Currently, commissions are not exposed for customization. Whenever an organization’s processes do not fit with what the NetSuite module has to offer, options are limited. Even though there is no scripting, no form customization, no saved searches on estimated commissions, the module is still beneficial because of it’s automated calculations, which will even calculate negative commissions if you have already authorized some, but changed your criteria afterward!
The biggest question you must ask yourself and your team before using this module is:
If there is a gap, how much of your current commission’s structure are you willing to modify in order to benefit from automated commission calculations?
Among the things to pay attention to are:
General ledger impacts
Which impact is needed when?
- The module records only one impact on the general ledger for commissions, and it happens when one or many commissions have reached eligibility and someone authorizes them. The authorization generates a transaction, which we would usually set to be a debit to a commission expense account and credit the accounts payable for the sales rep(s) concerned.
- Depending on the complexity of the organization’s commission structure, you could consider doubling the commission schedules, in order to generate the same commission twice at different moments. However, when authorization time comes, it might be a tedious task to split the 2 kinds of commissions in order to post them in the right general ledger accounts.
- Another route would be to create a saved search that will track the sales transactions on which the accrual or the accounts payable impact should occur, and export it to excel together with a commission report to make appropriate matchings, which can then generate journal entries to import back in NetSuite.
Which classification does the organization need on the commission expense?
It is possible to provide classification when authorizing commissions for an employee, however, it cannot be done easily ‘per commission’. You could possibly make multiple authorizations of different commissions for the same employee to achieve different classifications on the resulting transaction, but this will not be feasible if you synchronize the commission rates with the percentage of quota reached. NetSuite would then force you to group commissions either monthly, quarterly, semi-annually or annually to be able to compare sales with quotas.
There are 3 moments in NetSuite where a commission could become eligible (i.e. available for authorization):
- after sales order approval (aka “bookings”)
- after invoice approval (aka “billings”)
after customer collection (aka… “collections”)
Whether NetSuite will start calculating commissions on bookings or billings, and potentially making them eligible, depends on the commission basis chosen.
In most cases, eligibility will be either on billings or collections. If you choose to apply commission rates on alternate sales amounts or on a custom field, then eligibility could happen either on bookings or collections.
What is the alternate sales amount?
It is a field that you can enable in Setup/Company/Enable Features, subtab Transactions, section Sales. After you enable it, it will appear in many places in NetSuite, like opportunity lines, sales order lines, quotas, and you already have a bunch of reports ready using this field. The original display name of “alt. sales amount” may not be very meaningful, so you can rename it if you go to Setup/Sales/Sales Preferences.
What custom field could we use?
- The use of a custom field as commission basis has to be enabled in: Setup/Company/Enable Features, Employees subtab.
- The custom fields that can be used must be of currency type.
- The amount that would be stored in it depends on the organization’s needs.
Unless having a good reason not to, I prefer using the alternate sales amount, since it’s already taken in consideration in multiple places of NetSuite. For example, if we need commission rates to depend on the percentage of quotas reached, quotas can only be based on either sales amount or alternate sales amount, so custom field would not be recommended in this scenario.
Are all sales equal? Do sales occurring in a particular location have special rules regarding commissions? Should some items sales get excluded from commissions? Do we want to start paying commission on sales only when the transaction reaches a certain sales amount or gross margin threshold? Do we want to apply different commission rates for a sales manager depending if the transaction generating the commission is a direct or indirect sales?
All these scenarios need categorizations to be specified.
Categorization can depend on the following criteria:
- Classification (class, department or location)
- Custom segments
- Commissionable item searches
Commissionable item searches categorization.
A commissionable item search is a type of saved search that looks into your transactions. Because it is a saved search, it is very flexible and can combine pretty much any criteria from classification, items, and much more.
Beware of the commissionable item search results!
You should make sure the searches used to provide commission rates in any given commission schedule are mutually exclusive to avoid generating many commissions for the same employee on the same transaction.
Which one of these 2 transactions is available for eligibility?
- If you use the alternate sales amount or a custom field as the commission basis, commissions will be calculated on approved sales orders (and eligible either immediately or on collection, depending on the other options chosen).
- If you use any other commission basis, the calculations will occur on approved invoice.
Guess what happens when you try to have commissions on sales amount (thus calculations on invoices) but only when a certain threshold for gross margin (usually this would be the alternate sales amount) has been reached? Nothing!
The alternate sales amount field is not available on invoice lines, so with such a criteria on the commissionable item search, results would only contain sales orders, but you need invoices to calculate commissions on sales amount unless the organization has a customization to replicate the gross margin on an invoice line custom field, and you use this field on the search criteria.
NetSuite provides commission reports to track how much commission has been estimated, has become eligible, were authorized and were paid to each employee or partner.
These reports also display the commission schedules that contain the calculation rules used to generate these commissions and the transactions that generated them. Always ensure that those reports fit your organization’s needs because you can always make saved searches on authorized or paid commissions since they are recorded as transactions, but there is no way to access the estimated commissions through saved searches.
NetSuite’s commission module works well with team selling.
Whenever a commissionable sale occurs, NetSuite will calculate the commission amounts based on each sales rep commission plan, and then apply the contribution % of each of them on their commission. If a commission of 100$ is calculated for a sales rep that has contributed to the sale for 50%, he will get 50$ of commissions.
- If anything else on the sale transaction should have an impact on the rate to be used to calculate the commission, it should be considered in the commission schedule, possibly using commissionable item searches categorization, instead of trying to adjust the sales rep contribution%, since contributions also impact quotas and forecast.
- If using sales rep as criteria on a commissionable item search, it is not just any sales rep on the team, it is the primary one.
These were just a few of the many guidelines for NetSuite commission’s module so if you have any questions or would like a few more tips & tricks or information about NetSuite and if it’s right for your business please feel free to contact us.