, bonuses, and overrides through detailed reports. Set the commission expectations for a certain period and track if the actual commission payouts align with these.
||Create commission schedules for sales reps. Schedule commissions as per the organization's payment frequency such as weekly, monthly, or quarterly.
||Define rules for incentive approval and payouts. Set the frequency for incentive calculation such as monthly or quarterly.
What type of buyer are you?
There are three types of buyers of commission software. They differ based on the size of their operation and sales force.
- Sales departments that use multiple calculation models: Sales departments often use a mix of commission plans, such as flat rate, split, or tiered, which makes the process complex. To factor in all the different methods of commission calculation, while ensuring accuracy, these departments can use commission software.
- Sales departments that seek CRM integration for commission management: Sales departments may use customer relationship management (CRM) tools to manage their workflow. However, most of these tools don’t offer commission management capabilities. Therefore, sales teams try to integrate their CRM tools with commission software to calculate and manage commissions.
Benefits of commission software
The following are the key benefits of commission software. These benefits enlist the business functions that are positively impacted by commission software and how they may improve.
- Reduced errors in commission calculation: Calculating commissions manually on Excel sheets increases the probability of errors. However, automating the calculations ensures accuracy and saves the time and effort that otherwise goes into rectifying errors.
- Improved productivity: Timely and accurate commissions keep reps motivated to perform better, directly impacting productivity. Further, the transparency of processes allows reps to focus on sales instead of struggling to identify the parameters that impact their commissions.
Key considerations when buying commission software
As the last step to selecting a commission software, keep a few additional factors in mind. These will help you select a tool that is best suited to your business goals.
- Total cost of ownership (TCO): Whether you buy one commission system off-the-shelf or customize one to your unique needs, considering the total cost of ownership is crucial. Buyers tend to think that a customized solution that offers only selected modules will cost less, however that's not the case every time. If the customized solution needs to be modified in future, additional costs involved in the exercise may add up to be more than the total ownership cost of a packaged application.
- Integration: The data residing in your commission software may be of use to other business applications such as accounting software, payroll software, and performance management software. Check with the vendor if the commission management software allows integrations with other software.
Note: The applications selected in this article are examples to show a feature in context and are not intended as endorsements or recommendations. They have been obtained from sources believed to be reliable at the time of publication.