Powering flexible sales crediting requires a hierarchy structure. Rarely in a sales organization does the “one rep sells, one rep earns” model actually work. Instead, there are usually different parties involved in selling to an account, be it hunters, farmers, overlays, channel partners, solution specialists or other types of roles you have in your organization.

How you set up your hierarchy for flexible sales crediting is thus a key lever to not only motivate your sales teams, but to also get payouts right.

Choosing the wrong hierarchy can result in fights, delays, and misaligned incentives, but the right hierarchy structure allows for increased transparency, compliance, and flexibility, even as your go-to-market changes and evolves.

In this post, we dive into how to choose the type of hierarchy structure for your different types of transactions, with some best practices and real-world examples to help you, as a sales compensation leader, in your decision-making.

The Importance of Hierarchy Structure in Sales Crediting

A hierarchy structure determines how sales credit is attributed to sellers in an organization. It is a critical aspect of an incentive compensation plan since it directly impacts the payouts earned by salespeople. A poorly designed hierarchy structure can cause a number of problems:

a. Overpaying and underpaying salespeople.
b. Unclear account or deal ownership.
c. Sales strategies that are not aligned with the compensation structure.
d. Limited flexibility to adjust crediting when the need arises.

For example, a large global SaaS company may want to attribute credit for deals based on the account executives and which region they are responsible for, but also give credit to a solution engineer or other type of overlay specialist. If a rigid hierarchy structure is used, the process of crediting becomes manual and more likely to be error-prone.

Different Types of Sales Hierarchy Structures

There are several models for sales hierarchy structure, each of which is useful for a variety of use cases. The following are the most common sales hierarchy types considered when making decisions around flexible sales crediting:

1. Management (Supervisory) Hierarchy

The default hierarchy structure in most organizations, often referred to as the “management” or “supervisory” hierarchy, is the org chart view of the company. In this structure, each salesperson has a manager to whom credits can roll up, either partially or fully.

Use case:

This type of hierarchy is best used when organizations want to align the visibility of their incentives with their formal reporting lines. This is also ideal for sales organizations where managerial roll-up reporting is a requirement.

Example:
An organization with an East Coast and West Coast region. When a sales rep on the East Coast closes a deal, they get credited for the deal and their credit rolls up to their manager, who is the regional manager for the East Coast and then up to their VP of Sales.

2. Position-Based Hierarchy

In a position-based hierarchy, credits are not rolled up through a reporting structure. Instead, sales credits are rolled up and paid out based on the defined positions or roles, regardless of formal reporting lines. The positions are usually the same ones that are used for standard sales compensation planning, such as Account Executive, Channel Manager, Renewal Specialist, etc.

Use case:

This hierarchy is more flexible than the management or supervisory hierarchy since it allows the same transaction to be credited to multiple roles. It is also best for organizations that have overlays and other types of matrixed sales teams.

Example:
In this model, a subscription renewal could get credited both to the Renewal Specialist who executed the renewal, as well as the Account Executive who owns the account, even if they don’t both report to the same manager.

3. Territory-Based Hierarchy

In this structure, sales credits are assigned to sellers based on geography, product, customer segment or other type of “territory” and not on reporting lines.

Use case:

This is ideal for businesses that have territory coverage models, like a North America and Europe sales organization, for example. A territory hierarchy is also useful when the same transaction needs to credit multiple reps that may cover the same territory, such as a hunter vs. farmer.

Example:
A global software sale could credit 50% of the revenue to the US Territory Manager and 50% to the Global Account Manager even if the rep who was directly responsible for closing the deal technically “owned” the deal.

4. Product or Solution Hierarchy

In a product hierarchy, credits are attributed to the relevant product families or solutions that were sold. Solution specialists and other roles that cover products in a narrower way can be included in the hierarchy and get credited accordingly.

Use case:

This is best for organizations that have complex product portfolios or specialist roles defined. The product or solution hierarchy is also very useful for cross-sell and upsell scenarios.

Example:
When a customer buys a cybersecurity product, for example, the Security Solutions Specialist may be credited, in addition to the Account Executive.

5. Custom Attribute-Based Hierarchy

The most flexible hierarchy structure is one that is not based on reporting lines, but instead allows organizations to define their own crediting rules based on any attribute of the transaction. The custom attributes could be based on the deal size, channel partner involvement, customer type, etc.

Use case:

This type of hierarchy is powerful when there is no single hierarchy structure that can be used for most transactions. It is best for companies that have very fluid go-to-market strategies and structures that require a certain level of agility.

Example:
In the attribute-based hierarchy model, a deal over $1M can be designed to be credited not just to the rep of record, but also to a Strategic Deals Team, for example, whereas deals under $1M would be credited only to the rep and their manager.

How to Choose the Right Hierarchy Type for Your Sales Organization

The appropriate hierarchy depends on the goals of the organization, the type of transactions that take place, and the specific design of the incentives. Below are some key factors that influence which hierarchy type should be used:

1. Align with Go-to-Market Strategy

a. If the company sells through territories, use a territory hierarchy.
b. If there are specialists in products or solutions, consider a product or solution hierarchy.
c. If the sales organization has a lot of overlays and dual roles, a position-based hierarchy can work.

2. Account for Transaction Complexity

a. Simple, one-owner deals: A management hierarchy is sufficient.
b. Multi-role deals: Consider a position-based or attribute-based hierarchy.
c. Large enterprise deals: Attribute-based hierarchies are ideal here, with some conditional crediting.

3. Scalability Considerations

An important factor is that the hierarchy has to scale. If the company goes through a lot of reorganizations, a very org-based hierarchy will fall apart over time. Attribute-based hierarchies give more flexibility.

4. Transparency vs. Control

Management hierarchies are more visible to managers, but may not be as granular or accurate in terms of reflecting contribution.

a. Product or territory hierarchies can be more fair, but are harder to govern.
b. Attribute-driven hierarchies are the most flexible, but need robust systems in place.

5. System and Technology Constraints

The capabilities of the incentive compensation management (ICM) systems to support advanced hierarchies vary. The organization has to consider whether their ICM platform can support a particular type of hierarchy, in terms of both setup and maintenance.

Example:
SAP Commissions, Xactly, and Varicent all support multiple hierarchies, but there are big differences in the implementation costs.

Tips for Implementing Flexible Sales Crediting Hierarchy Structures

Once the hierarchy is chosen, there are a number of best practices to keep in mind during implementation:

a. Define the Rules Clearly: This is important for both sales team and finance team buy-in. Don’t leave any gray areas where there is ambiguity.

b. Test with Sample Transactions: Use sample deals and transactions to test out how the hierarchy would work in real life. Make sure the scenarios cover different types of transactions (e.g. large enterprise, small subscription, etc.)

c. Involve Key Stakeholders: Sales Ops, finance, and sales leaders should all be involved in discussing and agreeing on the hierarchy. Alignment between these parties is key.

d. Automate When Possible: Manual crediting is error-prone and labor-intensive. Leverage your ICM system as much as possible.

e. Review the Structure Regularly: As the sales coverage models in your organization change (e.g. you start working with channel partners), revisit the hierarchy and modify it if needed.

Example Scenario

An SaaS provider that has a global presence selling cloud-based software was having problems with the attribution of large enterprise deals. There were disputes as to who owned the credits for deals that were over a certain dollar value.

Solution

The company ended up designing a hybrid hierarchy where:

For deals under $500K, they attributed 100% credit to the Account Executive and the remainder rolled up to the manager.

For deals above $500K, the model included an Overlay Specialist and attributed 30% of the deal’s value to them. The remainder of the revenue was rolled up from the Account Executive to their manager and then to the VP of Sales.

The hierarchy structure allowed for a balance of fairness, gave visibility and recognition to all parties involved, and aligned with the company’s overall growth strategy.

Summary

The hierarchy structure that is used for flexible sales crediting can make or break the incentive compensation plan. In addition to the standard management hierarchy, other hierarchy types like product or solution hierarchies, territory hierarchies and attribute-based hierarchies provide the needed flexibility in a modern sales model.

It is usually a blend of hierarchy types that an organization will want to adopt, in line with their go-to-market models, the complexity of the transactions and system capabilities.

By choosing the appropriate hierarchy thoughtfully, and then testing and reviewing regularly, the right hierarchy structure for your sales crediting can help drive the performance of your sales teams, ensure compliance and minimize arguments, allowing you to focus on achieving your revenue goals.