Calculating Sales Representative Commissions

Sales commissions represent the amount of money that an individual receives based on the level of sales he or she has obtained. In DEACOM, Sales Assignments define the sales person and their commission percentages for customer sales. The Sales Assignments on Bill-to records are used when creating Ship-to records. Sales Assignments on Ship-to records are used when entering new orders. The Sales Assignments on the Sales Order and the most specific active commission will be used to calculate commissions for those sales order lines that are marked as commissionable. Commission amounts, time periods, and appropriate qualification criteria are defined in the Commissions and Rebates portion of the system.

Sales Reps may have multiple commission rules for which they qualify. The Sales > Commissions / Rebates transaction, discussed on this page, compiles the results of the commission calculations and presents them in a report that is based on the selections chosen on the pre-filter.

Commissions hierarchy

Commissions and Rebates maintenance allows the user to create an almost unlimited number of commission levels. A hierarchy exists of the commission function, which allows users to create precise calculations for the individual Sales Rep and/or Broker.

Ranking level 1

  1. Specific Sales Rep or Broker
  2. All Sales Rep or Brokers

Ranking level 2

  1. Specific Item
  2. Category
  3. All Items

The two levels can be combined but keep in mind that level 1 overrides level 2. For example, the following would be true: a Commission for a specific Sales Rep on all items would override a Commission for all Sales Reps on a specific item.

Configuration

The following items need to be setup before commissions can be added, calculated, and paid:

  • Items, Categories, and Sub-Categories - Commissions are added on either all items, a specific item, a Category or a Sub-category. Therefore, one or more items must exist in the system and each items needs to be assigned to both a Category and Sub-category.
  • Customers - necessary for entering new Sales Orders and used when adding Commissions.
  • Facilities - necessary for entering new Sales Orders and used when adding Commissions.
  • Sales Orders - need to be entered in the system in order to begin using the Commissions that have been added. For process information, refer to Entering Sales Orders.

Process

Setting the Commission defaults

How are defaults set?

Commission payment rules must be defined for the system to understand how to calculate and pay Commissions.

For versions 16.00 and prior, follow the steps below.

  1. Navigate to the Sales 1 tab in System > Options.
  2. Make a selection in the "Commissions" and "Pay Based On" fields.
  3. Click "Save" and "Exit" to commit the changes and close the form.

For versions 16.01 and higher, follow the steps below.

  1. Navigate to the Accounts Receivable tab in Accounting Options.
  2. Make a selection in the "Pay Based On" field.
  3. Click "Save" and "Exit" to commit the changes and close the form.
  4. Navigate to Sales > Maintenance > Commissions and Rebates.
  5. Select the appropriate Commission rule and click the "Modify" button.
  6. Select the appropriate entry in the "Commission Date" field.
  7. Click "Save" and "Exit" to commit the changes and close the form.
  8. Repeat steps 5-7 for all applicable Commission rules.

Understanding the process

What is the high-level process of using Commissions?

  • Step 1: Assign Sales Reps to Customers/Sales Orders.
    • Commissionable individuals in DEACOM include Sales Reps and Brokers.
    • Multiple Sales Reps are allowed on a given record (Customer/Sales Order), but only one Broker is allowed.
    • While Sales Reps may be setup as defaults on Customer records, their Commissions and payouts are driven based on Sales Orders.
  • Step 2: Specify the Commission level and hierarchy rules.
    • This step is only used when one Sales Rep makes a different percentage on one Bill-to versus all other Bill-tos.
    • Rules may be made to create customer- or product-based exceptions.
    • Once one valid Commission rule is found, the system stops looking for others. Therefore, only one rule is used per Sales Order line.
  • Step 3: Calculate the Commissions and Rebates.
    • For a Sales Rep to view their own Commission status, they should have a Sales Rep User Restriction and access to the Sales > Commissions / Rebates function.
    • When running a Commissions / Rebates report, it may be helpful to manually add a percent column to validate the rules are working as desired.
  • Step 4: Pay Commissions and Rebates to the proper individuals.
    • Once one or more Commissions are selected to pay out and a Purchase Order is created for the payment, upon invoicing, the "Commission Expense" account is debited and the "Commission Accrual" account is credited.
    • When reviewing Commissions over a month- or year-end period, users will have to back out Commissions accrued for but not paid. This number should match the amount for all orders in the "Invoiced Not Paid" status.

What are the popular uses for Commissions?

There are a few common uses for Commissions in DEACOM:

  • The "Percent of Dollars" is the most commonly used type of Commission.
  • On another hand, the "Percent of Gross Profit" option can be used to incentivize Sales Reps to sell high profit items.
  • To assist companies with collections and limiting sales to poor customers, system defaults (discussed below) can be set as "Commissions" = "Pay Date" and "Pay Based On" = "Payment Amount".

Managing Commissions

What is the difference between a Rebate and a Commission?

A Rebate is a return of a portion of a purchase price by a seller to a buyer, usually on purchase of a specified quantity, or value, of goods within a specified period. Rebates are given after the payment of the full invoice amount. Commissions represent the amount of money that an individual receives based on the level of sales he or she has obtained. The sales person is provided a certain amount of money in addition to his/her standard salary based on the amount of sales obtained. In DEACOM, Rebates and Commissions use the same form, entitled Edit Commission and Rebate and share many of the same parameters.

How are Commissions added and assigned?

Managing Rebates and Commissions - The Commissions and Rebates section of DEACOM serves two purposes. First, it defines which customers will receive Rebates and which Sales Reps or Brokers will receive Commissions. Second, it sets the Commissions and Rebate amounts, time period, and all appropriate qualification criteria such as sales to specific customers or sales of specific parts. In DEACOM, sales assignments define the sales person and their Commission percentages for customer sales. The sales assignments on the sales order and the most specific Commission and Rebate will be used to calculate Commissions and Rebates.

Using Sales Assignments - Customer records in DEACOM have the option to assign multiple Sales Reps with various percentages which drive Commission payments/calculations. In general, there are two formats for assigning percentages; multiple 100% commissions or split commissions (50/50, 60/40, etc.) which require the total percentages on the Sales Assignments tab to equal 100%.

Using GL Overrides - GL override by Sales Representative is the behavior where sales transactions (like shipping or invoicing Sales Orders) can override the GL code affected, based on the Sales Representative on the transaction. This allows different groups of Sales Representatives, or even every individual Sales Representatives, to use different GL codes for revenue, COGS, and A/R, if desired.

How do Commissions on Freight work?

Using the "Include Freight Cost" flag on the Edit Commission and Rebate form. Alternatively, if freight should not be included in Commission calculations, this flag may be unchecked or the Freight Part itself may have the "Commissionable" flag unchecked. More information is available on the Assigning Rebates and Commissions page.

Managing accruals and payments

How are Commissions accrued for?

Using specific AP Accounts - DEACOM has the ability to accrue commissions, during invoicing, to product-specific commission expense accounts and a general accrual account. In this way, commissions may be accrued based on specific product sales.

How are Commissions paid out?

Using the Calculate Commissions and Rebates form - A report is generated, which details the Commission amounts and supporting calculations. This report can then be printed and Purchase Orders created to pay the Sales Reps.

FAQ & Diagnostic Tips

Tips:

  • Sales order lines are used to determine if a part that is sold will receive a commission, based on the Commissionable flag on the sales order line(or_commable). The Commissionable field on the Item Master(pr_commable) provides the default value when a sales order line for this part is entered. When generating commissions, the system refers to this field instead of the item master.
  • All fields from the Brokers table(dmbrok) as well as the Sales User Name fields (s1_name, s2_name, etc.) are available to the Commissions and Rebates report via Sales > Commissions / Rebates.
  • The "Accrual" field is available to the commissions and rebates reports. This field is calculated as: original order amount * commission rules. The original order amount is the commissionable order amount prior to shipment.