Those of you familiar with the infamous London Whale fiasco will know how Excel is riddled with some pretty basic flaws.
The 2012 debacle showed how even something as popular and ubiquitous as spreadsheets can waste time, cost a ton of money (a whopping $6 billion in this case), and invite class-action lawsuits.
And still, there are those of us who swear by spreadsheets for commission calculations, manually updating compensation plans, fixing payouts, and sweating it out at audits.
But are we truly aware how manual commission tracking is affecting our bottom line?
This article shows how manual commission calculations can cause more damage than you might think — and suggests a more viable alternative.
The Perils of Manual Commission Tracking
Commission calculations are complex on spreadsheets
Spreadsheets are often regarded as a flexible, powerful tool for sales ops and financial management. Truth is - they are. But only upto a certain point. As you begin, it is definitely easy and familiar, so you can get setup & start in no time. However, familiarity and expertise with spreadsheets don't make them the right tool for businesses of all sizes / and complexities, especially not as you scale your sales team beyond the first 20 reps. As businesses scale, the complexity of commission calculations increase, leading to frequent errors. For example - you may add new teams with different commission rules, and start compensating on newer metrics such as ‘calls made’, ‘invoice calculated’, ‘logos closed’, etc. . Excel may be the right choice for organizations with less than 20 payees and a basic compensation plan structure but is always human-error prone.
A 30 member sales team, loses approximately 45 man-days per year in commission-related tasks. Also (5-10)% of all commission calculations have errors.
As businesses scale, the complexity of commission calculations increases, leading to frequent errors. This is because no matter how familiar you might be with spreadsheets, they aren’t the right tool for every business, especially not if your sales team grows beyond 20 reps. For instance, you may add new teams with different commission rules, or start compensating on newer metrics such as ‘calls made’, ‘invoice calculated’, ‘logos closed’, etc.
Excel may be the right choice for organizations with less than 20 payees and a basic compensation plan. But the bigger and more complex your sales model gets, the less effective spreadsheets become.
2. Compromised leadership
Gaining sales performance insights through spreadsheets is challenging. If you are a department head, sales director, or CFO, you likely don’t have the time to review detailed monthly reports summarizing total sales and gross profit figures.
Your top brass is too busy to micro-study individual commission statements on Excel each month.
Despite — or rather, due to — their inherent simplicity, spreadsheets fall short of identifying which sales compensation plans are working and which aren’t. Even aggregate numbers don't represent which compensation plans are most effective at achieving business goals. Sales leaders, in particular, find it difficult to compare performances of reps working on different compensation plans.
3. Missed revenue goals
Sales teams that perform manual commission calculations spend large chunks of their time resolving commission errors and updating spreadsheets. This means they also spend more time working backwards to fix pay disputes instead of planning ways to grow the business
All this contributes to churn in enterprise sales and negatively impacts recurring revenue streams. Plus, there is a constant risk of losing your most talented sales account executives to misconduct during commission calculations.
Bottom Line
Introducing incentives like spiffs is a proven way to motivate sales teams.
Even a 3-5% lift in revenue due to increased motivation could result in $300-$500K in additional revenue for a company with $10 mn ARR.
But without a real-time commission software where incentives like spiffs can be tracked by each rep, chances are your sales team won’t feel motivated enough to upsell, cross-sell, increase deal sizes, and improve pipelines.
Technology — The Best Alternative to Manual Commissions
Manual commission calculations pave the way for human errors, lack of standardization, and unsatisfied sales reps. Simply put, manual commission tracking can be a significant roadblock for any business trying to scale.
A sales commission software is perfect for automating complex commission tracking processes, and for keeping commission plans fair and transparent at all times.
1. Complete transparency
A commission tracking software like ElevateHQ grants your reps real-time access to commission statements and other relevant metrics and data. It helps agents figure out what they have earned … and how they earned it.
Clear data segregation lets them calculate how to improve their bottom line and make more money. In the presence of live, actionable data, sales op managers no longer need to spend hours manually compiling and distributing end-of-month commission statements. Reps can simply click on a number to see the math behind it. This level of transparency fosters deep trust, leading to lesser manual involvement and higher team motivation.
2. Better productivity
Manual commission calculations can be complex and time-consuming. Your reps end up spending a ton of time double-checking payout amounts, leading to a gargantuan loss of employee productivity. What’s worse, humans can perform only a certain amount of calculations in a given time frame, rendering the entire process unscalable.
For example, if your sales manager maintains a spreadsheet for commission calculations, he or she will have to manually restructure teams, make territory changes, and implement new commission plans when needed. In other words, waste time, waste time, waste time.
Automating commission tracking using a software means doing all this in just a few clicks. Your team can move beyond excel sheets, formulas and the incessant exchange of emails to confirm commission statements, and re-align their focus to one thing: good old selling.
3. High accuracy
Commission miscalculations and lack of transparency can severely demotivate your reps and render them unhappy, leading to massive employee turnovers. Since manual commission calculations via spreadsheets are error-prone, having a software automate the process is a far superior alternative. It guarantees accuracy and leads to higher team satisfaction.
4. Data insights
Data-backed commission plans yield exceptional results. Using a software for commission calculations helps businesses harness valuable data, which in turn can be used to optimize sales commissions.
Over 90% of sales leaders don’t use any data while designing sales plans. With the right sales commission tool, sales leaders can identify which plans are working, double down on those, and also see which ones aren’t.
The Future is Automated
While sales compensation plans are the ultimate motivator, it’s the way you execute them that makes all the difference. Automating commission calculations and disbursals simplifies complex workflows and creates a healthy, transparent environment for sales agents to thrive.
Growing businesses need a quick and accurate commission calculator to automate payouts and support any changes to comp plans. A good software will do just that — thereby eliminating large chunks of manual workloads needed for payout processing.
ElevateHQ automates all your commission calculations and payouts, bringing a high degree of transparency to the process. It boosts sales productivity with realistic visualizations and helps drive growth. The easy-to-use interface lets finance and sales operation teams create and manage complex incentive compensation plans with consummate ease.
Selling is an art, an inherently human enterprise that is best left to your best guys.
We’re simply here to handle all the other stuff.
