Currently, commissions are not exposed for customization. Whenever an organization’s processes do not fit with what the NetSuite commission module has to offer, options are limited.
Despite the lack of scripting, form customization, or saved searches on estimated commissions, the NetSuite module remains beneficial due to its automated calculations. The module will even calculate negative commissions if you have already authorized some, but changed your criteria afterwards!
Before employing this module in the event of a gap, the biggest question you and your team should ask yourselves is:
What percentage of your current commission’s structure are you ready to change in order to benefit from automated commission calculations?
The following are some points to keep in mind:
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. When it comes to authorization time, it may be a difficult procedure splitting the two types of commissions in order to place them in the appropriate general ledger accounts.
- Another option is to create a saved search that will track the sales team’s commission transactions on which the accrual or the accounts payable impact should occur. For proper matching, export the data to an excel sheet along with a commission report which can subsequently generate journal entries to import back into 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 is difficult to do so ‘per commission’.
You might be able to make numerous authorizations for different commissions for the same employee in order to achieve different classifications on the resulting transaction. If the commission rates are synchronized with the percentage of quota reached, this will not be possible. NetSuite would then force you to group commissions either monthly, quarterly, semi-annually or annually to be able to compare sales with quotas.
NetSuite Commission module eligibility
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 most likely be based on billings or NetSuite collections module. If you apply commission rates to alternate sales quantities amounts or a custom field, eligibility may occur on either 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, including opportunity lines, sales order lines, quotas, and you already have a variety of reports ready using this feature. Since the default display name of “alt. sales amount” may be confusing, you can rename it under 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 there’s a strong reason not to, we advise using the alternate sales amount which takes into account multiple places of NetSuite. For example, if we need commission payable rates to be based on the percentage of quotas reached, quotas can only be based on either sales amount or alternate sales amount. Thus, using a custom field in this circumstance is not recommended.
Categorization
- 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 charge a varied commission rate to a sales manager based on whether the commission is earned from 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
- Items
- Commissionable item searches
Commissionable item searches categorization.
A commissionable item search is a type of saved search that investigates your transactions. Because of stored search, it is quite versatile, allowing you to combine almost any criteria from classification, items, and much more.
Beware of the commissionable item search results!
To avoid generating multiple commissions for the same employee on the same transaction, make sure the searches used to provide commission rates in any given commission schedule are mutually exclusive.
Which one of these 2 transactions is available for eligibility?
- Commissions will be calculated on accepted sales orders if you specify an alternate sales amount or a custom field as the commission base (and eligible either immediately or on collection, depending on the other options chosen).
- If you use any other commission basis, the calculations will occur once the invoice has been approved.
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. Using this criteria on the commissionable item search would return only sales orders. You need invoices to calculate commissions on sales amount unless your organization has a customization to replicate the gross margin on an invoice line custom field, and you use this field on the search criteria.
Reporting needs
NetSuite provides commission reports to track how much commissions have been estimated, have become eligible, were authorized and were paid to each employee, and to partners.
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 the reports you’re producing are appropriate for your organization’s needs. You can always save searches on authorized or paid commissions since they are recorded as transactions, but you cannot access the estimated commissions through saved searches.
Team selling
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.
- Every commission feature having an impact on the rate should be used to calculate the commission and added to the schedule. We suggest using commissionable item searches categorization, instead of trying to adjust the sales rep contribution %, since contributions also impact quotas and forecasts.
- 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 are just a few of the many guidelines for NetSuite commission’s module. If you have any questions or would like more information about NetSuite tips and tricks, and if it’s right for your business goals, please feel free to contact us.
