Sales Crediting: A Comprehensive Guide [2024 Edition]

When was the last time your paycheck was wrong? For most of us, the answer may be "never." But for sales reps, it happens all the time. Why? Are companies deliberately screwing their sales team? Why is this such a problem in sales? More likely, this is a sales finance or sales operations challenge that could be fixed with a comprehensive set of sales crediting rules and a system to support automating and validating payouts. Let's explore below.

What Is Sales Crediting?

Sales crediting refers to the process of assigning or attributing revenue or sales outcomes to specific salespeople or teams within an organization. It is an essential part of sales compensation management because it determines which sales reps or teams receive credit (and potentially commissions or bonuses) for sales that occur.

The Problem of Sales Crediting

Crediting sales is one of the biggest challenges facing sales compensation leaders at large enterprises. Ensuring the right person is compensated correctly for each transaction seems like table stakes, but it is a highly nuanced and complex process. This is amplified in large, complex sales organizations where the number of sales roles, incentive structures, and product lines proliferates.

Most Incentive Compensation Management (ICM) solutions cannot manage this fundamental sales compensation challenge. Organizations must rely on internal teams to solve the crediting problem manually or with bespoke in-house solutions. Although they solve the problem, the complexity and manual elements of these custom solutions create a bottleneck in the sales compensation process, slowing the organization's ability to execute go-to-market strategies.

In this article, we will discuss what creates this challenge, how organizations are solving it, and our view on how sales crediting should be approached.

Sales Crediting Rules and Framework

Before we go any further, let's define what we mean by sales crediting, as it may not be a universally accepted definition. For this article, we will put a stake in the ground. Sales crediting comprises three primary steps:

The inputs for all sales crediting are roughly the same: Transaction lines from an organization's CRM, financial systems, and any other relevant data sources.

1. User Attribution

Transactions are assigned to individual payees based on pre-determined business rules. That could be as simple as looking at the listed account owner on the transaction. In many cases is significantly more complex, relying on additional data, including territory structures, team assignments, and management hierarchies. In extreme cases, one transaction may need to be credited to 50+ people after considering leadership structure, overlay roles (like sales engineers), and direct sellers.

2. Sales Comp Plan Component Attribution

Transactions must then be assigned to specific comp plan components based on pre-determined sales crediting rules. Each comp plan component may have different eligibility requirements for a transaction. For example, a new product sales component may require a transaction to be flagged as a "New Customer" and contain a specific product code. Complex organizations may have 1,000s of these sales crediting rules that must be managed to execute sales compensation payouts.

3. Split / Multiplier Attribution

Finally, there are often some additional sales crediting rules that must be applied to derive the actual sales amount for which the user is eligible. Some organizations apply territory splits where sales transactions are divided across multiple sellers. Other organizations may have sales crediting rules for specific products (e.g., services only count for 50% of the booked amount). Besides these standing elements of the compensation program, there will typically be one-off splits or attribution adjustments that must be calculated.

Output: The output is a complete dataset with transactions assigned to individuals, commission components, and the right sales credit amount for commission calculations to be used in earnings calculations.

Sales crediting is a complex and nuanced process. Requirements vary significantly from organization to organization. Most organizations feel that their sales crediting logic is unique (and while we understand why they think this way, in 99% of cases, this isn't true). In working with 100s of organizations and seeing how they approach the problem, there are two primary buckets organizations fall into in terms of how they perform sales crediting:

Sales Crediting Completed via an ICM Tool

All Incentive Compensation Management (ICM) or Sales Performance Management (SPM) solutions in today's market claim to solve this problem for enterprise organizations — theoretically, they could. But rarely do in reality.

The problem is that these tools were not built with crediting in mind. They were designed to be compensation calculation engines, adding sales crediting capabilities later to satisfy customer demands. The poorly structured approach to crediting often becomes so complex and inefficient in practice that organizations struggle to execute changes, instead turning to consultants to support any changes to crediting logic.

There are two flavors of how traditional ICM solutions approach sales crediting:

1. ICM Crediting Approach #1: The open-ended data manipulation tool

These tools are effectively an SQL join builder used to create sales crediting rules. You have your input tables containing transaction data, and you can create new tables and data transformation rules to join all the data together and produce a crediting result. That allows for completely unconstrained customization but does create some challenges:

a. There is no concept of an incentive plan or other key crediting components: Crediting is treated as nothing more than a data processing problem, with no framework for managing rules, functions, or data structures (e.g., different territory models). Many of these tools also do not provide a consistent way to manage sales crediting rules in the context of the incentive plan, so keeping rules organized and understood is nearly impossible.

b. System architecture is critical: Due to the open-ended nature of the system, the same crediting logic could be built in thousands of different ways. That means the success and durability of the system are entirely dependent on the quality of the architecture and, to a great extent, the preferences of the individual(s) responsible for implementation.

c. Making changes is challenging: The result is a highly inflexible crediting model. Introducing new data sources to the crediting model or making logic changes requires the user to understand the system's architecture and how any change will impact it down to the final earning calculations. Most of this context will sit with the original implementor — whoever designed the overarching system architecture — so it can be a daunting task for business users who need to change or build new sales crediting rules.

2. ICM Crediting Approach #2: The UI-based crediting formula builder

These tools provide a visual UI to create and manage sales crediting rules and logic. Individual pieces of crediting logic (aka "crediting rules") are defined and can be assigned to a comp plan component. This puts a defined framework around crediting, which can work well for comp plans with simple crediting logic but does create some challenges, particularly for more complex, enterprise-grade programs:

a. They're cumbersome: Building and managing individual crediting rules for organizations with complex sales structures quickly becomes unwieldy. In many cases, it can require 1000s of individual rules to be built and assigned with nested IF, OR, AND conditions.

b. Data must be pre-credited: Due to the difficulty managing these rules, software providers and implementors will often push organizations to feed data into the systems "pre-credited," meaning transactions (and, in some cases, commission components) are already assigned to users. This creates a lot of manual work outside of the software.

c. Making changes is challenging: The volume of crediting rules that must be managed individually means even simple adjustments and changes take weeks. We have worked with organizations that needed whole teams working non-stop for multiple weeks to make changes to the comp plan.

Both these models have their challenges, and while organizations with relatively simple crediting logic can leverage the functionality in most legacy ICM tools to successfully manage crediting, we are seeing more and more large enterprises with complex crediting structures opt to build their own solutions.

Sales Crediting with a Homegrown Solution

Given these challenges, it is unsurprising that most organizations try and fail to execute sales crediting within their Incentive Compensation Management (ICM) software. The next step is to attempt to solve the sales crediting problem themselves with bespoke, in-house solutions.  
 
The variety of custom crediting solutions we have seen sits on a spectrum. On one end, you have a purely technical solution where sales crediting is a problem the IT organization solves through highly customized data processing scripts. Code is written to take in transaction and attribution data (e.g., territories) and apply business rules to output a dataset that can be fed into the ICM tool for further calculation. This is relatively common.  

Recently, we also see large enterprises that have developed custom sales crediting applications (complete with UIs to manage sales crediting rules). These applications not only perform all the crediting computations but have a fully built-out General User Interface for business users to manage plan assignments and crediting rules. These are effectively internal software products that have been built that must adhere to software development lifecycle best practices, creating significant overhead for organizations to manage.

Example: Prior to implementing Forma.ai, a large software enterprise with over 2000 payees built a completely custom crediting application in their CRM. Functionality included definition of crediting rules, sales rep plan assignments, document creation, and all associated data. Fully-credited transaction data was then integrated into the legacy ICM software and used for earning calculations and reporting. Any modeling was done offline and outside the system and making updates to crediting rules involved multiple teams including engineers, QA testers and more.

Building standalone crediting solutions creates several problems:

• The need for system integration: In this model, data must be passed from the crediting application to the ICM tool to calculate earnings, meaning the two systems must be tightly integrated. Every time a change is made to the crediting logic, compatibility must be tested across the systems, drastically slowing down the ability to make sales compensation plan changes.

• Lack of modeling: Crediting is critical to sales compensation plan logic. When this logic is housed outside the ICM tool, organizations lose any ability to model changes, resulting in significant manual work to understand the impact of crediting updates.

• Work is often duplicated across tools: Sales reps may need to be assigned to plans in the crediting system, the ICM tool, the CRM, and multiple other administration tools.

• Distributed responsibility: In many cases, the sales compensation function cannot independently execute changes to sales crediting. They need the support of IT or whatever team owns the crediting application.

• Lack of agility: Due to the above challenges, updates to the sales compensation program take significantly more time to model, test and deploy, hindering an organization's ability to adapt its comp plan to changing market conditions.

This is a highly complex problem to solve. Developing a comprehensive sales crediting solution requires understanding and structuring data from across the organization (transactions, territories, sales comp plans, etc.).

Few individuals in the organization have a full view of all systems and processes that can impact crediting. But not solving it correctly can create significant bottlenecks in your sales compensation processes, drastically slowing down the pace at which you can manage change and hindering your organization's ability to react to and make go-to-market changes.

How Forma.ai Approaches Sales Crediting

To drive sales comp agility, sales crediting must be included holistically in a single, unified sales compensation platform, along with all other sales compensation logic. In that platform, crediting logic must be structured in a way that makes managing sales crediting rules, modeling different scenarios, and deploying changes one seamless process. Otherwise, as outlined, sales crediting can easily bottleneck your ability to make sales compensation changes.

Forma.ai's crediting engine brings structure to even the most complex sales crediting methodologies. The platform breaks down crediting logic into components, each with its own step-and-rule structure within the platform. These structures are leveraged across our customer base, allowing for the end-to-end management of sales crediting in a single platform and giving complete control over sales crediting to the sales compensation team.

Here's how it works:

1. Data Ingestion: Pre-crediting transactions are ingested into the system

a. Alignment Mapping: Standard alignment models are leveraged across customers to represent an organization's territory model, telling the system how to map transactions to each eligible sales user.

b. Component Mapping: Transactions are then mapped to commission plan components. Component mapping rules are defined at a commission plan level, with a flexible structure to manage complex hierarchies and rules.

c. Multiplier Mapping: Credit multipliers are then applied to each transaction based upon defined rules at any level (territory, product, etc.) to derive the final credited amount.

d. Adjustments (layered across the previous three steps): Exceptions can easily be layered across any stage in the calculation to update sales crediting rules or amounts.

2. Fully Credited Transaction Data is ready for further calculation

If sales crediting is solved correctly, it can bring the entire sales compensation calculation under one roof, provide more design flexibility, and drastically increase the sales compensation team's ability to execute changes.

Interested in seeing how our platform works? Book a call with one of our sales compensation experts here.

Sales Crediting Explained

Listen to this video of two experts – Nabeil Alazzam, CEO at Forma.ai, and Pauline Xu, Global Sales Compensation Leader at Unity – discussing sales crediting, what it is, and expert tips to help you keep track of and communicate your sales attribution framework.