Posted by Chris Newton, VP of Marketing at Xactly Corporation

As I said in my last post, there’s a critical difference between sales comp strategy and sales comp execution. The former is essential—companies drive business results when they strategically align sales performance with their corporate objectives. But without the proper tools, effective execution is nearly impossible.

Brace yourself. This may come as rather radical news, but a spreadsheet is not one of them.

Many companies start out using spreadsheets to track their sales compensation programs because… well, because it’s there. It’s a handy tool, but sooner or later you may start to wonder whether it’s the right tool for the job.

Most spreadsheet-based compensation plans have been proven to include up to a 10% error rate—that’s quite a number when you consider the average corporation spends 10% of revenue on commissions.

Just because a task involves numeric data, doesn’t mean spreadsheets are perfect for the task. In fact, when it comes to compensation management, any spreadsheet-based solution ranks right up there with the manual typewriter. It’s outdated technology.

Maybe that’s why 70% of companies using automated sales comp systems report their plans generally drive the precise selling behavior they desire, as compared to 57% of companies using manual or spreadsheet-based solutions. (Note: The former group also tracks more metrics than the latter.) Source: CSO Insights, 2010 Sales Compensation Performance

If you’re currently using a spreadsheet as the basis for your company’s compensation plan, I probably don’t have to list what’s broken; you’ve likely suffered enough already. But if you’re considering a spreadsheet as a solution, then consider these shortcomings:

• Complex and cumbersome. Creating even the most basic plan within a spreadsheet involves hours of programming, testing, and fine-tuning.
• Limited reporting options. Custom reports are beyond the reach of most spreadsheet-based compensation programs. Your sales representatives are likely in the dark when it comes to timely feedback and visibility into how well they’re performing.
• Hard to update and automate. Be prepared to take care of changes manually. Automation is minimal at best.
• Restricted coverage. Looking to incent at different levels according to the different products or services that your company sells? Good luck, because a simple spreadsheet application just can’t provide that sort of flexibility. Talk about a beast of a document!
• Lacks quality assurance. It’s really no surprise that we see so many errors in spreadsheets. They don’t undergo any rigorous Quality Assurance cycle before being rolled out for use. (This is clearly not the case with production software that’s specifically designed for such compensation calculations.)
• Hoards information and knowledge. Each person creates spreadsheets differently, so handing off work is difficult. Of course, this can be advantageous to someone who wants job security, but it also means he can never rise above his current position because he’s the only person who knows the spreadsheet model. And think of how much trouble the company will be in if the person ever gets sick or wants to retire.

In short, spreadsheets make data hard to read, hard to retrieve, and hard to maintain… and that’s the reason a spreadsheet is an inadequate compensation application.

The good news is, effective sales compensation can improve sales performance by 5 to 10 percent. (Source: Gartner)

With one of the excellent sales compensation solutions out there, so you can keep your team at their peak performance—which is what we’ll discuss in the coming pages. With these automation tools, you can optimize your available resources and harness the full capacity of your workforce.

And when you do that, you’ll create a company that wins.

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Thanks to InformationWeek, InsideCRM, Plus Incentives, Selling Power, WebProNews, and ZDNet for information used in this post.