Commissions
Commissions are one aspect of business practice that vary widely from company to company. They certainly don't follow any 80/20 rule where 80% of dealers use the same methodology. At best, one could possibly argue that 50% of dealers pay simply on either gross sales or profit. Commissions could potentially be based on many different factors such as varying rates by product group, individual item settings (exclusions, etc.), delivery, splitting commissions between assigned/job sales people, method of payment, payment time frames, sliding scales, tracking of paid vs. not paid commissions, reductions for statement discounts, and other factors.
Having all these options might seem nice; however, it's important to remember that beyond just the development concerns, the greater the number of factors you choose to involve in commissions, the more maintenance for your company, and the more difficult it makes proving or justifying a particular commission to a sales person. In our past experience with commissions and previous software products, having too much flexibility leads to confusion. Often, the burden of proving why/how a commission was calculated falls on our support and training staff. Due to the complexity of the calculations and different factors to consider, doing so can take many hours if not days of research. Computers are great for processing complex tasks efficiently; however, when it's necessary for those same "complex" operations to be easily understood and manually verified, the simpler the better.
Given these factors, we have made some limited changes to Commissions functionality with release 9 (January 2014) in order to meet more of our customer's needs; while at the same time, keeping as much flexibility, consistency, and simplicity as possible.
Existing Functionality
Prior to release 9, commissions settings in the software were limited to a selection of fields in the User Maintenance form. Although these fields were maintained for the user, they were not actually used for any operations in the software. No reporting or inquiries (other than overall sales by user, etc.) were provided specific to Commissions, so companies had to rely on Crystal Reports or other methods. Existing settings are still available and being used along with the new features. The following is a short description of these existing settings found on the User Maintenance form.
Paid Commissions
A check box field on the User Maintenance form that indicates whether or not the user is eligible for commissions. Other commission related fields remain read-only (disabled) unless this box is checked.
Commissions Basis (Gross Sales vs. Gross Profit)
Two radio button fields indicate whether the commission for the user is calculated based on the gross sale amount (less sales tax) or the gross profit amount (subtotal less the total cost of the goods sold).
Assigned Account User Percentage
The percentage used to calculate the user's commission amount when they are assigned to the account or job linked with a transaction.
Order Entry User Percentage
The percentage used to calculate the user's commission amount when they are the order user assigned to a transaction (this would be the user who created the customer order being invoiced).
Cashier User Percentage
The percentage used to calculate the user's commission amount when they are the "cashier" who processed the Point of Sale transaction (the cashier is always the user who is logged in).
New Functionality
We've added some new optional functionality which may be used by your company for commissions. These includes the following:
This allows ability to establish a "sliding scale" based on profit margin. Each level of the scale you define, consists of a lower and upper margin value and a percentage amount that determines how much of the commission calculated based on the user's rate (for assigned, order entry, and/or cashier) that the user will received. Your company creates one or more commission "codes" to which each scale is associated. Each user may be assigned to one code; however, you can assign the same code to as many users as necessary. If you like, each user with commissions could have their own individual code.
For example, you could decide that you will pay only 50% of the calculated commission when the margin on a sale is below 15%. The scale can be used to either decrease or increase the commission paid based on margins.
For each Commission Code, you also have the ability to define an adjustment scale based upon the payment status of the invoice. The time frame for payment is solely based on the "paid date" (not set in all cases) of the invoice compared to the entry date. If the "not paid" aging scale is defined, it allows your company to adjust the commission based on the period between invoicing and payment in certain cases.
Paid Date only applies to charge invoices for open-item customers, Installed Sales, and C.O.D. invoices. Installed Sales are marked "paid" as of the date they are marked "completed" which is when installed sales invoices are generated and not necessarily the same date as when they were fully paid. C.O.D. sales are marked paid once payment has been applied. Open-item invoices are marked paid when credits or payments are applied to the item via Posting. All other sales (invoices) would be considered paid at time of processing. Balances, receivable/account settings, and the relative billing cycle of the invoice are not considered. Your company's procedures may affect the payment period. In these cases, the paid date might not reflect the actual date paid.
For the reasons stated above, you may want to carefully consider the time period for reducing commissions based on how promptly your company processes payments and whether or not your company closes Installed Sales contracts soon after payment has been received in full.
A new inquiry form has been added that may be used to review the expected commission for a user, time frame, and details for any individual document. As with all forms, users only have access to this inquiry if security permissions allow it and if their User ID has been enabled for commissions (via the "Paid Commissions" check box). Furthermore, unless the user is also either a system administrator or the Point of Sale application administrator user, the inquiry only provides commission information relevant for the current user. System and Point of Sale application administrator users can view commission information for any user.
The inquiry calculates all commissions figures based on the current commissions settings for the users involved. For this reason, it should be explained to users as an "expected" or "estimated" amount. The "commission" shown is not saved. Any changes to the commission settings (rates, sliding scales, etc.) or changes that would affect the invoice (cost corrections, return charge backs, etc.) can affect the commission that is shown.
The basic calculation is as follows:
Commission Amount * (GM Adjustment Percentage/100) * (Past Due Percentage/100)
The commission amount is either based on the adjusted subtotal of the sale or the profit (the adjusted subtotal less the adjusted total cost of sales).* Commission amounts are calculated independently for each of three user types that may be associated with a sale (assigned user, order entry, and cashier). Each user may have a different commission rate defined for these 3 types. Furthermore, one user's commission may be based on profit while another is based on gross sales (subtotal).
The inquiry includes invoices, charge returns, Direct Ship invoices, and Installed Sale invoice types. Tickets (aka. Advice Notes) are not included until they are invoiced (paid) at which time they become either an "invoice" type or an "installed sale invoice." Commissions are reduced by returns. Negative margins (caused by the total cost exceeding the subtotal) don't calculate any commission for either returns or sales.
*The subtotal and total cost are both adjusted prior to commissions being calculated. The total amount and cost of adjustments are backed out of these figures. In addition, the total extended amount and cost for item types that are considered "adjustment" items is backed out of the figure (these item types include: gift card, delivery, labor, freight and rental types).
One great feature of the inquiry is the ability to view an explanation of how the commission for a selected document was calculated. This explains exactly how the figures were arrived at. To view this information, double-click on the selection cell at the beginning of each row in the document grid. The calculation details will be displayed in a separate pop-up.
Assigned User Changes at Point of Sale
There is a new option at Point of Sale that allows changes to the assigned user for a Point of Sale transaction. This may be used as a method for indicating the user who should receive the assigned user commission for a particular sale. This feature is disabled by default. A new "application security" option has been added that must be enabled for any users who should be allowed to modify the assigned user on a transaction. This does not alter whatever "order entry" or "cashier" user is associated with the transaction.
Considerations
Although, we've added some new features that can be optionally used to enhance your company's commissions program (if any), it also raises some new questions and issues:
•Commissions aren't Maintained as Data
Because calculated commissions aren't maintained (saved) as data, your company will need a plan regarding when commissions are to be paid (for example, "cut off" dates), how you will keep track of previously paid commissions, and under what conditions/rules commissions are to be paid. Typically, this would involve some type of schedule and some type of reporting.
There will be no history of past commissions paid and no guarantee that when inquiring upon a previously paid item that the current calculation won't be different. Users who are given access to the inquiry should be made aware of the factors involved and that any commission calculated is not necessarily what they will be paid or were paid for any past items. In addition, your company may certainly choose to calculate commissions differently and base them on other criteria than the inquiry we provide.
•Control over Commissions
There is currently no way to designate different commissions based on the item's type, stocked status, or product group. However, some types of items are currently excluded because they are considered "adjustment items." These include labor, rental, freight, deliveries, and gift cards types. Adjustments (adders, etc.) that increase the price or cost of goods being sold are backed out of the subtotal and total cost prior to commissions being calculated.
To some degree, you might be able to add additional conditions to your commissions by using custom reporting; however, doing so would also mean that the Commissions Inquiry would not display the same information (and probably shouldn't be used in that case).
•No Reporting is Provided
Although an inquiry is provided, no standard reports are included with the new features. We may develop built-in reports in the future. We will likely provide new Crystal Reports on our web site that utilize the new features and/or duplicate the calculations found in the Commissions Inquiry.
•Record Keeping
Your company should expect to maintain its own records of what commissions have been paid including detail references to whatever factors and information those payments were based on. Electronic and/or paper copies of reports, etc. that include listings of documents and commission amounts used would probably be necessary. It's important to remember that the application data isn't static, so things like cost corrections, charge backs, merges, and other functions can change existing "history" and alter the factors involved in new commissions calculations. Your company should not rely on inquiries or the current data maintained for the software as a record of anything related to past commissions or as a valid document (invoice, etc.) history.
Your company should already be making backup copies of the application database (SQL) on removable media of which copies are maintained off-site or in a safe location. It would be advisable to make and retain backup copies of the data and/or reports used for any particular points in time you want or need to retain history for (such as a backup of your data for the date your company pays commissions, etc.). We do not maintain or monitor backups of your data.
•Taxes & Payroll Issues
The software may provide some options for your company's commissions program; however, any tax implications or government reporting that is required is entirely your company's responsibility. Unless your company makes an effort to maintain proper records, there will be nothing we can do to reproduce this information in the future should you need it.