Paying sales rep commissions without a spreadsheet

Commission is the one number in a shop that two people check independently, and it is usually calculated in a spreadsheet that only one of them can see.

That arrangement holds until a rep disagrees with a figure. Then somebody spends an afternoon reconstructing a month of orders to work out who is right, and whatever the answer turns out to be, the rep now checks every month.

The decisions to make before the maths

Most commission disputes are not arithmetic errors. They are two people applying different rules because the rules were never written down. Four questions settle most of it:

• Commission on revenue or on margin? Revenue is simpler and rewards volume. Margin is fairer and stops a rep discounting their way to a bonus. Margin only works if your costs are actually captured on the order.
• Does it include freight and tax? It should not — neither is yours — but this has to be stated, because a rep looking at an invoice total will assume it is.
• Earned when invoiced, or when paid? Paying on invoice is kinder to the rep and riskier for you. Paying on receipt is the norm and needs your receivables to be visible, or reps cannot see what they are owed.
• What happens on a return or a reprint? Decide before it happens, not during.

Why the spreadsheet stops working

A spreadsheet is fine for two reps and thirty orders a month. It fails in specific ways as the shop grows:

• It is a copy. The moment an order is amended, credited or partly returned, the spreadsheet is wrong and nobody knows.
• Reps cannot see it. So they keep their own, and now there are two versions to reconcile.
• It has no history. "What did we pay in March" means finding March's file, if it still exists.

Reps should be able to see their own number

This is the change that removes most of the friction. When a rep can see their orders, what has been invoiced, what has been paid and what commission that has earned, the monthly conversation stops being a negotiation.

It also changes behaviour, usually for the better. A rep who can see that commission is earned on payment starts caring whether their customer has actually paid — which is precisely the incentive you wanted.

Goals are separate from commission

Worth keeping distinct. Commission is what someone is owed; a goal is what you are steering toward. Conflating them — paying commission only on hitting a target, say — makes the number unpredictable and reps stop trusting it.

Set goals, track against them, and pay commission on what was sold.

Commissions in PromoSoft

Commission is calculated from the order itself, so it reflects what was actually sold rather than a copy of it. Rates are set per user, paid and unpaid commission are tracked separately so you can see what is owed against what has been settled, and reps see their own performance and goals rather than waiting to be told.

Order calculations exclude tax and freight throughout, so the figure a rep sees and the figure you pay are built the same way.

Related: sales reporting and goals · reporting.