How to Track Sales Commissions for Businesses

If you pay your sales team commissions, it's important to know how to track sales commissions accurately. Unless you have a very small team and a simple commission structure, keeping track of it all can prove quite daunting. There are several different ways to go about tracking these numbers, but some are much better than others.

Manual Commission Tracking

Manually tracking sales is a free way to track commission, but it's never the best way. This can work for very simple commission structures and a very small sales force, but more complex plans can make commission calculations more difficult. They also increase the likelihood of a calculation error.

Perhaps even more important is the negative impact manual tracking can have on productivity. Naturally, you want your sales team to spend their time working the phones and pounding the pavement — not spending the morning calculating commissions and verifying the accuracy of commission payments.

You don't want to be in a situation where half of the money you spend on advertising is wasted. One way to help prevent this is to keep your sales team focused on the leads your advertising generates rather than tracking their money.

Spreadsheets

Absolutely a step up from pure manual tracking, companies often use spreadsheets to track commissions. There are some benefits to doing so. For one, spreadsheets will calculate commissions for you and your sales team instantaneously. The catch here is accuracy. A spreadsheet can do a lot of the work for you, but only if you program in your commission formula with absolute accuracy.

Accuracy again becomes an issue when sales data gets entered into the sheet. The spreadsheet will do the math, but there isn't anything automatic about the rest of the process. You must still enter sales data by hand, which takes a lot of time and can introduce errors and typos into commission calculations. Mistakes happen, of course, and you can fix errors. But it takes less time to get the job done when you can avoid errors rather than backtracking to find them.

Spreadsheets can also help keep everybody on the same page. When both you and your salespeople work from the same information, it's easier to be transparent about commission reporting and keep everyone in agreement. With manual tracking, every salesperson usually keeps their own records in addition to the commission reports generated by the company. This duplicates work and can lead to a disagreement about exactly how much commission is due. Spreadsheets can solve this problem.

Unfortunately, spreadsheets often aren't scalable as the company grows. At some point, entering sales data for all of your salespeople can become time-consuming as you expand. You also may find that some spreadsheets lack the computing power to handle very complicated commission structures.

Commission Tracking Software

At some point in the past, you've likely watched someone use a butter knife as a screwdriver or bang on a nail with their shoe. Neither of these activities goes well, and the simple reason is that they're not the right tools for the job. The same is true of using spreadsheets to track commission. It might work, but life is far easier when you use a tool that was actually built for the job. In this case, commission tracking software.

The specifics of the program you use will vary from one software to another, but the right commission tracking software is always the best tool for the job. Commission software integrates with other business software packages to automate as much of the sales and commission tracking process as possible. Because commission software tracks the numbers in real-time, the members of your sales team always know where they stand and how close to sales goals they are. This can help them stay focused and motivated.

These software packages can also handle even the most complex commission structures. Some packages will even track invoices for you and automatically generate a commission check to the sales rep when the sales invoice is paid. Many packages can also easily handle situations where commissions are split amongst multiple sales staff.

You may also find your payroll and human resources staff thanking you for getting some commission management software as well. When errors happen and commission checks are incorrect, the employees in these two departments are the most likely to bear the brunt of a salesperson's displeasure. The more accurate your commission tracking system, the less likely these folks are to have to deal with a call from a frustrated sales department.

What to Look For

If you do opt for a software package, you'll want to choose one with the features that you need the most. There are, however, a few basics you should look for. One is easy integration into your current human resources and customer relations management software. If, for example, you currently use Quickbooks to manage your business, look for a commission tracking software that works with that program.

Choose a software that offers flexibility in the commission structure. You want to decide when you pay commissions, how often you pay them, and how they're calculated. Find software that gives you control over the commission plan rather than trying to conform your plan to the software's parameters.

Remember scalability when choosing as well. Hopefully, your business will grow and expand. As it does, you need the ability to add more members to your sales team and track their performance. You may have a small sales team now, but try and opt for commission software that won't need replacing in a year or two. Limited user accounts may save you money now but could cost you in the long run.

Knowing how to track sales commissions is important, and software made to do so can prove very helpful. You may even see your sales increase a bit if the tracking system you use helps keep your salespeople motivated and goal-oriented. Remember though, that commission tracking does not do anything about lead generation. Fortunately, we can help with that so you can keep your sales team happily earning their commission.