When Paying Commissions, 90% Accuracy is an F
Over 80% of companies continue to miss the mark when it comes to paying commissions accurately. This is just one of the many eye-opening stats pulled from our 2017 Sales Compensation Best Practices Survey, which studied the sales compensation processes, approaches, and technologies of over 240 companies. And if this number is not shocking or concerning to you, you’ll definitely want to keep reading to find out the impact errors or lack of accuracy in your sales compensation processes can have on your bottom line and company health. Spoiler: it’s not good.
Recently, Justin Lane, Xactly’s Director of Product Marketing, hosted a webinar on this survey and walked through how the cost of these errors accrue, the impact on your organization, and some remedies to hit 99% accuracy and beyond. You can watch the full deep dive here. Otherwise, check out the overview on errors in sales comp and best practice recommendations below.
Errors in Commissions Accuracy Are Costing You More than Money
A 90% is an A if you’re taking a test, but it’s an F if you’re paying commissions. —Justin Lane, Director of Product Marketing, Xactly
Errors in accuracy add up quick. Adjustments waste capital from the already huge chunk of money you’re spending on sales compensation. Every single percentage can exponentially multiply into millions lost due to errors in commissions accuracy.
But less obvious is the effect on your salesforce and, in turn, overall company health and productivity. At a 1% error rate, 11% of reps will be paid incorrectly. And with every 1% increase in error rate, the number of reps not being properly paid over the annual period jumps significantly. Lane clearly illustrates these deltas in the following slide from his presentation. The darker teal denotes the average error rates seen across all survey respondents.
So what do these numbers mean for the company?
Two things summed up in one slide:
Hopefully, these drawbacks are enough to convince you of how sales comp accuracy is even more important than you may have originally thought. Point being made, let’s get actionable. Here’s what Lane recommends your org do to reduce inaccuracies. First, tracking.
If You Can’t Measure It, You Can’t Improve It
What’s the best way to improve accuracy? Track it. How are you supposed to course correct if you don’t know which direction you’re heading? Lane could not stress enough how critical it is for companies to put metrics in place to analyze how effective and efficient their sales compensation process is.
The analogy here is one you’re hopefully not familiar with: getting pulled over on the highway for speeding. When the cop pulls your hypothetical self over, he’ll ask, how fast do you think you’re going? The overly attentive driver may have an answer, but most of us, especially when focused on getting to work on time, will only have a rough estimate. The officer, of course, has radar that’ll tell you exactly how fast you were going.
The same could be said about measuring the accuracy of your sales compensation processes. In order to be accurate, you need to be accurate in your measurement of—well—accuracy. Anything less, and you run the risk of not truly knowing how well or, more importantly, how poorly your sales comp is running.
Once tools and tracking are in place, you’ll be able to check a few key metrics that’ll let you move towards 99% accuracy and above.
Keep an Eye on Weather Vane Metrics
Track and publish these to the field and executives to start making improvements immediately:
The number of questions or disputes from sales reps. These metrics give you a great idea of if you’re heading in the general direction of making improvements in accuracy. One way to reduce this number is by providing reporting to your reps. Be transparent in what events led to payment and you’ll start to see this number fall.
Accuracy rate based on a number of adjustments. Let’s say in a payment period you made 3 adjustments. These adjustments may not only cost you if they’re not correct, your reps will certainly take notice and respond accordingly. Adjustments reduce trust in your system and encourage unproductive processes like shadow accounting.
5 Final Actions to Take to Improve Sales Comp Accuracy
- Share Your Metrics: Track accuracy metrics using a tool like Xaclty Incent™ and share this data in the field and with your execs.
- Automate the Commissions Process: No Excel. No Spreadsheets. These are the wrong tools for the job. Companies that implement automation very quickly close the accuracy gap.
- Drive Errors Out of Upstream Data: As you start tracking start looking for the reason and root cause to reduce or eliminate inaccuracy. Often, companies find that Excel data or the timing has to be addressed.
- Improve Your Administration Process: Sometimes there are redundancies. No checks in between processes or other lapses in the comp plan design. Find the points of friction and polish them out to get the machine running smoothly.
- Simplify Your Plan: This a theme that the survey results showed us. Stick to no more than three measures in your plans. Complexity in the plan has negative ripple effects on sales performance. These issues not only stem from the numbers but mechanics and communication. Keep it simple, so reps can focus on selling.
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.