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A study indicates that organizations risk losing up to 30%1 of their sales opportunities to competitors. It highlights the importance of evaluating the sales process and metrics. With appropriate tools, an organization can increase its sales quota attainment by 20% and establish a streamlined, accurate sales process.
Such an occurrence was demonstrated by one of the leading CNC manufacturers2 worldwide that easily changed the sales trajectory and scaled rapidly. With a large team spread across more than 32 sales and service locations worldwide, this company faced challenges in automating commissions.
Their primary goals were to empower their sales representatives with easy access to their incentive data, significantly reduce the time spent calculating commissions, and eliminate the manual workload previously handled by the sales manager.
They integrated Compass3, a sales commission management software. Compass offered features such as program workflows, automated rule engines, approval processes, leaderboards, scorecards, and a mobile app for real-time performance tracking. The organization got real-time visibility to incentive calculation.
It also ensured payout accuracy, removed the dependency on the sales managerial team to manually handle the commission process, and relied on the commission sales calculation to automate the procedure end-to-end. As a result, quota attainment rose 20% in under 90 days, with program participation increasing 22% and platform adoption reaching 73%.
Since fair compensation is crucial to motivate salespeople, a commission sales calculator becomes a significant tool. Therefore, this blog will explore important aspects of sales commission calculators to help you understand their usefulness.
What is a commission sales calculator?
A commission sales calculator is a tool that helps calculate the amount of money a salesperson earns based on their sales performance. It typically involves entering the sales amount and the commission rate, and the calculator provides the commission earned. A commission sales calculator can help an organization maintain:
- Accuracy. The sales commission calculator ensures the correct calculation of commissions to avoid manual errors.
- Efficiency as it saves time by automating calculations. As a result, it allows salespeople to focus on selling.
- Transparency because such a tool provides clear and immediate information about potential earnings.
Let's go through a statistical study of sales tech to understand how such a tool in your addition to the tech stack can shape the business outcome.
- According to a McKinsey study, 80% of chief sales officers have opined that having an effective sales tech stack is crucial to smashing revenue targets.
- The same study revealed that 80% of sales leaders believe analytical and quantitative skills are among the top cap.
- Another McKinsey study revealed that B2B players that employ omnichannel sales teams; advanced sales technology, automation, and data analytics record 10% market share growth.
- The same study suggests that over 30% of tasks and processes within the sales cycle can be automated to some degree. This includes activities ranging from commission sales calculation, planning, and lead management to generating quotes.
- It also revealed that automation increases revenue and leads to cost-to-serve reductions of up to 20% each, while also fostering customer and employee satisfaction.
While many sales tasks can be automated, not all efforts are equally successful. Leading companies focus on automating specific areas like lead management, contract drafting, incentive generation using a commission sales calculator, and sales commission planning.
Advanced technology can automate many time-consuming sales tasks to free up salespeople to focus on more valuable activities. This can lead to increased revenue, lower costs, and greater satisfaction for both customers and employees.
This freed up valuable time for their sales force so that they could focus on building relationships and providing exceptional customer service. They established consistent pricing practices, especially important during a period of volatile supply chains.
This system delivered significant benefits. Quote turnaround times were reduced by roughly 50%. Moreover, it generated cross-selling opportunities by providing readily available information on complementary products.
Although implementing an internal system can be a significant investment, generating quotes can also be achieved using Compass calculators. Compass simplifies calculations for pricing, revenue projections, commissions, incentives, and bonuses.
They even identify the most effective discounts for any given situation. These calculators offer valuable insights to improve sales strategies, regardless of your experience level.
Let us go through how a commission sales calculator can help sales representatives.
How does the commission sales calculator help the sales reps?
Commission sales calculators are digital tools that can significantly benefit salespeople in several ways.
So, this company wanted to link its sales compensation plans directly to company objectives to empower its sales team, recognizing that customer satisfaction is of utmost importance for company growth.
Their goal was to align compensation with strategy and get real-time performance visibility. Sales teams need clear data on progress and earnings and incentivize the agent.
They integrated an all-rounder commission sales calculator that not only a single commission plan framework to be deployed across all divisions but also delivers a forecasting report.
Through actionable reporting and an effective calculating engine as a sales commission calculator, this company retained 70,000 more customers year-over-year, and an annual revenue increase of $28.1 million.
Taking this as an example, the commission sales calculator can help your sales representatives:
- Understand earnings potential: Sales reps, very similar to how the representatives of the telecommunication company, can easily calculate their potential commission on each sale, giving them a clear picture of their earning potential for different sales scenarios.
- Track progress towards goals: These sales commission calculators allow reps, and sales managers to track their progress toward sales quotas and commission targets in real time. This helps them stay focused and motivated throughout the sales cycle.
- Make informed decisions: With quick commission calculations, reps can make informed decisions about sales strategies and prioritize their efforts toward deals with higher potential payouts. The telecommunication company focused on automating the calculation and streamlining sales incentives that led them to make informed decisions.
- Maintain transparency and trust: Commission calculators can foster transparency and trust between salespeople and their employers by providing clear and consistent commission calculations.
How to calculate the commission rate?
Calculating the commission rate can be done in three simple steps.
- Identify the commission rate: This refers to the percentage of the sales price that the salesperson earns in their respective workplace. It can be a fixed rate or vary depending on factors like the product sold or the total sales volume achieved.
- Determine the sales amount: This refers to the total value of the goods or services sold by the salesperson during the commission period (eg: month, or a quarter).
- Calculate the commission amount: Multiply the commission rate (as a decimal) by the sales amount.
Commission = 0.10 (commission rate) * $1,000 (sales amount) = $100
What is the way to calculate different commission structures with formula?
To calculate different commission structures, follow these steps:
Commission-only structure: Salespeople earn income solely based on their sales performance. The sales force gets a percentage of the value of each sale they close.
Sale price x commission percentage.
Calculate the commission by multiplying the sale price by the commission percentage. One commission rate example is, if a salesperson earns 2% commission on a $500,000 sale, the commission is: 500,000×2%=10,000
Base salary plus commission structure: This structure combines a fixed base salary with a commission component. The base salary provides a guaranteed income, while the commission allows salespeople to earn additional income based on their sales performance. This approach offers a balance between stability and earning potential.
Base salary + (sale price x commission)
Calculate the commission by multiplying the sale price by the commission percentage and adding the base salary. One commission rate example is, if a salesperson has a base salary of $100 and earns 2% commission on a $25,000 sale, the total compensation is: 100+25,000×2%= 600
Tiered commission structure: This structure offers salespeople a commission rate that increases as they reach higher sales goals.
If one product is sold: base salary + n × price × commission percentage
If more than one product is sold: base salary + (n1 × price1 + n2 × price2 + ...) × commission percentage
NB: n stands for the number of products sold.
Calculate the commission by summing the products of the tier ranges and their corresponding commission percentages. One commission rate example is, if a salesperson earns 3% on sales up to $20,000, 5% on sales between $20,000 and $25,000, and 10% on sales above $25,000, the commission on a $27,000 sale is:
20,000×3%+(25,000−20,000) × 5%+(27,000−25,000) × 10%=1,050
These formulas can be used to calculate the commissions for different sales scenarios based on the commission structure.
Conclusion
A clear understanding of how commissions are earned can motivate salespeople to focus on specific goals and maximize their earnings potential. The commission sales calculator allows them to easily track progress and estimate their potential income.
However, manual commission calculations using spreadsheets can be complex and error-prone. So, an automated sales commission calculator provided by Compass can ensure accurate calculations every time, save time, and help you avoid disputes over compensation. With Compass, you can:
- Automate the commission calculation. You can easily set up complex commission structures and automatically calculate commissions for their sales teams.
- Get real-time visibility into their commission earnings and performance metrics.
- Integrate with existing sales and financial systems to facilitate a smooth flow of data and reduce manual data entry.
Compass is designed to adapt to changing sales structures, team sizes, and compensation plans. So, schedule a demo call with our specialist to know how Compass can easily manage commissions as their organization evolves.
Citations
1. HubSpot. (n.d.). The Ultimate Guide to Sales Metrics: What They Are & Why They’re Important. HubSpot. https://blog.hubspot.com/sales/sales-metrics
2. Compass. (n.d.). Asia’s largest CNC manufacturers drive trust and transparency. Retrieved July 18, 2024, from https://www.getcompass.ai/case-study/asias-largest-cnc-manufacturers-drives-trust-and-transparency
3. Compass AI. (n.d.). Sales Commission Automation Platform | ComPass. https://www.getcompass.ai/
