No matter how complex the sales commission structure in the organization, it’s essential to develop a system that allows sales reps, executives, and the sales comp team administrators to access accurate data and motivate top performers.
Sales performance management is one of the most complex, costly, and confusing pieces to running a sales organization or a business with a growing sales force. When managing commissions is a manual process, it increases the chances of sharing the wrong comp, incorrect calculations (including overpayments), and general human error. Plus, with multiple spreadsheets and emails floating around the company, the odds of miscommunication are multiplied. Managing complex sales commissions manually is also a stressful process for the compensation team and takes an extensive amount of time each month.
Of course, managing commissions is tricky enough, but when you consider managing sales performance and growing your business by increasing your sales professionals, it adds new levels of complexity. The sales team structure, sales commission structure, account management, and accurate reporting become even more critical.
Andries Marx, CFO of Simpli.fi, helped their organization grow a sales team of 27 people to more than 70. Simpli.fi, a leading programmatic advertising platform, discovered the difference between manually calculating commissions and the power of automating the sales compensation process. So how does a company manage commissions and scale a sales team without breaking the bank? After all, the more people involved and the more complex the commission program, the more challenging it becomes.
Adding Multiple Sales Team Members
The more sales reps and more layers included in a sales commission structure; the more calculations are required. Therefore, adding more people means more work for the sales comp administrators. As a sales team expands, the demands on comp administrators increases and the opportunity for human error magnifies.
To ensure accurate data and a repeatable sales process, Marx recommends implementing a software system to automate the commission's process when the sales team hits around 25 people.
Scaling your sales team is very difficult when managing commissions manually. In addition, as the sales team grows and the company grows, all sales processes, systems, and compensation plans become exponentially more extensive and more complicated. Suppose manual processes continued as a company scaled the sales team. In that case, the comps team needs to scale accordingly. Adding automated systems like sales performance management software helps accommodate the increased sales team and reduces the workload for the comps tea members.
As Performio explains, "Creating fair territories, setting appropriate quotas, pulling in the right data, and calculating commissions involves lots of variables and complex calculations." When Simil.fi rose to 27 sales reps, Marx estimated that calculating the sales compensation took a solid two days each month. But, of course, the larger the sales team, the longer it takes. Marx believes that at the 25-27 mark, companies "outgrow Excel."
Manual Commission Calculations
Not only does managing commissions manually lend itself naturally to the possibility of human error, but it also takes many hours and wastes resources like team members occupied with this one overwhelming task putting undue stress into their workday.
For most companies, manually managing commissions involve:
- Exporting data from a sales tracking source
- Inputting it into an Excel spreadsheet and sorting it based on sales rep
- Calculating the percentages for each sales rep, ensuring they are assigned the correct accounts and current commission structure
- Sending the numbers to each sales rep (usually sending individual emails with spreadsheet attachments)
- Sales rep approving the compensation numbers or requesting revisions
When there are miscalculations, the process begins all over again. For example, if the mistake was assigning the wrong account to the sales rep, multiple commissions require review. Whether there was a mistake or not, this manual process is rife with frustration for the entire company, especially for the sales comp team and the sales team members.
Performio CEO Grayson Morris outlines the complexity of sales compensation programs as follows:
- The data itself is complex: account assignments, territories, teams, and more. It's crucial to make sure every person receives the correct assignment for each deal.
- While some comp plan logic is relatively simple, more often, it's filled with layers like different triggers, thresholds, and rates.
- The data and the comp plan logic create a perfect storm of complexity, primarily when manually calculating commissions each month.
Automated Commission Calculations
Instead, with an automated, streamlined system, calculations are performed automatically, and everyone has access to their data within the system from a personal login. Automated sales performance management takes the guesswork out of it.
Using automated commission calculations improves team morale because they always know where they stand and can see the details at a glance. Because the software performs the calculations based on the compensation programs, reducing payment errors (both underpayment and overpayment). The sales reps and the executives can access the relevant data from reporting and dashboards with a few clicks.
In addition, it's easy to scale up. When a new sales team member joins the company, they are simply added to the system, the accounts assigned to them, and the system calculates the appropriate sales compensation.
An automated system provides a single source of truth. Instead of multiple spreadsheets with different versions floating around the company, all the data is compiled and accessed from one highly secure place. This also enables clear metrics and easier visibility of key performance indicators (KPIs).
Advantages of Frequent Plan Adjustments
Traditionally sales compensation plans are updated annually, even bi-annually. Besides boosting morale, commission plan adjustments often incentivize sales reps to increase their commissions.
Since, by nature, sales reps are competitive team members, adjusting the compensation plan can encourage your reps to go after new goals. As a result, top performers can see their numbers soar, and it may inspire newer sales reps or underperforming sales team members to up their performance.
When using a sales management system, implementing these adjustments becomes a much simpler process. When a system includes a built-in method to calculate commissions, that means sales reps and executives alike can see the results based on the current compensation plan. It's also feasible to see the historical data for accurate reporting and even project long-term incentive compensation.
The Power Behind Accurate Commission Statements
Morris recently explained that "overpayments occur about 3-5% of the time." With $10 million in revenue, this is about $300K - $500K in overpayments. So it's simply better for your bottom line to make sure commission statements are accurate. Imagine that over a five or 10-year timeframe.
Marx reiterated the positive effects on accurate statements. He advised to never "underestimate employee sanity." If the reports are accurate, people are receiving the correct commissions based on the compensation plan, and it prevents adding stress to the sales comp team members. The more accurate the reporting is out of the gate, the easier their day is and keeps their morale up.
Simpli.fi estimates savings of $25K on administrative overhead alone, and when sales teams can see their numbers with a quick login, it improves sales team morale. In addition, the reporting functionality offers a level of transparency that isn't feasible with manual commission calculations.
Best Practices when Evaluating a Sales Performance Management System
As Marx explained, Simpli.fi didn't take the first sales performance management system offered. Instead, they considered multiple systems and learned a few lessons through the process. Marx suggests:
- Consider the implementation and configuration process. Do you need developers to adjust your compensation plan, or can it be done in-house?
- Identify "higher-value activities for finance professionals." How else could the team members be better utilized than administering sales comp each month?
- "Sales comp is hard." Think about the effects on your sales comp team members when they're performing monthly calculations. Is it adding to their stress levels or is it relatively simple to use?
- Sales reps ``will love their new reports and dashboards." Because they'll log in and see their numbers at a glance, they can see where they excel and where they could improve.
Managing sales commissions and scaling a sales team can be very complex, especially using manual processes. Implementing an automated sales performance management system like Performio may help alleviate stress, reduce workload, provide accurate data, and even incentivize sales reps to bring in more revenue.
Start automating your commission calculations today. Experience a tidy return-on-investment, reduce overpayments, increase team morale, and streamline the sales compensation process; Performio could be the solution you've been searching for (even if you didn't know you needed it yet). Performio can help you automate sales calculations, improve the relationship with sales reps through more transparency, and provide the stats the executive suite is looking for with accurate reporting.