The objective of every Sales Commission Plan is to give you a straightforward way to incentivise and reward your salespeople based on their performance. There are various approaches out there and DINAMIS will gradually provide the ones that have proven their value in real life. In this beta version, we provide a very flexible SCP that calculates commissions for all the network nodes, based on their performance and sales magnitude, or more specifically based on the:

  • Overall Performance Indicator (OPI),

  • Sales credits,

weighted by the gravities of your choice.

It is a relative SCP in the sense that the calculated commission for each node, is relevant not only to its OPI and sales credits, but also on the OPI and sales credits of all the other sales nodes in the same hierarchy level. This approach has its pros and cons as opposed to an absolute SCP, which is more straightforward but much less flexible. We have a few notes on that at the end of this section.

This relative SCP is very easy to use, so let us demonstrate how it works through the following example, where we assume a three-level network hierarchy:

Hierarchy Level Headcount
Network Director 1
Area managers 5
Sales reps 20

Network specifics

The first thing you should do is to set a commission range for the entire network and under which conditions it will be rewarded. In the simplest of ways:

Minimum commission Required
OPI
Maximum commission Required
OPI
$ 70,000 80% $ 170,000 120%

This means that the network OPI must reach at least 80%, for the beneficiaries of all hierarchy levels to be rewarded a total amount of $ 70,000. On the other hand, the maximum of $ 170,000 will be allocated, only if the OPI reaches 120%. For intermediate cases, a simple method of three is applied.

We assume for the moment that our exercise takes place by the end of the year, where we consider an annual OPI of 96% resulting in a $ 110,000 commission.

Allocation per hierarchy level

The second thing that you must set, is how the network commission will split at hierarchy levels. It is completely up to you to determine the commission share for each level and you should consider the base salary of each level, its responsibilities and of course, its headcount. For our example, we choose the following arbitrary percentages to allocate the $ 110,000:

Hierarchy Level Level
share
(%)
Level
commission
Commission
per head
(if all succeed)
Network Director 15 16,500 16,500
Area managers 25 27,500 5,500
Sales reps 60 66,000 3,300
  100 110,000  

Allocation per sales rep

We have the commission per hierarchy level, so the next task is to allocate the commission within each level. You just need to set the following three parameters for each level:

  • Minimum OPI: Normally this should match the minimum network OPI (80% in our example) but you the have option to set a discrete figure for each level (e.g. maybe you want your Network Director to be rewarded only if the network hits a 90% OPI).
  • Maximum commission (optional): If not set, this could result (depending on the figures), to someone getting a $ 3 commission. You wouldn’t want that, so set a reasonable amount.
  • Maximum commission (optional): The same is true for the upper end. Are you sure you have set the quotas right, or someone has reached a 500% OPI, effortlessly? Protect yourselves by also setting a reasonable amount.

To illustrate the above for our five Area Managers, we set their minimum OPI at 95% but we don’t set the optional parameters. Based on that, we get three Area Managers to be rewarded with a commission:

Area Manager

Credits

OPI

Beneficiary

John

Quotas

10,000

105.00%

YES

Sales

10,500

Ava

Quotas

16,000

90.63%

 

Sales

14,500

Emily

Quotas

105,000

98.10%

YES

Sales

103,000

George

Quotas

16,000

96.88%

YES

Sales

15,500

Jacob

Quotas

24,000

83.75%

 

Sales

20,100

NETWORK

Quotas

171,000

95.67%

 

Sales

163,600

It is time to calculate the actual commission per Area Manager. The logical thing to do is to calculate the commissions based only the performance (OPI) of each Area Manager, as opposed to how all the other Area Managers have performed (remember, this is a relative SCP). To achieve this, we calculate:

  • Column A: The deviation of each beneficiary Area Manager’s OPI from the minimum OPI (95% in our example)
  • Column B: The ratio of this deviation to the sum of the deviations

In simple words, for our three beneficiaries, the sum of their deviations equals 14.97%. John’s share in this sum is 66.80%, so John will be rewarded with the 66.80% of the commission for all the Area Managers. Ha has performed much better, as far as OPI is concerned.

Area Manager

Credits

Overall
performance

Beneficiary

A.
OPI deviation from
min OPI

B.
Deviation
share
(deviation
over
sum of deviations)

Commission
($)

John

Quotas

10,000

105.00%

YES

10.00%

66.80%

11,022

Sales

10,500

Ava

Quotas

16,000

90.63%

 

 

 

 

Sales

14,500

Emily

Quotas

105,000

98.10%

YES

3.10%

20.68%

3,412

Sales

103,000

George

Quotas

16,000

96.88%

YES

1.88%

12.52%

2,067

Sales

15,500

Jacob

Quotas

24,000

83.75%

 

 

 

 

Sales

20,100

NETWORK

Quotas

171,000

95.67%

 

(sum)

14.97%

(sum)

100.00%

(sum)

16,500

Sales

163,600

 

In this example, we haven’t set any minimum or maximum commissions. If the $ 11,022 rewarded to John seem a lot, you could easily do set a maximum commission.

Look however at Emily’s figures. Her sales credits account for almost the 62% of the entire network but she’s only been rewarded with a $ 3,412 commission. Compare that to John’s figures and commission. If you are 100% confident that you have set the proper quotas to each Area Manager, then there is really nothing that you should change. John deserves a much higher commission, because he did perform better. This is rarely the case however, so if you have any doubts, then we strongly suggest that you use our safe mechanism, where the commissions are not calculated solely based on the OPI but also on the sales credits. Similarly:

  • Column C: The percentage of each Area Manager’s sales credits in relation to the network’s sales credits
  • Column D: The ratio of this percentage to the sum of the percentages

 

 

 

 

OPI
(60%)

Sales
credits
(40%)

 

Area Manager

Credits

Overall
performance

Beneficiary

A.
OPI deviation from
min OPI

B.
OPI
factor
(deviation
over
sum of deviations)

C.
Percentage of sales credits

over
network credits

D.
Sales Credits
factor
(percentage
over
sum of percentages)

Commission
share
(B*40% + D*60%)

Commission
($)

John

Quotas

10,000

105.00%

YES

10.00%

66.80%

6.42%

8.14%

43.34%

7,150

Sales

10,500

Ava

Quotas

16,000

90.63%

 

 

 

 

 

 

 

Sales

14,500

Emily

Quotas

105,000

98.10%

YES

3.10%

20.68%

62.96%

79.84%

44.34%

7,317

Sales

103,000

George

Quotas

16,000

96.88%

YES

1.88%

12.52%

9.47%

12.02%

12.32%

2,033

Sales

15,500

Jacob

Quotas

24,000

83.75%

 

 

 

 

 

 

 

Sales

20,100

NETWORK

Quotas

171,000

95.67%

 

(sum)

14.97%

(sum)

100.00%

(sum)

78.85%

(sum)

100.00%

(sum)

100.00%

(sum)

16,500

Sales

163,600

 

You weigh these two factors as you wish to calculate the final commission. In our example we have chosen a 60% – 40% ratio in favour of the OPI factor. Compare how John’s and Emily’s commissions have changed. Where you to favour even more the sales credits factor, you would have been rewarding a much greater commission to Emily, resembling in what an absolute SCP would do (she sells the most, she gets the most).

Let’s sum up

  • The Sales Commission Plan described above is a relative plan, in the sense that the commissions are calculated based on the comparison of each network node to the other nodes in the same hierarchy level. This acts as a safe mechanism. You can’t always predict how the market and your network will perform, so the commissions are calculated based on how everyone has performed. This however presents a drawback: your salespeople cannot know how much they will be rewarded eventually. You can provide them with monthly snapshots, but the actual figures will be known after the targeting period has ended.
  • The provided SCP is very flexible:
    • You initially set the prerequisites for when and how much an overall network commission will be rewarded.
    • You freely distribute this overall commission to the hierarchy levels
    • You set discrete parameters per hierarchy level, that determine the number of beneficiaries
    • You adjust the weights that calculate the commissions based on the performance (OPI) and magnitude (sales credits) of the sales nodes. This is probably the strongest point of this plan because it adopts the plan to your strategy and know-how:
      • Are you very confident about your Quota Allocation Models? Maximize the OPI gravity.
      • Are you at the early steps of building QAMs or you just set quotas by hand? Play safe and reward those that bring you the highest revenue (seen via the sales credits).
      • As a safety net however, we always suggest that you do set a minimum percentage to the sales credits factor.
    • The SCP included in this beta version of DINAMIS assumes that the commissions will be rewarded by the end of the year. Any time however that you feel ready to start communicating your plan to your network, just select to embed it in the sales report. Even if the year has not ended, DINAMIS will project the OPI based on the number of remaining months.
    • Very soon, DINAMIS will be complemented with:
      • A version of this SCP that rewards commissions on a quarter basis by using hold back payments
      • A straightforward absolute (not relative) SCP that calculates commissions only with the use of the sales credits

And as with every feature of DINAMIS, we expect your feedback with impatience. Tells us what troubles you and what you’d like to see in the next version.