Salespeople obsess over their commission. Getting their commission wrong can be disastrous for a sales team.
When done right, commission will drive winning behaviors and incentivize reps to put their best foot forward each day. As long as sales is a commission-driven role, the structure and effectiveness of your commission plan will be the biggest factor in motivating your team to elevate their game.
But what happens when you get commission wrong? Imagine you’re a top-performing sales rep at a respected tech company. You bring your lunch pail to work and grind in the trenches every day to meet and exceed quota. Then, one day, you get a commission check that is miles away from what you should’ve gotten. How would that make you feel?
Nothing can sink a sales team’s performance faster than failing to design, implement, and consistently update an effective sales commission plan. Making the fatal mistake of screwing up commission can:
- Kill your sales team’s culture
- Lead to a loss in employer confidence
- Reduce productivity
- Cause your best talent to leave
- Prevent you from attracting new talent
- And even lead to legal ramifications
All of this adds up to costing you time and money. Seriously, don’t underestimate the dangers of failing to implement a commission management system that ensures accuracy, inspires trust, and rewards effort. Here’s a look at what it can cost you if you do.
Why Would Companies Choose Spreadsheets for Commission?
Many companies don’t have the technological capabilities to keep up with their own growth when it comes to commission plans. Too many young and growing companies rely on Excel spreadsheets to keep track of sales and commission payouts.
Now, don’t get us wrong, Excel spreadsheets are great for lean sales teams and testing a proof of concept. They’re familiar, flexible, and simple to use. The problem is that they have a low ceiling for growth and collapse under the pressure of a commission plan with any real structural complexity.
Sales organizations that have outgrown the simple spreadsheet approach to commission are one human error away from blowing up the sheet and delivering an inaccurate commission payout that could tank team morale.
Although leveraging tech is a big step in mitigating the risk of making payout mistakes, there’s still the danger of screwing up the commission plan itself. In an evolving sales climate that offers new and innovative ways to deliver commission plans with greater complexity and more transparency, failing to design an attractive plan can be just as bad as messing up a payout.
Just as the right plan can attract talent and inspire stellar performance, a poorly designed or boring commission plan can be demoralizing and demotivating, driving away your best sellers and preventing you from bringing in new ones.
The REAL Cost of Commission Mistakes
Whether it’s a flawed commission plan that fails to incentivize or a human error that results in incorrect commission payouts, getting commission wrong is sure to leave a bad taste in the mouths of your salespeople.
Now imagine you're a sales rep and your commission plan is way out of whack? Would you want to grind for a company where low commission rates meant seriously low payouts compared to the margins you’re delivering for your employer?
What about facing unrealistic quotas that result in top-performers barely averaging 50% of attainment each cycle? That’s demotivating for the entire team.
If you’re getting commission wrong, it’s going to cost you. Here’s a look at what you stand to lose by failing on your commission.
1. Culture Death
Commission mistakes are the bell you can’t unring. A single mistake on commission erodes trust and forever casts doubt on the organization's ability to get things right. Once trust is lost, it’s hard to regain. Plus, that lack of trust is likely to spread.
Everyone will be double-checking their commission statements with a fine-tooth comb to see if they’re being short-changed as well. That level of lack of trust is toxic.
The same goes for reps that start to grumble about low commission rates or unrealistic sales goals. If your incentive plan is unfair and off-balance, it won’t take long before it becomes a disincentive.
2. Lost Productivity
A demotivated sales team means low productivity. Fewer calls, fewer emails, fewer follow-ups. It can even lead to lower close rates. Sales representatives facing difficult objections might find themselves asking “what’s the point?” rather than swinging for the fences.
This is beyond costly. Not only does it cause deals to die on the vine, but it compounds over time and sends sales performance down the drain.
3. Talent Loss, Attrition, and Empty Seats
Once a sales team is infected with a lack of trust or low motivation caused by a poorly executed commission plan, your risk of increased attrition goes through the roof. Top performers that feel like their money is being messed with will jump ship to a new organization with a well-constructed commission plan or one that guarantees payout transparency through purpose-built tools.
On top of that, it’s likely that the word will get out via sites like Glassdoor and Payscale, which makes it difficult to attract new talent and fill the empty seats left behind.
4. Human Error and Legal Liability
If that’s not enough, making commission payout mistakes can even bring legal ramifications.
Did you know that a commission payout mistake that impacts your entire sales team can expose you to a class-action lawsuit?
In 2017, the sales team at Oracle filed a $150 million class-action lawsuit against the company for underpaid commissions. In 2019, IBM lost a class-action lawsuit against its sales employees for denying commissions.
Yikes. Talk about adding insult to injury.
Is it worth the risk?
If you’ve been doing the math, it should be obvious that the REAL cost of f@#$ing up commissions is extremely high. Not just in dollars and cents, but in lost productivity, lost talent, lost time, and potential legal liability.
You might be able to get away with a mistake or two, and it’s possible that you can keep some sellers happy despite a poorly designed commission plan, but is it really worth the risk?
Consider looking into the benefits of leveraging tech to automate incentive pay calculations and provide your sellers with a more flexible, transparent, and accurate compensation management system.
Learn how to choose the right sales commission software to automate hours of manual work while improving the accuracy of calculations, transparency of payouts, and seller performance with our free buyer's guide.