Sales commission calculation becomes very challenging as companies grow in terms of their sales force and develop various sales incentives. The basis of commission may be related to revenue, number of products sold, profits, number of customers acquired, or individual performance. Manual computation of commissions becomes very prone to inaccuracies, delays, and disputes with employees.

SAP Incentive Management assists companies to streamline this challenging task through automated computation of commissions based on sales transactions and pre-set calculation procedures. Knowing how this works enables companies to have more accurate commissions paid and better sales performance.

What is SAP Incentive Management?

SAP Incentive Management is an advanced solution for managing the sales performance and compensation of an organisation. This software helps the company design, manage, calculate and track the sales incentive programs.

There is no need to use spreadsheets or calculate manually when it comes to processing the sales data based on the compensation policy of the company. The system can also help salespeople and managers get more insight into the commissions, goals and payment.

The system allows using different types of compensation such as fixed commission, incentive percentage, tiers, bonuses, and other payment types.

What Is the Commission Calculations in SAP Incentive Management?

SAP commission calculation includes several consecutive steps. All these steps ensure the correct recording of sales transactions, application of the compensation rules and payment validation.

1. Collection and Importing of Sales Transaction Data

The first step in the SAP commission calculation process is the collection of sales transaction data. It is important to pay special attention to the accuracy of the data as it will be used further in calculating commissions.

SAP Incentive Management can operate with the data from such business applications as CRM, ERP, billing and others.

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The data include:

• Values of sales orders and completed sales transactions.
• Product/services sold by sales reps.
• Customer and account ownership data.
• Invoices values and revenue figures.
• Dates of the sales transactions, territories and transaction status.
• Reversals, cancellations and adjustments.

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For example, when the sales representative makes a sale for the sum of $20,000, the data about the transaction will be imported to the commission management software and will be used in calculating the commissions.

It is important to collect correct transaction records in order to avoid miscalculations in commissions.

2. Applying the Compensation Rules and Incentives Plans

After the transactional data are collected, the system applies the compensation rules that have been set by the organisation.

Compensation rules define the level of commission that employees earn as well as the conditions for receiving payments.

Organisations may formulate various incentive schemes considering the job position, sales target, geographical location, products and objectives of the business.

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Examples of such schemes include:

• Percentage commissions: The employee gets a specified percentage of the eligible sales.
• Tiered commissions: As the sales increase, the commission rate increases as well.
• Targeted incentives: Incentives are given to the employees who achieve certain sales targets.
• Product-based incentives: Each product/service has its own commission rates.
• Team-based incentives: Calculation of reward depends on team performance.
• Bonus payments: Bonus payments depending on the achievement of business goals.

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For instance, an organisation can give a 5% commission on the eligible sales up to $50,000 and a higher commission rate after meeting the target.

3. Calculation of the Commission Amount

After transaction data and incentive plan rules have been provided, the calculation module starts working with this information.

At this point, there is a link made between individual sales activity and incentive plans. The calculation module takes into account all the eligible transactions, the commission rates, performance targets and calculates the commission amount for each individual sales representative.

Incentive payout calculations can also take into account cancellation amounts, return amounts, commission splits, joint accounts, and other compensation elements.

For instance, if one of the sales representatives earns $30,000 worth of eligible sales and the commission rate is 5%, then the commission amount will be $1,500.

This task is greatly simplified in organizations with thousands of transactions and many incentive plans.

4. Checking the Calculations of Commissions and Solving Problems

When the computations are completed, managers and compensation administrators analyze the computations before releasing the payments.

This is useful for firms to find out any errors, strange amounts of commissions, no information, or any discrepancy between the sales transactions and compensation policy.

The following are some important reviews that can be done:

• Checking the computation of commissions against sales transactions.
• Reviewing the performance of employees and their goals.
• Confirming the corrections and the eligibility for payment.
• Checking out on disagreements and any weird calculation.
• Correcting any errors and recomputing where necessary.
• Sales personnel may as well check out their incomes and the computation of commissions.

5. Approving and Paying Out Incentives

This last step entails verification of the computed commissions and generating payments.

After the approval process is completed, the computed commissions can then be presented to the payroll/financial systems for payment processing depending on how the company has integrated its approval processes.

Management can make use of commission reports to gauge the effectiveness of incentives in driving business results.

Advantages of Automation in the Calculation of Sales Commission

Among the sales commission management solutions which provide many benefits there is SAP Incentive Management:

• Accuracy: Automation ensures the reduction of errors in calculations using spreadsheet documents.
• Efficiency: With automation, it is possible to process a large amount of sales transactions.
• Transparency: It is easier for the employees to understand how they make money.
• Different commissions systems: It is easier to manage various commissions for various departments.
• Sales targets and commissions: Managers can track their sales targets and commissions.
• Making decisions: Reports have all the needed information on sales and commissions.

Conclusion

With incentive management from SAP, the entire process of commission calculation becomes simple by combining transactions, compensations, automatic calculation and payments in one seamless stream. It helps organisations improve the process of calculation, maintain transparency in compensations and manage incentives efficiently as their sales operations increase.

Those who are interested in studying compensation and sales commission, studying about the tool will be beneficial for them.

Prompt Edify offers you the chance to undergo SAP training to learn more about enterprise application and business processes. Learn more about SAP Incentive Management course.