Step 4: Commission Structure

Step 4: Commission Structure

Commission Structure

We have come to an important step in creating commission plan called the commission structure.
Quote
A commission structure is a calculation you formulate to provide commissions for your employees. This is where you determine your commission rates and structure.
A good commission structure translates your business goals, objectives, and areas of focus as commission formulas. It has a big influence on your employees’ performances and their approach. Therefore, it's important to note that your commission structure is a direct determinant to motivate your workforce and pivot your business’ growth.

Let’s say your business is into technology manufacturing. Your portfolio includes ready-to-ship items as well as, configure-to-order solutions. Based on what each of your customers choose, the length of the sales cycle and the efforts put in to persuade these customers vary.

Therefore, for reps that made lengthy or high-ticket sales, you’d offer competitive commissions, while for reps that made predictive sales, you'd offer a standardized commission.

To configure these kinds of flexible commissions, you’d want to understand different commission structures available in the first place.

This document exists to help you take a commission plan from "we've decided who gets paid and when" to "here's exactly how much they get paid, configured in the system."

Specifically, by the end of it, you'll be able to:
  1. Decide how commission scales — pick between a flat, predictable structure or a tiered one that rewards bigger or harder-won deals more.
  2. Decide what's being measured — commission on each individual product sold, or on the size of the whole deal.
  3. Decide what triggers payment — every transaction, or only once a rep hits a target.
Navigating this document:

Types of commission structure  in Zoho Incentives

Incentives for Zoho CRM comes with two commission structures:

  • Flat for predictive or standardized commissionable

  • Tiered for competitive commissioning

Within the tiered structure, you can decide between three calculation methods: Flat, Differential, and Prorated differential methods.

Let’s understand these structures by definition before getting into how they work!

Flat commission structure

Understanding flat commission structure
A flat commission structure is a straightforward calculation that offers their recipients a fixed amount or percentage for the chosen model: line item or total amount.
  1. If you choose flat amount to calculate, then irrespective of the sale amount, the commission would be authorized only for the amount specified.
    Say, for a commission plan based on the total amount,  you determine the commission to be $ 2,000 per sale. Then, even if the sales amount to a $ 10,000 or $100,000, the commission will be a flat amount of $ 2,000 for each sale.

  1. If you choose a flat percentage to calculate, then commission percentage remains the same for all the sale, while the commission value may vary based on the sale value.
    For the same setup, let’s say, you determine the commission percentage to be 10% per sale. If the sale amount is $ 10,000, then at 10% commission , the commission value will be $ 1,000. However, for a sale value of  $1 00,000, then at 10% commission , the commission value becomes $ 10,000.

Irrespective of the efforts put in, flat commission structure offers predictable and standard commissions for your employees. This might not be a competitive remuneration, but for a steady growing business, it is a sustainable setup.


Tiered commission structure

Understanding tiered structures
A tiered commission structure is a performance-based calculation that offers different commission slabs for its recipients based on their accomplishments.

Here’s what a tiered structure would look like:

As you can see, there are four tiers that offer increasing commission values as the transaction value goes up. An employee who knows about this competitive remuneration will be motivated and put forth their best strategies to achieve a win-win.

Calculation methods available for tiered commission structures
Flat, Differential, and Prorated differential

To understand these calculation methods, let’s use a single example and apply these calculations onto them.


🏢 Zylker Tech adopts the following structure in their organization:

There are three tiers for varying accomplishments, each of them offering commission amounts with aggressive differences between the tiers.


Tiered: Flat

The Flat calculation involves offering commission value that directly fall within a tiered bracket.

Adam is a storefront sales rep who recently completed a $25,000 sale. For a retail setup, the sales cycle will be short and Zylker chose the flat calculation for sales reps that do retail sales. Per the tier structure, a sale amount of $25,000 falls in Tier 2, and Adam will be given a flat commission of $ 5,000 for this deal.

Tiered: Differential

The differential method allows a proportional computation of commissions across the tiers structured for your organization. The
proportion is determined by the number of units between the limits in each tier.


Info
Calculation:

  1. The unit difference in the value range in each of the tiers are determined.

  2. The sale value is split into the first tier until that tier is maxed out.

  3. Based on the first split, the resultant value is carried over to the subsequent tier.

  4. As the sale value keeps consuming these tiers, the commission values of each tiers will be apportioned until the last tier that consumes the value totally.


 


Evelyn is a field sales rep tasked with selling made-to-order solutions for enterprises. After pursuing for nine months, she finally converged a deal at $ 120,000. Unlike the retail sales, these kinds of implementations involves a lengthier sales cycle with hard negotiations. So, Zylker has allocated differential structures for sales reps creating enterprise sales.


Idea

Trivia 1:  Because, the deal value ( $ 120,000) consumed all three tiers, the commission values in the three tiers are added up to become $ 17,350. While for the same deal value ($ 120,000), if commissions are computed using flat logic, Evelyn would have gotten only $12,000 as commission, making differential calculation a competitive remuneration.

 

Trivia 2: If we apply differential logic for Adam’s retail example, the deal value consumed only two tiers, making his commission value to be  $5,350 with an increase of $350.

Tiered: Differential Prorated

The Prorated differential calculation method is similar to differential ‘s logic: It measures of sale value consumed across tiers, only the carried over values will be calculated prorated.
 
In other words, the prorated differential method calculates commission for each units consumed in the tier. While differential considers a whole tier’s commission if the value touched up on a tier, the prorated commission considers only the units consumed therefore for the units that were not used up in the tier, the business can save the money.
 
Let’s use Evelyn’s example to understand the prorated differential calculation!
 
The sale value is $120,000


Info

Calculation:

  1. The number of units in the each tier is determined.
  2. The value of each unit is calculated.
    (Formula: Value per unit= commission amount for the tier / number of units in that tier)
  3. The sale value is split based on the units of each tier. After a tier is consumed by the value, the remainder of the value is carried over to the subsequent tiers. This distribution continues until the sale value gets exhausted in one of the advancing tiers.
  4. The Units consumed is determined as percentage to assess the consumption.
    (Formula: Units consumed in % = Units consumed by sale value for a tier/ total number of units available in a tier *100).
  5. The per unit value (from step 2) is used to find out employee’s prorated amount for each tier. (Formula: Employees’ commission per tier = Value per unit * number of units consumed)

Now that we understand the types of commission structures and respective calculation methods, let’s get into the app.


 Configuring Commission Structure 

Until Step 4: Commission Structure

A quick recap to stay in line: 
-  In plan details  (Step 1) , you determined when to compute commissions: Either for each transaction or upon quota attainment, on what basis these computations are to be made: for each line item or total amount.  
-  In the Event section (Step 2) , you chose what triggers  commission computation.
 - And, in the Discrepancy section (Step 3) , you configured clawback criteria and duration if and when there occurred a discrepancy.  

Incentives for Zoho CRM offers quota-based and transaction-based commissioning system. It also lets you choose how you should issue these commissions: Either for each participating line items or for each transaction.

Based on what you choose, how you configure the commission structure, the configuration, and the fields vary.
Let’s look at the configuration setup for combinations one can build. With two plan types and two commission bases, you can have four kinds of commission plans derived:
  1. Transaction type commission plans based on line items
  2. Transaction type commission plans based on total amount
  3. Quota attainment commission plans based on line items
  4. Quota attainment commission plans based on total amount  
While the approach to structure commission vary depends on what the plan is based on: line items or total amount, the commission type will also be a determinant as it will be the base on which commissions are calculated.

For Transaction type commission plans based on line items  

If you are building a commission plan based on line items, it means you are provisioning commissions for each SKU you own and every time these SKUs are used, say, in a quote, the designed commission structure for those SKUs will be applied to the line item.
To get the SKUs carry the desired commission, you need to create a grouping called a Set.
Info

SET 

[Applicable for commission plans built based on line items]

A Set is an aggregation based on product type or vendors, to which common commission structures are applied. These line items when used in a quote, the commission values will be applied to and based on the quantities ordered, the commission will be multiplied.


ℹ: To configure this Set is why you choose the commission for module in Plan Details.

Say you want to offer 6% as commission for each accessories in the quote. A collection of accessories from your offerings can be a grouped as a Set.

Or, you want to accelerate adoption for your homegrown brand and any parts in the quotes can be configured to commission at a higher value.

Once a Set is configured, the next step is furnishing commission structure details for the line item-based commission plan.

Notes

Notes
Limit:
A commission plan can have upto 500 line items grouped as one set or as many sets as required. However, the upper limit for a plan is 500 line items per plan.

How to: Configuring commission structure for plans based on line item


In the Commission Structure Details page, do the following:

  1. Choose the Commission Structure Type: You can choose from Flat or Tiered.

    1. If you have chosen a Flat structure,

      1. Provide the Commission Value Type from the options: Percentage of unit price or Flat amount of each unit.

    2. If you have chosen a Tiered structure,

  1. Further choose the Calculation method from the following options: Flat (Direct), Differential, or Differential Prorate (Prorated differential).
  2. Define the tier in the field: Tier is Based on. You can structure the tier based on amount or on quantities.
    - If you choose based on amount, it will mean for sale for  $1 to $100, you would give $50 as commissions.
    -If you choose based on quantity, it will mean for sale of 1 to 50 units of a product, you would provision $ 50 as commissions.
  3. In the Commission Value Type, you can set the values as flat amount, in percentage of unit price, or Flat amount on each unit.
    ℹ Choosing Flat amount on each unit as a value type will multiply the chosen value based on the quantity of participating item during computation.
  4. In the Tiered Formulas table, provide the tier range and values. 
Business scenario
Zylker Tech assembles and sells tech products. Although they assemble parts of other brands in the market, Zylker also manufactures their own parts. As a means to drive awareness and boost sales of the home grown accessories, Zylker designed a remuneration to reward the rep for every transaction with Zylker products. 

Quote
This is how it would look:

Because they want to apply higher commission values to the Zylker parts, the commission plan needs to based on line items and a Set has to be created.

Now, for each transaction wherever Zylker parts are quoted, the respective agent gets a higher commission value for each line item.

For Transaction type commission plans based on total amount  

For the commission plans based on total amount, the commission will be computed based on the sale value and doesn’t require configuration of the Set and therefore you can configure commission structure right away after completing configuring Discrepancy.

How to: Configuring commission structure for plans based on total amount
For a commission plan based on total amount, the commission structure is applied right away without creating any grouping or any aggregation like the Set. This means that whatever the sale value is, the commission structure, Flat or Tiered, is applied on as percentage or commission value.

On the Commission Structure Details page, do the following:
  1. Choose the Commission Structure Type from the following options: Flat and Tiered.
    If you choose a Flat structure type for a plan based on total amount, then the value can only be in percentage.
  2. Choose the Commission Value Type as Percentage of total amount.
  3. In the Commission Value field, provide the percentage of commission you’d like to provide.
  4. If you choose a Tiered structure for a plan based on the total amount, then you should chose the calculation method. Because this plan itself is based on total amount, the tier range will be between two amount values and the commission value for each of them can either be percentage of the total amount or flat amount.
    ℹ Contrary from the Flat structure, the value can be in percentage or amount, as tiers start from 0 and the possibility of commissioning for a sale value at 0 is also zero.
  5. Choose the Calculation Method from the following options: Flat, Differential, or Prorated Differential.
  6. Choose on what bases the tier is based on in the Tier is Based on field. When it comes to plans based on total amount, the tier range is always between two amounts, by default.
  7. Choose the Commission Value type to be a Flat Amount or Percentage of total amount.
  8. In the ensuing tier table named Tiered Formulas, provide the tier ranges and the respective commission values for each tier.
Notes
Limit:
  1. You can configure up to four tiers for a commission plan.
  2. The lowest limit of the tier is set as 0 by default and require an exhaustive maximum upper limit to define the tiers.

Business Scenario
Enterprise revenue leaders work hard to bring big money into the business through each transaction. To reward them accordingly , Zylker provisions commissions for the total amount of each transaction they make. So, unlike the line item based provision, the commission value is applied to the total value of each transaction, bringing the focus to the larger picture: increased revenue.

For Quota attainment commission plans based on line items  

For the commission plan that is built on quota attainment for line items, the commission is provisioned based on the meeting of the quota limits, irrespective of quota being value-based or volume-based and the commission is applied for each line items upon meeting the quota.

Because this plan is based on Line items, you need to configure “Sets”. The next step is to configure the commission structure details.
How to: Configuring commission structure for quota attainment plans based on line item

On the Commission Structure Details page, do the following:
  1. Choose the desired value for the field Quota target based on: Item amount (value) or Item quantity (volume).
  2. If the quota target is based on Item amount, then it implies the commission shall be provisioned when the specified amount is attained. Choose the value for the Quota Target.
  3. Choose the Commission Structure type from the options: Flat and Tiered.
    1. If you have chosen Flat structure, provide Commission Value Type. For a Quota target based on Item Amount, the value can be computed only as percentage. Choose the Commission value Type to be Percentage of quota accrued.
    2. Provide the Commission Value in percentage.|
    3. If you have chosen Tiered structure, then choose how the tier range should be. In context of quota attained target being amount, then the tier will be based on Percentage and the value can either be percentage of quota accrued or a flat amount. In the Commission Value Type, choose the value type from the following options: Percentage of quota accrued or Flat amount.
    4. In the Tiered Formula, provide the tier range and values.

Business scenario
Business Scenario:
The market Zylker thrives is very competitive and to encourage the sales of their household products,  Zylker has a plan for retail sales reps that offers commission for each line items upon meeting the plan schedule 

If by the plan duration, the agent have attained the target and exceeded, the commissions will be computed including the prorated period and if the agents fail to meet the target within the plan duration, the commission will be issued only for what they met.

For quota attainment plans based on Total amount 

A plan based on quota attainment for total amount means, the employee will get commission if they attain the revenue determined as a target.

Here, the plan is already based on total amount and determining the bases for quota attainment is not required.  You, right away provide the desired quota value that makes the rep eligible for the commission and how to calculate them.
 
How to: Configuring commission structure for quota attainment plans based on total amount

On the Commission Structure Details page:
  1. Choose Total Amount in the Quota Target based on field.
  2. Specify the Quota Target in numbers. (Example $50,000)
  3. In the Commission Structure Type, choose from Flat or Tiered.
    1. If you have chosen Flat,  then in the Commission Value Type field, choose Percentage of Quota accrued.
    2. In the ensuing Commission Value field, enter the desired commission percentage as value.
    3. If you have chosen Tiered, then do the following:
      1. Choose Quota Attained Percentage in the Tier is Based on field.
      2. In the ensuing Commission value type, choose between the options: Percentage of quota accrued, Flat Amount.
      3. In the Tiered Formulas,  specify the tier range and the respective Commission Values for each Tiers you would like.

Business scenario

High-ticket reps  often expects a competitive incentive plans and Zylker devised a plan that is based on quota attainment and total amount. This means that for every target attainment, the defined commissions will be generated



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