June 25, 2021 Companies establish different types of seller quotas for minimum performance expected from them to earn their commission. These performance metrics or commissionable events could be transaction-based, activity-based, volume-based, cost-based, objective-based, etc. Crediting is an attribution process where these commissionable events are assigned to the seller and used as input to calculate a seller’s commissions. When a seller is credited with these events this person (or his/her team) is recognized as a stakeholder for the sale.In an incentive system where sales quotas are performance metrics based, credits allow tracking of the commissionable events towards their performance metrics for a specific period. Before calculating attainment and commission pay-out, the amount of credits needs to be determined precisely.
Types of Credit
Direct Credit – The payee or team is directly assigned to the compensation event, usually by a unique ID. This could be assigned directly to a payee or to a title that is then mapped to a payee.
Roll-up Credit – Determined via hierarchy where the direct seller’s credits roll up to their manager or next level up in the hierarchy.
Overlay Credit – A specific mapping is provided between another role and to the direct seller building a special allocation rule for the credit from seller to this person or role.
Territory Credit – A territory is defined using attributes like geography or account or revenue or size of organization etc. This territory is then mapped to a seller or a group of sellers. Any sales in that specific territory are then attributed to the seller or group of sellers mapped to that territory specifically.
Team Credit – In this scenario, a team is established. The individual members of this team to the overall quota set for the team but the team members are credited fully or partially on the pooled performance of the team.
Ensuring the sellers are credited accurately is the most important aspect of compensation calculation as it is the identification of eligible commissionable events that drive the compensation calculation. These could be direct transactions or activities like demos or calls or qualitative objectives like feedback scores. If the commissionable events fall outside an incentive plans or commission period, they should not be taken into consideration for that period unless otherwise specified by the business.
The concept of sales crediting refers to the process of determining who gets credit for a certain commissionable event. In the context of a sales organization, an instance would be, after an order is booked, the sales representative who sold the order gets credit for the sale. In some cases, this is a very straightforward process. But, in a complex organization, this is not such a straightforward process. Generally, there are many stakeholders who could be associated with the order booked by the seller. The stakeholders or team may consist of Field Reps, Inside Sales Reps, Sales Managers, Account Executives, Product Specialists, Project Leaders, etc.
Now the question is, how much credit should get each one of them in the team? Credit rules or business rules calculate the number of credits that will be credited to all these stakeholders and their hierarchy with respect to the appropriate allocation.
In the incentive compensation process, it is important that the qualifying event be mapped to a seller directly or a territory that is then mapped to a seller or as the title which is mapped to the seller. To illustrate with an example, let’s discuss a scenario where a sales representative closes an order of $100,000.00.
The crediting rules specify that the sales representative gets 50% credit so of the total sales his revenue allocation is $50,000.00.
His manager gets 20% credit so he is credited for $20,000.00 of the revenue earned.
The inside sales representatives who supported the seller get 20% credit so they are credited for $20,000.00 of the revenue earned and the account manager for that customer is credited for 10% of the sale which is $10,000.00.
As we start to validate or confirm the implementation of a compensation system, the first step is to ensure that the commissionable transaction is loaded into the system. The second step is to validate that all four sellers are credited for that transaction as per planned percentage or split.
This is just an example of how organizations can validate or test their new implementations starting with data and then moving to credit before focusing on attainment, earnings, or pay-out validation.