Ever lost a top sales rep because of commissions? Implementing a great sales commission program is not easy. Here are 5 signs your sales commission program could be improved. Or click here to start modernizing your sales commission program.
You Are Still Distributing Sales Commission Spreadsheets
Spreadsheets make some accounting departments happy, but they aren’t the best option for most sales representatives. Here is why:
- Most sales representatives want to verify crediting real-time and in-depth – for example to make sure no large deal was missed. Unfortunately, most commission spreadsheets aren’t live. They also aren’t interactive or flexible enough to effectively communicate goals or attainment.
- Many sales representatives want to be able to check their commissions on the go. They don’t want to have to download and view a multi-tab Excel spreadsheet on their mobile phone or tablet.
- Like it or not, commission spreadsheets can be left in printer rooms, on employees desks, or in conference rooms. Or the wrong spreadsheet can be sent to the wrong sales representative via email. Any update also requires sending another spreadsheet. Sales commission spreadsheets create a distribution problem.
- Most sales representatives aren’t Excel experts. That’s not their job. They don’t want to have to deal with complicated formulas created by accounting which they don’t understand nor can verify.
What sales representatives need are interactive, personal, secure online dashboards with all their commissions and crediting information. And obviously, it must be something which works on mobile devices (preferably without having to install an app).
There Is No Formal Enrollment Process
Most of the time, failing to implement a proper enrollment process (as well as spelling all necessary terms and conditions) works out just fine, but sometimes it creates problems such as:
- Nobody spelled out eligibility for the plan, so sales interns didn’t know that they did not qualify for commissions. Now HR has to deal with a situation.
- Nobody considered the impact of employees going on an FMLA leave. Now some employees are suing for discrimination.
- Nobody implemented a process to formally review and accept plans. Now sales representatives are confused about which versions of which plans are in effect.
Superior sales organizations don’t leave any of this to chance. They think ahead about potential legal gotchas and automate their enrollment process. They use SPM solutions which let them design terms and conditions, and implement some type of formal enrollment (for example, e-signature or checkbox acceptance).
There Are Calculation Or Payment Errors
Not leveraging an SPM solution greatly increases the probability of calculation errors. Consider an SMB with $30 million in revenue per year. Assume that $3 million were paid in commissions (that’s 10% of revenue). Even if the error rate is only 0.5% (which is very low for an organization without SPM automation), it’s still a $15K mistake, which makes cloud-based SPM solutions very affordable. Here is the true impact of incorrect calculations, however:
- Your sales team will start checking everything because they don’t trust the process used to calculate their commissions. Time wasted in shadow accounting, even if it’s only 1 hour per week, will prove much more expensive than the calculation error itself.
- Your accounting or finance team will likely encounter issues related to compliance down the road because numbers don’t add up. This can create obstacles in terms of borrowing money or receiving investments. It can even force the company to investigate fraud.
Sales commission calculations can get complicated because of crediting (ex: territory rollups) and reward assignment (ex: split commissions) rules. Not using a specialized SPM solution typically results in a/ more frequent calculation errors or b/ compromises (simplifications) made to the incentive plan. Simplifications can help reduce calculation errors, but also can cause incentive plans to become misaligned with sales objectives. In addition, an SPM solution will make all your calculations fully auditable, which greatly helps with financial compliance.
Quotas Are Sometimes Off
Setting quotas correctly is a difficult balancing act. No-one can accurately predict the future – and in sales, the landscape can change rapidly (ex: when a competitor goes out of business). Quotas are just an educated guess as to what might constitute realistic, yet challenging business goals. This said, undisciplined quota “guesswork” is much more likely to cause issues than when using an SPM solution:
- Example #1: failing to run simulations when creating or modifying plans. Quotas which are too low are almost guaranteed to result in excessive commission spend.
- Example #2: failing to leverage commission reporting to improve existing plans. Quotas which are too high cause churn, which is demoralizing and expensive (training costs).
SPM solutions reduce the chance of miscalculating quotas because they provide simulation, modeling, and reporting capabilities. SPM solutions also force organizations to more clearly define, structure, and measure different components of their incentive programs. Note: if you’re stuck with bad quotas, learn about your options here.
Sales and Finance Are Fighting
Using an SPM solution is the best way to avoid discord between your sales and finance departments. SPM automation acts as a neutral referee – so there is more doing and less arguing. Here are two examples of tension between sales and finance which automation can avoid:
- Some incentive plan include “gotchas” such as a recoverable draw or payout caps. If the sales commission process is manual, some representative may exploit this as a weakness, and try to argue or negotiate with accounting.
- Not having a specialized system to calculate sales commissions can force finance to alter and simplify incentive plans. Sales managers may feel that finance did not listen to them, and that the way rewards are assigned / calculated doesn’t make sense.
The best way to avoid these types of issues is to invest in a system which can manage all this complexity. Nowadays, SMBs can leverage next-generation SPM solutions to automate their entire sales commission program in a matter of days (without any expensive consulting engagement).
So what are you waiting for? Tell us a bit about your sales incentive program and we’ll show you an automated version.