Here at Sales Cookie, we help our customers automate their sales incentive programs. At times, we come across situations where our customers want their reps to see how much commission they’ve received per transaction. While this makes sense in principle, the reality is that, in many cases, there simply isn’t a per-transaction commission amount!

What do you mean by sales transaction?

In our terminology, a sales transaction is any commission-able event. Sales transactions can be orders, invoices, contracts, opportunities, purchases, sales receipts, etc. It seems quite reasonable to expect some “commission amount” to be associated with each transaction, such as:

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A per-transaction commission amount helps reps understand they have a stake in every sale, increases sales motivation, and simplifies analytics (ex: total commission paid by product, total commission paid by customer, etc.).

So why are you saying there may not be a per-transaction commission amount?

Most incentive plans have attainment tiers. For example, we could decide to pay 5% of revenue under quota ($100K), 8% of revenue at 100% to 150% of quota ($100K to 150K), and 10% of revenue above 150% of quota.

However, using attainment tiers means measuring sales performance in aggregate. For example, suppose that we had the following transactions during the month of June:

  • Transaction #1                        $50,000
  • Transaction #2                        $25,000
  • Transaction #3                        $30,000

Collectively, this represents 105K in revenue. Therefore, we must pay 5% of 100K (revenue in the under-quota zone), and 10% of 5K (revenue in the 100%-150% quota zone). As you can see, some portion of transaction #3 is in the under-quota zone, and some other portion of the same transaction #3 is in the above quota zone. So what exactly is the commission for transaction #3? Hard to say.

Worse, we could decide to re-arrange transactions (ex: they all occurred the same day), and use the following order instead:

  • Transaction #2                        $25,000
  • Transaction #3                        $30,000
  • Transaction #1                        $50,000

Nothing has changed except for the order. Collectively, this still represents 105K in revenue. Therefore, we must still pay 5% of 100K (revenue in the under-quota zone), and 10% of 5K (revenue in the 100%-150% quota zone) – the same commission as before. However, it is now transaction #1 which “sits” between two quota zones, and so has a different amount associated with it. Ooops!

In short, using tiers means there no longer is a specific per-transaction commission amount. And for this reason, if you use tiers, we cannot show a per-transaction commission amount on incentive dashboards.

Need another proof?

Not fully convinced that tiers preclude per-transaction commission amounts? Let’s suppose that you had some refunds. Your transactions now look like this:

  • Transaction #1                        $50,000
  • Transaction #2                        $25,000
  • Transaction #3                        $30,000
  • Transaction #4                        -$25,000
  • Transaction #5                        $25,000
  • Transaction #6                        -$25,000
  • Transaction #7                        $25,000

Below we’re showing the cumulative total. We are now crossing our quota threshold of 100K multiple times! So what exactly is each transaction’s commission? Of course, we can play the same game as before and re-arrange transactions (like your bank would do) to get various results. So here you have it – yet another proof that tiers means no per-transaction amount.

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What if I don’t use tiers?

If you do not use tiers (nor any other type of rewards triggered by attainment), then great – we can calculate (and show) a per-transaction commission amount! One way to do this is use scoring as a way to calculate each transaction’s commission. Different options are available to calculate a score.

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One option is to use a rules “table” such as the one below. We can calculate the commission based on a point-system, or using revenue / profit multipliers.

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Another option is to use a formula (note: we support much more complex formulas with variables, etc.):

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Regardless, we now have a per-transaction commission we can show on incentive dashboards.

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Finally, we can configure our plans to pay 100% of each rep’s total score.

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In Conclusion

Many organizations expect each sales transaction to have an associated commission amount. In reality, attainment tiers measure performance in aggregate, which means there no longer is a per-transaction commission amount. Simply re-arranging the order of transactions proves this.

Sales organizations must therefore choose between using attainment tiers, and using per-transaction amounts. Customers who require per-transaction amounts must forgo attainment tiers, but have different options available to “score” each transaction and provide a per-transaction commission.

Visit us online to learn more about scoring, attainment tiers, and more!