The Impact and Administrative Overhead of a Bad Sales Commission Process

Jul. 20 2023

Most organizations recognize that their sales commission process isn’t perfect. Managing compensation is a complex undertaking, one in which the smallest error can create a domino effect of administrative labor and protracted troubleshooting. In short, one of the most important aspects of a business’s financial strategy is also often one of the most inefficient.

Companies aren’t ignorant of this problem– many are trying to improve their commission process, as evident by the recent surge of businesses hiring sales compensation managers (source).

But, the effect of a bad sales commission process is not something that a single employee can mitigate. If you’re responsible for managing sales commission, you’re already aware of the power you wield and, under the right circumstances, your potential to make lasting strategic impact– but without the right tools at your disposal, doing so is almost impossible. Without the right resources, you’re simply bearing the brunt of the inefficiencies that have been plaguing your commission process all along.

In today’s post, we’ll look at two distinct paths that a sales comp manager can follow: the reality of managing a broken commission process, and the potential upside of a team equipped with the necessary tools to run an effective comp process.

Potential vs. Reality: The Disconnect Holding Back Sales Comp Effectiveness

Commission programs have a direct impact on a company’s success. When they align with a business’s goals, are analyzed and actively improved, and continuously motivate higher sales performance, they become core drivers of business growth.

So, as a sales comp manager, you should, in theory, be doing daily work that generates value for your organization.

Here’s the problem: with an inefficient process in place, you rarely transcend the role of administrative task taker. You focus on tedious but incredibly detail-oriented manual tasks. You face frequent, urgent disputes. You waste time searching for and untangling the data you need to satisfy the bare essentials of managing sales commission at scale.

With an inefficient commission process, you’re like a crewmate aboard a sinking ship who spends their time plugging leaks and digging around underdeck to find the right tools– when you could be an expert navigator, helping the ship run smoothly and charting a course toward new horizons.

Nautical analogies aside, one thing’s for certain: broken sales commission processes are hindering your potential as a comp manager. Now let’s take a deeper look at what you could accomplish, and what’s holding you back.

Potential: You continuously optimize sales compensation plans.

A successful sales commission process is contingent on many factors, from the business’s financial standing, to sales performance, to the dynamic structures of a sales team. As a result, sales commission plans need to be added, expanded upon, and reconfigured frequently to keep pace with your organization’s growth.

Ideally, this process is fast and straightforward. With a few clicks of a button, you can implement the changes necessary to reflect the status and needs of the sales organization, including:

Adding new reps and territories to existing plans.
Adding new compensation rules, such as quarterly bonuses, spot bonuses, or project-based compensation rules.
Implementing accelerators, clawback clauses, and other new provisions.

And, because the process is so easy, you’re updating plans more frequently, collaborating with sales and other departments to iterate, test, and optimize plan structures.

Value: With the ability to quickly add, remove, and edit comp plans, you can scale your comp program to any volume and complexity, ultimately helping the sales organization grow.

Reality: Updating commission plans is a massive, time-intensive undertaking.

Unfortunately, without access to the right tools and systems, making changes to commission plans is the last thing you’d call “easy”. If you’re managing commission using Excel, for example, implementing a new rule may require you to:

Manually identify and reconfigure formulas.
Manually check individual data sources to find or confirm inputs.
Double- and triple-check your work.
Run calculations and hope for the best.
Distribute updated plans and address the inevitable errors that arise once they’re rolled out.

And, if you need to implement a significant change? Good luck. Your commission process either can’t support complexities like accelerators, custom-defined commission periods, and overlapping comp plans– or these changes require several days, if not weeks or months, of manual administrative work.

So, not only do you not look forward to improving commission plans– you dread the day that you need to undergo a major plan improvement project, because you know how intensive of a process it will be.

Consequence: Your compensation program isn’t scalable– your sales organization’s capacity for growth is being held back by your process for adding and optimizing comp plans, which is slow to complete and limited in its flexibility.

Recommended reading: A Pocket Guide to Preventing Commission Nightmares

Potential: You track and analyze the ROI of your sales compensation programs.

With a streamlined process for designing comp plans and flexible technology at your disposal, you’re able to redirect time and resources to more valuable work– like comp plan ROI analysis.

In this scenario, you have time to gather and analyze commission data in order to:

Uncover trends and draw correlations between comp plan structure and sales performance.
Identify gaps and flaws in your comp plan design.
Optimize comp plans to drive more value based on your findings.

Here’s an example of what that process might look like. Say you study commission data from the past year. In doing so, you identify a trend: a number of high-performing sales reps are either slowing down once they exceed their quota, or sandbagging deals to contribute to next quarter’s goals.

You present these findings to sales leadership and ultimately decide to include a new accelerator clause to your comp plans. The clause dictates that sales reps can earn an additional 5% commission for every 5% they’re able to exceed their quarterly sales quota.

Value: Your commission program is now driving value to the business, as your commission data analysis yields insights that allow you to proactively optimize comp plans, rather than just react to the changes and needs expressed by the sales organization.

Reality: You spend hours and hours on complicated commission calculations.

Time to focus on deep, meticulous analytical work? A dream! In reality, your process for calculating commission is so laborious that you barely have time to complete each step of the process each pay period, let alone have time for meaningful analysis.

This is particularly true if a spreadsheet is your only platform for calculating sales commission. You likely find yourself stuck in a never-ending loop of time-sensitive–and incredibly time-intensive– responsibilities like:

Manually inputting commission data and updating commission formulas.
Going back and forth with reps to resolve discrepancies and confirm accuracy.
Transferring calculations into individual statements and distributing them to reps.

And, it’s not a matter of if you’ll run into errors when calculating commission– it’s a matter of when, and how many. Complex rules and changing formulas mean that even with certain controls in place, mistakes will happen. And, depending on how accessible and intuitive your commission platform is, identifying and fixing errors can become an incredibly time-consuming task, tacked onto an already inefficient process.

And, the worst part? These mistakes don’t just impact you. They wreak havoc on the trust you’ve built with commissioned employees. Eventually, mistakes eat into their productivity as well. All it takes is one wrong payment to send your reps into a spiral of keeping their own records, shadow accounting, and double checking each pay statement. All of which consumes time they could have spent on more important sales activities.

Consequence: Calculating commission becomes your entire job, rather than an important but streamlined function of your job. You struggle to optimize your commission program because you don’t have time to focus on the necessary analytical work. Trust between teams breaks down and even the best comp plans can no longer fix or incentivize disengaged and unhappy reps. If problems go unchecked for too long, you’ll face an expensive sales turnover problem.

Potential: You provide insights that positively impact sales performance.

If you provide consistent, actionable insights into the commission process, you’re able to not only manage compensation but actively improve sales performance and drive revenue.

To make that happen though, you must provide commission teams with the following:

Real-time visibility into their commission status and history.
Personalized analytics and trends, tailored to teams and individual reps.
Predictive reports that indicate potential future earnings.
Insights that allow reps to prioritize the most financially impactful deals– before they close.

The more that sales reps understand about their earnings– how much they’ve earned in a given pay period, where they stand against their quota, what they need to do to hit specific targets– the more motivated they become to achieve these goals.

Value: The insights you provide have a tangible impact on rep behavior; you’re not only an administrator of sales data but a helpful guide, pointing reps in the right direction towards higher earnings and increased revenue generation.

Recommended reading: A Foolproof Framework for Better Incentive Communication

Reality: You’re inundated with questions and commission disputes.

If you’re struggling through a manual comp cycle, without the resources you need, you’re already working hard to give sales employees as much visibility as possible– and it’s not even close to enough. The process of calculating commission is so demanding that you struggle to roll out statements on time, let alone provide ongoing visibility throughout the pay period.

So, you constantly field questions and concerns from reps, who spend much of their time in the dark in regards to their commission earnings. They come to you because:

There’s an inaccuracy or mistake in their commission statement.
They expected to earn more or don’t understand how their commission was calculated.
They want to know what they’ve earned so far during a pay period that hasn’t closed yet.
They want to plan and budget their personal finances for the future but each pay cycle feels like a crapshoot.

Sometimes, you can handle these inquiries by quickly explaining or clarifying a detail the sales rep is missing. But, more often than not, you’re dropping everything to chase down an answer, identify the cause of an error, or perform new calculations to provide the inquiring sales rep with what they need.

Consequence: Your relationship with sales is tenuous at best; sometimes it borders on adversarial. They feel like they’re in the dark about their own financial earnings. Motivation dips and sales numbers stagnate because reps don’t receive any tangible insights that encourage effective selling behavior.

Recommended reading: 5 Ways to Write a Better Change of Commission Letter

Potential: You report to leadership and make your compensation program an integral part of the business strategy.

You know how vital sales compensation is to a business’s success– and with a strategic reporting process, you can earn recognition as a driver of value and influence business growth.

With enough bandwidth and access to flexible reporting capabilities, you’re able to dedicate time to creating custom, actionable reports that give leadership visibility into:

Sales performance charts tailored to specific teams, regions, roles, and product offerings.
Key trends you’ve identified in recent and historical commission data.
Data-driven recommendations for major comp plan improvements.
Issues preventing teams or individuals from achieving quota attainment
Compliance reporting and auditing

Beyond simply keeping leadership informed, these reports enable you to tether your commission programs to new and ongoing business goals.

For example: let’s say your organization is about to release a new product they see as a major upsell opportunity. So, you craft a customized report that analyzes commission earnings in relation to new products or services you’ve launched in the past. You work with leadership to settle on an appropriate kicker that will supercharge your efforts to integrate your new product into more deals.

Value: Your commission program is fully aligned with your business’s growth objectives, and you’re an important participant in the financial decision-making and sales planning processes.

Reality: You have to untangle data from disparate sources to fulfill basic reporting responsibilities.

Between calculating commission and manually building out comp plans, your plate’s full as it can get. And, even if you did have free time, your data management systems don’t support your needs when it comes to creating nuanced, useful reports for leadership.

With your current process, fulfilling even the most basic reporting requirements becomes a serious hurdle. Take expense reporting, for example. The administrative work required to remain ASC 606 compliant includes:

Switching between data sources to gather the vast amounts of historical commission data you need.
Manually setting and adjusting expensing rules to ensure that commission payouts meet ASC 606 standards.
Building accurate ASC 606 reports from a variety of nuanced datasets.

When you think “reporting”, you think of all the work necessary to survive an ASC 606 audit– not all the value you could bring by building your own custom reports and presenting them to leadership. Without the right resources, your approach becomes reactive at best.

Consequence: You lack a single source of truth for commission data, making it impossible to consistently gather data in a format that supports strategic analysis. Meanwhile, the overhead associated with your fundamental reporting duties slows down your financial processes and puts you at risk of non-compliance with important financial and legal requirements.

Final Thoughts

When we talk about inefficient commission programs, we tend to highlight the problems that they create: an over-reliance on administrative busywork, greater potential for human error, poor visibility, and so on.

All of these issues are very real, of course. But, it’s also important to understand that an effective commission management process doesn’t just solve these problems– it also enables you to make a lasting, strategic impact on your team, your organization’s ability to generate revenue, and on your effectiveness as an individual contributor.

With the right tools and an efficient process you don’t just lighten your administrative workload; you’ll actively help the sales organization grow. You don’t just streamline your day-to-day workflow; you’ll lead projects that earn your business more revenue. You can accomplish all that and more when you implement a commission management system that equips you to:

Automate commission calculations.
Optimize plans efficiently.
Provide sales with continuous visibility.
Analyze commission data and build actionable reports.

Don’t settle for the status quo– prove what’s possible when a talented sales comp manager has the tools they need to reach their full potential.

Not sure where to start when it comes to asking for additional resources? We’ve done the work for you. Check out our Open Letter to Finance Leaders to secure the resources you need to future-proof your comp management process.

About Spiff

Spiff is a new class of commission software that combines the familiarity and ease-of-use of a spreadsheet with the power of automation at scale- enabling finance and sales operations teams to self-manage complex incentive compensation plans with ease. Spiff is designed to facilitate trust across organizations, motivate sales teams, increase visibility into performance and earnings, and ultimately, drive top line growth. The platform’s intuitive UI, in-depth reporting capabilities, and seamless integrations make it the first choice among high-growth and enterprise organizations.