Put Science Back into Sales Commission Forecasting
In today’s modern, and somewhat turbulent business landscape, the power of foresight is everything to a business. Unfortunately, this doesn’t include looking into a magic eight ball to ask it how you are going to do in the next quarter.
Accurately forecasting and accruing expenses requires knowing what costs are going to hit the books in a given period. This ensures you have clarity on costs that impact profitability, as well as transparency into overall company health—all of which are critical to the office of finance.
#VALUE! “There’s something wrong”
The notoriously error-prone nature of spreadsheets can leave businesses in dismay, not knowing what their projections are for the quarter and the year, all thanks to miscalculations on excel. Not only is this an issue in the payment of commissions but in forecasting and how commissions play into the overall financial numbers.
In fact, figures from Gartner found that managing compensation through manual processes like excel is subject to an error rate of anywhere between three to eight percent, and for bigger companies, this could be even higher.
Further research from Gartner found that ineffective quota planning can have a tremendous impact on a company’s overall success, as businesses will “miss the equivalent of five to ten percent of annual sales as a “lost opportunity” that could have been captured through improved management of sales territories, quotas and compensation plans.”
If a company were to run all of those miscalculated percentages, it is easy to see how forecasting the businesses pipeline and sales commissions could have significant financial impacts on the business as a result of under and over payments. And in the worst of cases, this can cause earnings-per-share projections to be materially off target which of course rebounds on the company’s stock price and on the CFO’s reputation.
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So what can be done to solve this?
By taking a more scientific approach and having the right data, sales teams can automate the process to make forecasting timely, accurate, and flexible.
This process releases sales data from the silos of dreaded spreadsheets and allows the essential information to be integrated with other business systems such as finance systems, CRM, payroll, ERP, and many more. Not only does this fundamentally improve efficiencies, but it also opens finance up to a new level of analysis and insight that they would not have had previously.
If businesses are going to truly forecast their sales commission properly, they need to establish and keep effective control over it. This means having the right tools to do the job, in a simple and automated fashion, that removes human error from the equation. It’s critical to compliance and critical to a company’s top and bottom lines. This also plays a central role to finance being a trusted and strategic advisor to the CEO and the board.
Automating the compensation management process saves time, reduces costs and delivers reduced error rates, which in turn leads to improved projections and forecasting. Only by leveraging this accurate data and timely insights can teams hope to alleviate sales compensation risks.
Ultimate Guide to Sales Compensation Planning
It’s that time of year again. It’s Q4, and you’ve begun the challenging process of designing next year's sales plan. We feel your pain and want you to get the most benefit possible from your sales planning process. Download the guide today to make your upcoming sales comp plan your best yet!