Third-Party Logistics: Managing Complex Commissions

Commission management can be complicated for third-party logistics (3PL) providers, especially in an increasingly unpredictable market. The right commission management solution tames a complex commission strategy. From sales professionals to accounting and human resources, everyone on your team works hard, and a comprehensive commission management platform allows every employee to keep their focus where it’s needed most.

Commission management for 3PL providers

Calculating sales commissions for any business involves unique challenges, and the bigger the stakes, the more obstacles companies encounter when designing a workable commission strategy. For 3PL providers, it can be even more difficult due to potentially complex variable pay structures that include base pay, commissions, bonuses, and other incentives.

Commission management platforms allow 3PL companies to manage and track commissions quickly and accurately, and ensure payouts are properly calculated and delivered in a timely manner. By streamlining and automating the process of tracking, validating, and paying commissions, commission management software ensures representatives can focus their energy on pursuing new accounts and following through on sales.

Calculating complex commissions

There are several strategies to consider for calculating 3PL commissions. One of the more popular approaches is the draw against commission. This method guarantees a stable paycheck, with the draw amount acting much like a cash advance for representatives. To calculate draw amounts, the cost of sales is multiplied by production, with advanced payment amounts, the draw, subtracted prior to paying out the difference. A recoverable draw guarantees the gross margin is always retained, but this method may lead to higher turnover for reps when they have a slow month or two and find themselves saddled with a negative balance.

Another option calculates a “seat cost” and pays commissions once the seat cost is covered. In this method, a multiple of the salary is used to calculate a threshold below which no incentive pay is earned. Once the seat cost is covered, a commission plan kicks in. For instance, if you set the monthly threshold at $10,000, with a commission rate of 6.67% for all sales over that amount, a $20,000 month means a sales commission of $667 for the sales representative.

These are only two examples of the many ways commissions are calculated. Your business may use different formulas for different sales areas or add in other bonus structures at various levels of sales activity. Regardless of your strategy’s complexity, a comprehensive commission management platform can help you figure it out.

Benefits of comprehensive commission management

Sales commission management software makes the business of calculating, documenting, and paying out commissions simple, and because it simplifies the process for every member of the team, it improves your company’s ability to attract and retain sales talent, centralize and consolidate commission data, and streamline commission management. Other benefits include:

• Enhanced visibility and control. Commission management platforms provide reliable reporting for faster decision-making with improved data tracking and analytics. It also helps improve commission alignment with freight, logistic, and transportation goals.
• Improved flexibility. Sales commission management platforms provide broader options and more flexibility for evaluating incentive programs. With complex logic, auditing, and tracking tools, your company can model and predict the financial impact of plan changes before you implement them.
• Staying on mission. A commission management platform means employees spend less time dealing with tracking, reporting, and validating sales — allowing them to focus more energy on their core competencies.

Commission management software

Not all commission management software is the same. As an integral element of your company’s success, it is crucial to carefully consider the commission management features your sales team needs to succeed. Important features include:

• Businesses are designed to grow. Your commission management tools should be flexible enough to grow with you. Look for a customizable platform that allows you to make big changes or quick adjustments as needed.
• Quota management. Look for software that allows you to set up individual quotas and sales activity goals as well as manage unforeseen circumstances, such as the COVID-19 pandemic, when adjusting quotas is a necessary response to sudden market changes.
• Personalized dashboards. Commission management software should provide a personal dashboard for each sales representative. This allows each employee to stay on track and plan their work as efficiently as possible.
• Performance analysis. Use sales commission management software to evaluate sales activity and provide performance data that allows team leaders to motivate, encourage, and coach sales reps as needed.
• Effective communication. Open communication with your sales team is key to success for everyone involved. A good sales commission management platform provides a designated space for questions to be resolved quickly and easily.

Sales commission management software should do more than calculate commissions. It should provide insight into how trends, plans, and sales teams have affected your business during the past week, month, quarter, or year. It should also provide critical, real-time performance insight and transparent compensation data for a clear understanding of the relationship between sales activity and commission payout.