Sales commissions must be managed successfully in order to drive the right behaviour from your sales team. However, most companies use spreadsheets to manage their commissions. While it can work well for small teams, as the team grows, running commissions becomes tedious and heavily error-prone. To solve this issue, companies in the hyper-growth phase must automate their commissions to save operational time and effort.
When sales commissions go wrong due to errors in spreadsheets, it can lead to a lot of conflicts between reps and between reps and the operations team. Additionally, reps might get demotivated and close fewer deals or even look for better opportunities in other companies. Losing sales reps can be costlier as hiring is a much more expensive process. Let’s take a deeper look at why sales commissions are important to your business, and how you can make them a reality.
The Importance of Sales Commissions
Sales commissions are important for three main reasons. One, your sales reps need to be highly motivated in a consistent manner to close more deals and contribute to the revenue goals. Commissions work in driving this behaviour because for every deal they close, the reps sense it as a personal victory and they strive to do better. Additionally, commissions encourage healthy competition between reps on who closes more deals. And, the amount you can earn through commissions is exponentially higher than your base pay.
Second, your sales team needs to make a living. Base pay cannot be enough for reps to have a comfortable living. Variable pay gives them an opportunity to decide what kind of a lifestyle they would like to pursue based on the amount they can potentially earn. Sales commissions are an easy way to increase the income of your sales team as well as improve revenue growth. It can be used to incentivise sales reps to work harder and sell more.
Third, sales commissions keep the sales team on their feet and stop them from being too much at ease. It is truly a performance-based show that brings out the best of top-performers and drives moderate and poor performers to strive better. And, to be able to achieve this, you must be punching in the right numbers to drive this behaviour. When reps are happy with their commissions, they tend to perform better and stay with the company for a longer period of time.
However, you don’t want to pay too much! Investing in your reps who will drive more sales is not money wasted as it is much more cost-effective to pay your top performers rather than to hire and onboard more reps. Besides, selling is a skill that definitely needs to be compensated handsomely. Decide whether you want to put a cap on commissions and what the incentive pay percentage will be for each rep based on their role and the kind of business you are running. Here’s an elementary example. Let’s assume that you have four sales reps, with an average commission of $3,000. If you set a sales commission of $1000 per rep, your sales team will receive a total of $4,000.
How to Automate Sales Commissions
Sales commissions aren’t easy to manage manually. So many metrics and components to keep in the equation, errors are bound to happen. And one simple error can cause a huge mishap. Automating your sales commissions is one of the smartest decisions you can make for both your operations team and your sales teams. Operations can spend less time calculating commissions and fixing inevitable errors whereas the sales reps can get real-time visibility on their commissions and a possible forecast of the commissions they can earn. This is a win-win situation where accuracy is ensured whilst the revenue targets are achieved in a much more efficient manner.
The best and simplest way to automate commissions is to get a sales commissions automation software which will do the work for you. In most companies with multiple sales teams, you find the operations teams spending a huge chunk of their time managing commissions. It is a long and arduous process to be done manually. And, at the end of it all, it is not even confirmed that you would arrive at the right numbers. And, the frequency of changes in deals due to clawbacks, changes in deal sizes and so on is very high and it’s hard for ops to keep up. Hence, if you leave it to an automation tool, it saves you a lot of hassle and you can focus on what matters most which is streamlining sales efforts to generate more revenue.