How Can We Ensure That Commissions Are Paid Only When We Get Paid?

How Can We Ensure That Commissions Are Paid Only When We Get Paid?

This article applies if you want to pay commissions only when you get paid. For a more general introduction, click here.

============ Data Requirements ============
Ideally, If you have both a CRM and accounting system, you'd only use one system for the purpose of calculating commissions:
  • CRM system: make sure you have a field indicating when you received payment         OR
  • Accounting system: make sure you have fields indicating the rep (or territory) to credit

This is sufficient to pay commissions when you get paid.

However, there are scenarios where using two systems is required. For example, suppose that you receive payments incrementally within your accounting system. Given a single invoice, you accept payments incrementally. Each time a payment is received, you want a portion of the commission to be paid. In this case, commissions may be calculated based on CRM records, while payment of those commissions may be issued based on accounting records.

Sales Cookie can work with both systems, in which case:
  • Your CRM data will be used to determine estimated (potential) commissions
    • Ex: determine rep attainment vs. quota to establish a commission rate or amount
  • Your Accounting data will be used to trigger due (actual) payment of commissions
    • Ex: trigger payment of commission each time a payment is received

If you decide this approach is truly necessary, you must provide a reliable way to correlate between CRM (ex: opportunity) and accounting (ex: payment) records because:
  • Customer names often don't match (ex: "Blue Sky Inc." vs. "BlueSky")
  • Deal amounts often don't match (ex: taxes included, customer credit, recurring payment)

For this reason, records within your accounting system (ex: invoices) should specify the ID of the associated record within your CRM system (ex: opportunity ID).

In conclusion, we recommend selecting only one system (CRM or Accounting system) when possible. If this is not sufficient (because you receive payments incrementally), make sure there is a reliable way to correlate payments to CRM records so Sales Cookie can perform the necessary lookups.

============ Payment Models ============
Consider a deal "D", which was closed in January, but was only paid (much later) in June. You may decide to withhold commissions until you get paid. The key questions are:
  • When should the corresponding commission be declared and paid?
  • What should rep commission statements look like?

You could decide to declare commissions based on when you get paid. Using this model, it's the rep's June statement which would show a paid commission for deal "D". This is the simplest approach and it works well. Of course, the rep's January statement can still show:
  • A list of deals closed in Jan (with or without a potential commission displayed)
  • A list of commissions paid in Jan (ex: deals from the previous year which got paid in Jan)

Or you could decide to retroactively revise past commission statements when you get paid. Using this model, it's the rep's original January statement (NOT the June statement) which would be revised to show a paid commission for deal "D". To understand why we do not support this approach, consider the following diagram:

There are some significant issues with the "retroactive" approach:
  • Reps may struggle to understand their sales commission statements
    • Due to fragmented payment of commissions for various deals closed in Jan (see diagram)
  • You will need to constantly re-calculate commissions for all previous periods
    • Ex: In June, some January deals could have been paid, so you need to re-calculate for January
  • Payroll will need to make delicate adjustments as deals get paid over time
    • Payroll must figure out the January payout “delta” when a January deal is paid in June

All those are non-issues if you agree with us that it's the rep's June statement which should show a paid commission for deal "D". Trying to retroactively mess up with already released commission statements is confusing, and leads to many problems.

============ Withheld Deals ============
Sales Cookie is able to show to your reps:
  • The estimated (potential) commission for each deal
  • The actual (earned) commission earned when payment is received
  • The list of deals awaiting full payment of commissions

============ Withholding Alternatives ============
There are two reasonable alternatives to withholding, which still ensure you don't pay commissions for deals that don't get paid:
  • Pay commissions upfront when deals are closed, but apply claw backs if the deal doesn't go through. Learn more about how to implement claw backs successfully here. This alternative is typically simpler to implement, and can be more motivating as your reps get paid upfront.
  • Only declare and pay commissions when you get paid. This may reduce rep visibility regarding potential or upcoming commissions, but simplifies things as commissions are only declared when you receive payment. Your reps may appreciate never dealing with announced potential commissions which don't materialize.

============ Plan Setup ============ 
Use the following recipes to setup plans:

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