Commission management is an incredibly important part of any organization, and managing it can quickly get out of hand if you’re depending on spreadsheets.
While spreadsheets can be a flexible, powerful tool for sales operations and finance professionals, but just because many of us are more comfortable with spreadsheets doesn’t always make it the right solution.
Surprisingly, data suggests between 47% and 70% of organizations use spreadsheets for commissions management. If you’re in this group, you might want to rethink the decision.
Consider this statistic based on multiple studies: 88% of spreadsheets contain errors.
Self-proclaimed Excel Wizards will generally answer the challenge of complex, multi-sheet calculations and v-lookups, but as the size and scope of business operations increase, added complexity and limited transparency creates an impossible-to-audit multi-sheet liability.
Trust me, I’m a professional (but you don’t have to take my word for it)
During the infamous “London Whale” incident of 2012, a global financial services company lost more than $6 billion dollars and Excel errors were a critical component.
A broken spreadsheet forced Eastman Kodak to restate financial results in 2005 with dramatic stock ramifications.
An influential Harvard paper wildly misstated economic growth for high-debt countries, stirring panicked reactions with real consequences, all due to an inaccurate Excel formula.
Excel might be a good solution for organizations with less than 50 payees and a basic compensation plan structure, but spreadsheet commissions management comes with high potential for costly errors. If the examples above didn’t convince you, here are five reasons it’s time to modernize your commission management.
Commission management: Five reasons to stop using spreadsheets
1. Spreadsheets are error-prone
There are plenty of widely-publicized spreadsheet debacles because one wrong cell or mistype can have disastrous results. In the world of spreadsheet incentive compensation management, human error will occur and when it does, chances are you won’t find the mistake until the money has left the business or there’s a lawsuit at your door.
Commission errors have cascading organizational impacts, including both underpayments and overpayments, which ultimately erode sales performance and diminish business results. If sales reps find errors in their payments, they’ll lose trust in the business and management. Even a lack of commissions calculation transparency can drive sales reps into shadow accounting, a situation where sales reps spend time trying to calculate their earnings instead of spending time selling. Additionally, overpayments take a bite out of the bottom line.
If external auditors find errors in commissions calculations it can impact stock price, earnings reports, and trust in business leadership, not to mention potential penalties for noncompliance with ASC 606 or Sarbanes Oxley.
2. Spreadsheets are labor intensive
Calculating sales commissions in spreadsheets is complex and time-consuming. Staff generally spends hours working out calculations and manually collating and entering data from CRM, HR, and finance systems. With data siloed across multiple spreadsheets, building reports is painstaking and laborious.
The growing complexity of sales planning combined with the tendency for most companies to have multiple compensation plans makes spreadsheets far too unwieldly to support strategic compensation plan structures that promote key business objectives. Complex plan design, including SPIFs, bonuses, draws, and accelerators requires advanced skills and formula writing, dramatically increasing the risk for error.
Spreadsheets become inflexible at scale and as the organization grows, so will spreadsheet complexity. With spreadsheets, some organizations take months to calculate commissions. This means companies can’t have the flexibility to pay their sales teams as frequently as they want, and also means that connected processes like financial planning or sales planning will be impacted should there be any delays or errors.
When business requirements demand change, modeling incentive compensation plan changes to understand the financial impact becomes nearly impossible in spreadsheets. In order to be competitive, sales organizations need to react as fast as the market, with the ability to quickly model potential changes to compensation plans throughout the year.
4. Lack of transparency
Manual collation of data from several sources creates a complex data integrity and transparency issue. Data scattered across multiple, distributed spreadsheets makes it difficult for sales operations to get a complete and accurate view of data. In order to audit a collated report, you need to review data from every source to identify any issues and when you discover a mistake, it’s hard to remediate.
Commissions errors are hard to undo; beyond manually examining prior periods to understand what actions need to be taken, you then need to fix the payment or reclaim money from your sellers. With heightened regulatory requirements and growing punitive damages, real-time auditability is essential.
Transparency is critical to address payment disputes and spreadsheets can’t provide sales reps with that visibility; admins must manually email compensation reports to the right contacts while omitting sensitive information for other individuals. This process increases risk and the chance that sales reps will raise disputes, each of which must be investigated manually.
5. Lack of scalability
When a company grows and expands their sales teams, spreadsheets just can’t keep up. Managing more than 50 payees on spreadsheets becomes an administrative nightmare. As the business tries to become more strategic with their market approach, plan complexity contributes to the issue.
Smaller organizations generally can calculate commissions via spreadsheet, but once their sales processes become more mature and they start to focus on growth, scalability becomes an issue. Mature sales teams and market strategies require segmentation, specialization, overlays, distinct roles, and complex compensation plans with strategic focus; each of these factors need to operate at scale and a lack of scalability hinders growth and becomes an obstacle that is hard to address.
Without strong commission management, you aren’t competitive
Competitive pressures are at an all-time high and organizations need to find an edge. Sales performance and strategic selling can be that edge, but to be successful, organizations need to support sellers and ensure they are properly motivated and compensated.
Organizations stuck calculating commissions on spreadsheets will hinder growth, and as complexity increases, they’ll find it harder to avoid the pitfalls of spreadsheet management.
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