Online and cloud-hosted B2B services are on the rise, breaking apart traditional payroll and exposing pain points for technology developers to address.
Similar to how gig-economy work smashes the utility of the twice-monthly paycheck, paying sales commissions based on variable usages is also vexing. A 10% commission on a $100,000 sale is easy to compute, but what if that value differs from month to month based on how much a service is used? Or even if that month-to-month time frame differs?
“It’s hard to know up front how much the clients will be spending and how much a contract is worth until we get a new subscriber on board,” said Corbin Bohne, senior manager of data and analytics at Earth Class Mail, a San Antonio-based technology company that automates corporate communication.
Earth Class Mail attempts to create a virtual mailroom for corporate clients, creating integrations with Google Drive/Dropbox and accounting systems to digitize processes that would have previously been handled manually through paper, fax or email attachments.
The challenge is paying commissions to the people who sell Earth Class Mail's services based on variable metrics — since Earth Class' clients may use products differently based on evolving needs of their own businesses.
Earth Class has spent the past two months revamping how it tracks usage and matches that to payments in an effort to streamline the manual work of retrieving usage rates externally, and manually, and matching those to internal metrics that determine commissions.
It has decided to add an additional tier of technology to eliminate the need to retrieve usage data from external clients. “We want to be able to tap into that data ourselves,” Bohne said.
Earth Class is using technology from Chargify, a recurring billing company which has added a commission calculator and revenue alerts. These tools are designed to calculate commissions using disparate revenue models, such as real-time billing data in Chargify’s app, using models such as metered usage, or monthly recurring revenue (MRR). MMR is a method of calculating revenue by considering revenue per month per user, number of paying users, and gains or losses in those figures over specified periods in time.
Chargify contends it saw an opportunity to expand beyond payment processing to revenue management when it encountered cash flow challenges in examining companies it was looking to do business deals with, said Paul Lynch, Chargify’s CEO, saying the problem is particularly acute in companies in the $1 million to $6 million revenue range.
“There’s a lot of confusion around what their revenue is,” Lynch said. “As strange as it sounds, they often don’t know off-hand what their revenue is. SaaS companies have a hard time with getting their P&Ls to match profits to billings.”
Like freelancing and contract work, software as a service models aren’t new—but SaaS is expanding dramatically as companies try to right-size revenue and expense based on client usage needs. SaaS revenues are expanding about 18% yearly, and infrastructure as a service is expanding about 28% yearly, according to
This expansion has led to different billing approaches, and sales commission approaches, with a mix of larger up-front commission payments; or a bonus structure, according to Sales Cookie, another company that calculates sales commission payments for SaaS companies. These complicated models can increase errors,
These errors can be costly. Each increase of 1% in the error rate for commission payment calculation increases the number of salespeople who will be paid inaccurately by about 10%, according to
This has led to an arms race among subscription payment and recurring payment companies to enhance their technology.
