< Back to blog

What is a sales commission management system?

This image shows six people stacking their hands together.

A sales commission management system allows companies to:

  • Track sales data.
  • Calculate commissions.
  • Pay employees accurately and on time.

In this article, we’ll go over what the software is, what it does, and how it can help improve productivity and increase sales.

What is sales commission management?

Sales commission management includes organizing, calculating, and paying out commissions to sales representatives based on implemented incentive and commission plans. 

Companies typically use spreadsheets to calculate sales reps’ commissions when done manually.

But the larger the sales team, the more time it takes from receiving sales data to calculating and then paying commissions.

Common issues with tracking sales commission manually

Without commission tracking software, companies depend on spreadsheets and manual data entry.

There are some common issues companies face when manually tracking sales commissions, such as: 

  • Prone to errors: Manual processes can lead to data-entry errors or mistakes in calculating sales commissions. Spreadsheets aren’t very accurate when calculating complex compensation plans for large teams, and mistakes are often easy to miss.
  • Takes a lot of work: Manually entering sales and commission data is time-consuming because it’s done per person and requires calculations and formulas to be applied. The more employees there are, the more time this process takes when done manually. 
  • Not flexible: A spreadsheet works fine if you have a small sales team and simple commission or incentive programs. However, spreadsheets can’t keep up with larger teams and complex programs as easily.
  • No transparency: There’s no real-time visibility involved in the manual process. Employees only know what they’re getting paid once they see their paycheck. If commissions differ from what they expected, this can lead to lower motivation and internal disputes.
  • No scalability: The point of sales is to grow your business. As your business grows, you need your commission structure and programs to grow with it. There’s only so much a spreadsheet can handle before it gets too complex and costs you extra time and money.

Why automate the sales commission process?

Automating the sales commission process ensures accurate and timely employee work compensation.

On top of that, an automated sales commission system can:

  • Eliminate common errors and double data entry.
  • Reduce time spent on administration.
  • Increase transparency of the commission process.
  • Let you implement various commission structures for individual employees.
  • Increase productivity of finance and sales teams.

With sales commission management software, companies can quickly and accurately track the commission rates of even the most complex commission plan.

When companies accurately pay out employee commissions, it increases trust among the sales and finance teams. In turn, they can instead refocus on increasing efficiency and sales.

What is a sales commission management system?

A sales commission system is management software that helps companies track and manage total sales and employee commissions.

Its primary purpose is to increase sales efficiency through custom reports and sales tracking. 

Let’s look at what a sales commission management system can do:

  • Make incentive programs more flexible and seamlessly add a near-unlimited number of incentive plans and payees. 
  • Track several internal and external payees over various regions or incentive compensation plans.
  • Manage multiple teams and accurately track sales metrics for individual teams.
  • Calculate complex compensation formulas immediately with the sales commission calculation system. 
  • Show detailed audit history and assemble all sales and commission data for effortless compliance.
  • Make commission data visible and easily accessible for employees to see what they’re getting.

Using a sales commission system increases productivity and transparency. In turn, this leads to better performance and more sales. 

When sales reps trust they’re getting paid correctly, they can focus completely on closing deals.

Why do you need a sales commission management system?

You might need a sales commission management system because tracking commissions using a manual process is often prone to errors. 

Problems will likely occur when using outdated systems or manual data entry.

A company could use many different custom compensation plans or incentive programs simultaneously, leading to employees receiving incorrect commissions. 

Commission tracking tools and management systems help companies avoid such errors and improve workplace satisfaction.

Let’s take an in-depth look into why companies could need commission management software.

Build trust in the workplace

When you eliminate errors, visibility increases, and employees trust they’re getting paid correctly, leading to increased trust in the workplace.

But if a sales rep mistrusts that the company will accurately pay them for their hard work, they might do the calculations themselves.

When a sales rep does this, it leads to sales loss and decreased productivity. It also undermines your commission or revenue team’s work and leads to mistrust in the company and unnecessary commission disputes. 

Companies can avoid this by using sales commission management software. Compensation management software is transparent, so sales reps can follow their commission and trust its accuracy. The company also saves money on manually administrating commissions.

Boost employee performance

Sales commission software can motivate sales teams directly by allowing them to monitor their accumulated commission in real-time.

An effective commission platform lets sales reps see what they sold and what that translates to in terms of commission. It even allows employees to see how much they would earn if they reached specific sales goals.

This leads to boosted performance and motivation for the entire team.

Enhance the accuracy of commission payments

A sales commission management system lets administrators easily calculate commission payments while factoring in any incentive and commission plans.

Companies deliver accurate and timely commission payments by accessing real-time data and reporting.

Decrease time-consuming processes through automation

Automation of a commission program eliminates the need for manual commission calculations, saving companies potentially hundreds of hours of work. 

Commission automation allows sales managers and payroll staff to immediately calculate what all employees should be getting. This could depend on flat commission, split commission, multi-tiered plans, or complex commission structures.

How does a sales commission management system work?

A sales commission management system automatically calculates commissions per team member based on sales data and set commission rules. 

Commission management systems include an administrator component and a sales rep or manager component

Admin component

The administrator component makes the administration of commissions easier.

It lets administrators: 

  • Input commission rules and import data from existing accounting or CRM systems into the commission management system.
  • Automatically calculate commissions per payee based on, for example, commission rules and rates (i.e. flat or tiered rates).
  • View and manage commission plans and sales data, and track payees.

Manager and sales rep component

The manager and sales rep component provides visual data that increases the visibility of commission earnings and sales processes. 

On the sales rep side, employees can:

  • View and download sales data from deals credited to the team member.
  • See what payments they can expect, review progress, and check previous statements.
  • Deal with commission disputes by submitting questions and tracking resolutions.

On the manager’s side, they can:

  • Motivate the sales team through things like sales gamification and setting clear goals directly on the platform.
  • Compare data from individual employees, identify commission trends, and review quota attainment.

What are the features of a sales commission management system?

The features of a sales commission management system will vary depending on the software.

However, the best incentive compensation management software should have these key features:

  • Commission calculation: Automatically calculate commission for individual sales reps based on set rules and parameters. 
  • Commission tracking: Track commissions and bonuses with detailed reports on personalized dashboards and monitor whether commission payments meet set commission expectations. 
  • Commission scheduling: Schedule commissions for sales reps and set the frequency of payments. 
  • Incentives: Set rules for incentive payouts and the frequency of such payments.
  • Integration: Integrating existing systems with custom commission tracking systems simplifies commission payouts. It does this by automatically collecting data from those systems and using it to calculate commission. For example, CRM or wholesale distribution systems can both integrate with commission software.

What are the benefits of effective commission management software?

There are a few key benefits of effective commission management software. Those benefits include: 

  1. Eliminate time-consuming data entry: When time-consuming data entry is done instantly through software, it eliminates the need for many employees to spend days or weeks on tedious processes.
  2. Reduce errors: Though Excel spreadsheets can be helpful, it’s difficult to spot mistakes, and there’s more than enough room for human error in commission calculating processes.
  3. Improve transparency: A good commission management system allows employees to see what they’re selling and how much commission they get from their sales. 
  4. Increase sales: When commission software is transparent, sales reps can trust they get what they’re owed. This improves their motivation and leads to increased productivity and sales.

Additionally, commission management software is beneficial because it motivates the sales team by:

  • Providing visibility.
  • Increasing the accuracy of commission statements and payouts.

It also decreases commission processing time, ensuring employee commissions get paid promptly.

Because a commission management solution tracks sales, it also typically includes a sales commission reporting system. This can give the higher-ups detailed insights into sales trends so they can act accordingly.

How to select the best sales commission management system

Selecting the best sales commission system for you requires analyzing pricing, features, and ease of use.

These must meet the requirements of the company’s commission structures and incentive plans. 

  • Pricing: Compare the price to the features you’ll be getting, and consider if it’s worth it. For small businesses with few employees, a budget-friendly or free commission system with only the most needed features will do the job just fine. A more robust solution suits enterprise businesses with large sales teams and complex commission or incentive plans.
  • General features: Commission management software should include commission calculation, tracking, and incentive management.
  • Ease of use: Software worth considering should be user-friendly and intuitive to use – this will help you avoid spending extra time and effort navigating it.
  • Support: The level of support the software offers is essential in case potential problems arise, such as difficulty navigating the software, technical issues, or setup issues. The software provider should offer comprehensive help and support through phone, email, and live chat. 

Questions to ask when choosing a sales commission software

When you’ve narrowed down your options after considering factors like pricing and features, there are some additional questions you could ask.

Some of those questions could be:

  • What are our existing commission plans?
  • What challenges do we face with commission management?
  • What level of automation do we want?
  • How does the software change commission plans, and is there an extra cost for other modules?

Key takeaways

A good sales commission management software will do more than save time. It’s equally beneficial for both operations and sales teams.

Sales reps get a deeper understanding of their commissions and can track their progress, motivating them to perform better. Meanwhile, your operations team gets detailed reporting on sales performance and trends, giving your company valuable insights into sales strategies. 

Your company may need more than just a sales commission system.

If you’re looking for a comprehensive sales and customer solution that can do much more, consider Method:CRM

Method is the leading platform for sales commission management. This comprehensive CRM solution syncs seamlessly with QuickBooks and Xero, allowing you to manage and track all your commissions, sales, and customer data in one place.

Sales commission management system FAQs

How do you keep track of sales commissions?

You can track sales commissions through a commission tracking spreadsheet in Excel or Google Sheets. However, with many employees and complex commission structures, switching to a customizable software solution like CRM will save you time and money.

How do you structure a sales commission plan?

There are various structures for a sales commission plan, such as base salary plus commission, straight or tiered commission, gross margin, and relative or absolute commission. 

What is sales commission software?

Sales commission software is a system or program that automates the administration of commissions and incentive plans based on specific rules like team member roles or sales types. It can also provide employees with data on past salaries or future revenue.

Start your free trial of Method:CRM now!

Image credit: Fauxels via Pexels

Streamline your business with Method

Start your free trial — no credit card, no contract.