Are you doubling-paying commissions? At Sales Cookie, we help our clients automate their sales incentive programs. Sometimes, while modeling incentive plans for our customers, we discover that they were double-paying commissions for the exact same sales transactions. We hope this checklist will help you identify – and more importantly remedy to – this type of problem.
Updating Effective Dates
Most sales commission calculation engines process sales transactions whose effective dates match a specific date range (the calculation’s time period). For example, suppose that you are calculating sales commissions for the month of January. Your calculation should only process sales transactions whose effective date is between Jan 1 and Jan 31.
Now, consider a sales transaction whose effective date was updated from January to February (ex: someone updated the shipping address, causing its January effective date to be updated to February). January sales commissions have already been paid. Comes February, commission calculation logic could process the same transaction again. The commission calculation logic would consider this transaction eligible since its effective date falls within the February calculation’s date range.
For this reason, it’s very important to ensure that the effective date field used for commission calculations remains locked once the transaction has been considered won. Sales Cookie automatically issues warnings when we detect this condition. This helps you ensure you don’t double pay commissions when updating purchases, invoices, orders, etc. For example, using a record’s modified date as an effective date would be a terrible mistake as it would change on any update. Using a locked “date won” field would be a safer choice.
Different organizations use different approaches to represent refunds. Some organizations create a separate record with a negative amount. Some create a separate record of type “refund” with a positive amount. Other organizations update the original purchase and set its amount to zero. Finally, some organizations mark the original invoice as void while leaving the original positive amount.
If your organization uses the first approach (negative amounts), then you’re good to go. You won’t double-pay commissions on refunds because subsequent calculations will simply process a separate record with a negative amount. However, all other approaches are rather problematic. For example, without special handling, a positive refund amount may be counted as another purchase. In other terms, refunds could cause you to pay twice the original commission – over no earned revenue!
The same issue occurs if the original invoice was voided or its amount was set to zero. Suppose that a sales transaction occurred in January and was voided in February. Without special handing, simply voiding the original sales transaction does not allow February commission calculations to reduce commissions. Sales Cookie helps you handle refunds by letting you specify scoring formulas which can make the positive amount negative when the record is a refund. You can even use scoring to further penalize refunds (ex: apply a 2x factor for refunds).
When you setup a territory-based incentive plan for your managers, you are essentially double-paying sales commissions. In most cases, this is intended and part of the overall incentive program’s design. However, it’s worth a reminder that double-payment over the same sales transactions is what’s happening under the covers. You are paying both individual-based commissions and territory-based commissions over the same transactions.
Sales Cookie lets you create both individual and territory-based incentive plans. However, you can also create individual plans with manager set-aside commission logic. For example, you could specify that 90% of the sales commission should go to individuals, but 10% should be redirected to their managers. This helps you ensure you don’t double-pay commissions for the same sales transactions.
Another scenario worth paying attention to is territory rollups. Suppose that you have a parent territory called “NorthWest” with child territories “Oregon” and “California”. Suppose that transactions roll up, and that you have separate incentive plans for the “California” and “NorthWest” regions. Rollup logic will cause you to double-pay commissions for the same sales transactions. Sales Cookie lets you choose whether to apply roll up logic or not when calculating sales commissions.
In this blog article, we outlined 3 scenarios which can cause you to double-pay sales commissions for the same transactions. The good news is that using an automated sales commission solution such as Sales Cookie, you can avoid double-paying sales commissions and focus on rewarding true sales performance. Visit us online to learn more!