How Sales Commission Management Affects Your Reps’ Productivity
Ah, sales commission. As each month/quarter closes, the administrative wheels start grinding to calculate commissions for your sales reps. If you use spreadsheets to design, administer and communicate your incentive compensation, this can be a slow, painful process that actually ends up demotivating your sales team because it takes so long to provide them with accurate statements and payouts.
Does this sound like your administrative process when it comes time to pay sales commission?
Identify commissionable events.
Determine who gets credit for what– and if that’s up to your administrator, does he/she have to remember the business rules and make sure they’re applied appropriately to each sales rep?
Start crunching those numbers on your spreadsheets!
Send statements out to sales managers for review.
Make corrections/changes based on manager feedback.
Send statements to the sales reps for review (and comparison against their own shadow accounting).
Brace yourself for what comes next – discrepancies are found in about 90% of sales commission spreadsheets!
Make corrections/changes after back and forth with the sales reps – which can be a difficult process depending on how well the rules have been applied and how strong an audit trail you have to fall back on for each decision that was made.
Send final, approved numbers to payroll.
This process could literally take two or more weeks (and one client used to take a full month to calculate commissions) after the end of the month/quarter – not a good standard for quickly and accurately rewarding performance and building trust with your sales team. Spreadsheets are probably the most inefficient, inaccurate and ultimately most expensive way to administer your sales commission. And remember – the only discrepancies you’ll hear about are the ones where your sales rep thinks he/she was underpaid. If discrepancies happen roughly 90% of the time with spreadsheet-based commission calculations – think of how much you’re probably over-paying for performance! The typical rule of thumb is that 3 – 10% of your commission expense is the result of calculation errors. For every $10,000 you pay in commissions you could be spending an additional $1,000 resulting from calculation errors.
The bottom line is both you and your sales reps have to have confidence that those numbers reflect accurate payment for performance. When sales people don't feel like they can trust their sales spreadsheet, they pick it apart every month/quarter and spend more time double-checking your math than selling your products. (And they do that for six months before trusting you are calculating commissions correctly.)