SALES REPS COMMISSION
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Background and challenge
The company is a project based business. It runs about 1,500 projects per year. Each project is unique and includes multiple components, at different product and service categories.
Sales commissions are calculated based category, service sold and project profitability. Commission could change also based on customer and special arrangement with different customers. Commission is due only with payment is collected from customer.
In addition, each sales rep had unique commission rates. In some cases, sales rep shared projects, and their shared commission should have been reflected on their monthly reports as well.
Analysis
The company spent on average more than 200 hours a month on a complex and lengthy process of preparing commission spreadsheet and statement reports. As any manual process, also this process included –
1. Multiple mistakes
2. Required lengthy review and mistakes correction process
Sales reps had no trust in the system or in the accounting team preparing the reports. Sales reps complained on constantly missing statements due date, inaccuracy and not really being able to understand the reports.
The sales reps dissatisfaction was particularly a serious problem as in that specific industry, successful sales reps were a scarcity and always hunted by competition.
Solutions
Our solution included three steps:
1. Workflow change – Semiannual true process – Instead of going through a detailed through monthly calculation, the company, with the agreement of the sales reps, moved the a true system –
1. Every month the company runs a simple calculation of commission rate X revenue and make monthly commissions pay based on this calculation.
2. Twice a year, the company produces the detailed commission report, calculating the commissions for the previous 6 months, and pay the difference owed to the reps.
2. Change in agreement with main rep – the company has one sales rep who is responsible to the lion share of the sales, and therefore suffered the most from the sales commissions’ calculation issues. The company negotiation a new compensation agreement that elevated most of the weight and importance of thorough commission calculation, in his case.
3. Applying some changes to report layout and structure, to make it more readable and understandable to sales rep.
4. IT Solutions – Commission tool – with an investment lower than $10,000, the company developed in house commission software tool. The system connects to the company’s ERP system, SAP BO, and populates the commission report based on pre entered commission rules.
Results
What had been a major cross-departmental issue for a few years, is not an issue anymore –
1. Report are accurate, done in time and minimum labor.
2. Sales reps do not feel cheated. They get commission reports that they trust, understand and in time.
3. Monthly preparation process of commissions has been reduced from 200 hours, to 8 (!). That means close to 1.5 position saving as well as less stress on management involved in the process.