Modelling: Sales Bonuses (OTE)

Overview

Some service-focused businesses reward sales staff with bonuses based on performance. This article covers how to model two common bonus structures in Castaway:

1. Fixed bonus payment when a sales target is met
2. Bonus payment calculated as a percentage of sales exceeding a target

Both approaches use Driver elements to create dynamic calculations that respond automatically to changes in your forecast sales figures.

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Example 1: Fixed Bonus for Achieving a Sales Target

This example assumes a monthly sales target of $10,000 with a bonus payment of $1,000 in any month the target is exceeded. Month 1 is forecast at $11,000 (target exceeded) and Month 2 at $9,000 (target not met).

Four elements are required:

• Sales element (Sales)
• Cost element (Bonus)
• 2x Driver elements (Bonus Driver & Sales Target ($)).

The approach uses a Driver as a multiplier, returning 1 if the target is met and 0 if it is not, which is then applied to the bonus amount.

Setting up the Sales and Target Elements

1. Create the four elements listed above.
2. Enter your forecast sales figures in the Sales element.
3. Enter the sales target of $10,000 in the Sales Target ($) Driver for the relevant months.

Setting up the Bonus Driver

4. Open the Bonus Driver element.
5. Set the Driver Method to Add Formula.
6. Click Edit to open the formula builder.
7. Build a formula to calculate Sales less Sales Target ($). Months where sales exceed the target will return a positive value and months that fall short will return a negative value.
8. Set Driver Constraints to Enter Min and Max.
9. Set Max to 1 and Min to 0. Positive values will now return 1 and negative values will return 0, creating a multiplier for the bonus calculation.
10. Click Save and Close.

Setting up the Bonus Cost Element

11. Open the Bonus Cost element.
12. Change the Expense Method to Driver x Rate.
13. Using the Element Selector, link the element to the Bonus Driver.
14. Enter the bonus amount of $1,000 in the Rate per Unit line for the periods the bonus applies.
15. Months where the target has been exceeded will now return the bonus value. Months where it has not been met will return zero.
16. Click Save and Close.

Review your Reports in Analysis to confirm the calculation.

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Example 2: Bonus as a Percentage of Sales Exceeding a Target

This example assumes a monthly sales target of $40,000 with a bonus rate of 20% applied to every dollar exceeding the target. Month 1 is forecast at $55,000 (exceeding the target by $15,000) and Month 2 at $39,000 (target not met).

Four elements are required:

• Sales element (Sales)
• Cost element (Bonus)
• 2x Driver elements (Sales Target & Dollar Sales Exceeded).

Setting up the Sales and Target Elements

1. Create the four elements listed above.
2. Enter your forecast sales figures in the Sales element.
3. Enter the sales target of $40,000 in the Sales Target Driver for the relevant months.

Setting up the Dollar Sales Exceeded Driver

4. Open the Dollar Sales Exceeded Driver element.
5. Set the Driver Method to Add Formula.
6. Click Edit to open the formula builder.
7. Build the Formula to calculate Total Sales less Sales Target. This returns the dollar value by which sales have exceeded the target in each month.
8. Click Save and Close.

Setting up the Bonus Cost Element

9. Open the Bonus Cost element.
10. Change the Expense Method to Add Formula.
11. Build the Formula to Dollar Sales Exceeded multiplied by the bonus percentage - for example, 0.2 for 20%.
12. In the Formula View Setting, select Include the Result Only When Positive. This ensures the bonus only applies in months where the target has been exceeded.
13. Click Save and Close.

Review your Reports in Analysis to confirm the calculation.

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