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Setting up commissions for payroll

revengine.substack.com

Setting up commissions for payroll

Jeff Ignacio
May 1, 2023
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Setting up commissions for payroll

revengine.substack.com
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Read Time: 5 minutes

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Not every Revenue Operations team manages their commissions processes but it wouldn’t hurt to, at least, be aware of how it works. So let’s talk about setting up a work back plan to ensure a smooth commissions experience for your organization. At a high level, here are the steps involved:

  1. Determine the payroll schedule

  2. Collect commission data

  3. Calculate commissions

  4. Verify commissions

  5. Communicate commission amounts

  6. Process payroll

One of the most valuable partnerships in any company is the one between Revenue Operations and finance. Before I leapt into the world of GTM Operations I was once in FP&A. Many of the projects we worked on together were for the betterment of the business. Some of these projects stood the test of time within the business. Dare I say it, they sometime served as a mini vacation from working with GTM teams.

So let’s dig into how to set up your workflow between both the payroll team and revenue operations.

Determine the payroll schedule:

The first step is to determine the payroll schedule. This will ensure that commissions are paid on the same schedule as the rest of the payroll. Typically, payroll is processed on a bi-weekly or semi-monthly basis. Payroll will have a 4 or 5 day deadline to be met for a successful submission.


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Collect commission data:

In a previous article, I provided a high level outline of compensation plans. When I worked at Google I was responsible for administering over 700 sales compensations plans (SCPs) to a global sales organization with dozens of different plans and role types.

Again, here are the high level steps of the compensation design process.

  1. Define principles

  2. Align stakeholders

  3. Design. Design comp plan variations

  4. Test. Scenario plan by backtesting and extrapolating future results based on Plan

  5. Confirm plans.

  6. Signature collection.

  7. Countersign and store with Finance, HR, and management hierarchy.

Once you have plans designed and countersigned we now need to work through the tactical execution of collecting, calculating, review/reconciliation, and submission of commission payments.

Below is a sample of the RevOps-to-payroll timeline.

Let’s say for example you’re executing commissions on a monthly basis and you’re aiming to release commissions on the first pay cycle of the following period. The company has a semi-monthly pay cycle. After the calendar month turns over, the next move is to close the books. For Revenue Operations this is the process of ensuring no opportunities that closed won within the period in question is not modified nor any opportunity that did not close in the period is moved into it.

  • Business Day 1: CRM is frozen

  • Business Day 3: Opportunity or Product Line Data downloaded into commissions tool (i.e. Excel counts too)

  • Business Day 4: Data pushed through commissions business logic. Data reviewed and reconciled with finance partner

  • Business Day 5: Early data preview to sales manager

  • Business Day 6-8: Early feedback from the field. This is done to turn things around quickly

  • Business Day 9: Payroll data, in the format they want, sent out to payroll team

It’s a lightning quick turnaround so be mindful that if the finance/payroll team is underwater it’s perfectly acceptable to push for a month end cycle instead of the first pay run post-month close.

Calculate commissions:

Use the commission structure and commission data to calculate commissions for each eligible employee. Below is an over simplified calculation process.

  1. Extract the data required pulling CRM data into a commission tool. If you don’t have one, then Excel or Google Sheets it is!

  2. Run the data through the commissions business logic. Some examples:

    1. Commission rates may differ by record type. Renewals are often paid at a different rate than new business.

    2. Commission rates may differ by the cumulative amount already attained (i.e. commission tiers)

  3. Determine the commissionable amount: The commissionable amount is the portion of the sales volume that is eligible for commission. This may exclude certain types of sales, such as returns, exchanges, or discounts.

  4. Calculate the commission amount: The commission amount is the product of the commission rate and the commissionable amount. For example, if the commission rate is 10% and the commissionable amount is $100,000, the commission amount would be $10,000.

Verify commissions:

Verify the accuracy of the commission calculations to ensure that all eligible employees are paid the correct amount. Over the years I’ve had the chance to implement a few platforms out such as Xactly, CallidusCloud, SalesCookie, and CaptivateIQ. Each of these tools pack a punch when it comes to calculating dozens or even hundreds of commissions. But I still like to build out a spreadsheet model to be able to test one or two payouts side-by-side to make sure the calculations check out.

I highly suggest building an ally with finance so that you can both serve as each other’s backstop. Much like turning two keys at the same time in order to launch a missile, if both GTM Ops and Finance give their approval on the number.

Communicate commission amounts:

Communicate commission amounts to each eligible employee, including any deductions or adjustments. If you have a software platform it’s easy enough. But if you’re operating without one, an automated capability to use a merged form to send your communication comes in handy here.

Here’s a sample letterhead for the merged form:

Hi {{rep}},

I am writing to inform you of your commission payment for the past month. Based on your bookings of {{Sales Volume}} which includes {{Type of Sales}}, your commissionable amount for this month is {{Commissionable Amount}} at a blended commission rate of {{Commission Rate}}. After applicable taxes and fees, your net commission payment will be [Net Commission Payment].

If you spot anything wrong with your commission please file a dispute as early as possible by emailing commissions@

Please let me know if you have any questions or concerns about your commission statement. We value your contributions to our sales team and appreciate your efforts to help us achieve our sales goals. Thank you for your hard work.

Best regards,

[Your Name]

Process payroll:

Process payroll for all eligible employees, including the commission amounts.

The number of days it takes for finance to meet payroll can vary depending on a number of factors, such as the size of the company, the complexity of the payroll process, and the payment methods used.

In general, most companies aim to process payroll within a week or two after the end of the pay period. For example, if the pay period ends on the last day of the month, payroll might be processed within the first week of the following month. Define the process with the payroll team. For startups this will likely be either finance or someone on the people team.


Whenever you're ready, there are 2 ways I can help you:
1/ If you’re looking to further develop your Revenue Operations knowledge sign up for my courses in partnership with the RevOps Co-Op. 
→ Unleashing ROI course. A ten-week virtual, live instruction RevOps course designed to level up your RevOps Impact (R.O.I.). Lessons from my career scaling from $10M to $100M+. Join 50+ alumni. https://www.revopscoop.com/learn/unleashing-roi-course
→ Sales Ops Masterclass. A six-week virtual, live instruction SalesOps course designed to take your sales operations skills to the next level. https://www.revopscoop.com/learn/salesops-masterclass
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