It can be overwhelming to have to pay for an endless list of platforms just to keep your business running — a CRM platform, an HR platform, a data platform, a marketing platform, etc. The list goes on.
However, in an attempt to save money in the short run, you may be exposing yourself to lost sales productivity, and even a potential class-action lawsuit by relying on manual calculations of sales commissions.
Here are the three main reasons businesses lose money when they attempt to calculate commissions manually.
It can take ten times as many hours each month to manually calculate commissions. Manual calculations become especially tedious if you have CRM, HR, and finance systems that don’t speak to each other. Building an excel model from scratch is time-consuming and even the best excel model is only as powerful as the data that is brought into the model. Even with a robust, custom-built excel model, you must download relevant data from various programs and manually import that data into excel.
And when you're preoccupied with manually calculating commissions, there's less bandwidth for activities that can help you focus on growth, such as sales planning and financial modeling.
Determining payouts involved a lot of manual data entry and customizing reports for individual reps. This meant hard-pasting entire Excel pages into Google Sheets and then manually making adjustments one sheet at a time. The more we scaled, the more of a nightmare it was going to become to manage the process in such a complex way. - Business Operations Manager at Gong
A study found that 88% of spreadsheets contain errors. Errors can be benign — your finance team miscalculates someone’s commission, the salesperson alerts the finance team, and the finance team quickly rectifies the situation.
However, human errors can also be devastating. Perhaps the most infamous example of this is when JP Morgan lost $6 billion due to a copy/paste spreadsheet error!
The impact of making overpayments as a result of human error is quite obvious. However, making underpayments can actually be worse than making overpayments to your sales team.
Because anytime an entire team is impacted by a single error, you expose yourself 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 also lost a class action lawsuit against its sales employees for denying commissions.
All it takes is one error for a sales team to lose faith in the system. When there is no transparency on how commissions are calculated or whether they were calculated correctly, sales teams may resort to “shadow accounting.” Essentially, they will spend time calculating their own commissions each month. This is valuable time that they could be spending making sales!
Even when calculations are accurate, lack of transparency can lead to an underperforming team. Having a detailed understanding of how their actions impact compensation allows sales reps to proactively make improvements over time and keeps them motivated.
When weighing the risks and benefits of automating your sales commissions calculations, the answer is clear.
With CaptivateIQ, you can save time, minimize errors, and provide transparency to your team. Our automated solution lets you customize and implement commission plans in no time, while minimizing the potential for human error. Custom incentive reports designed to be shared with sales reps give them a clear breakdown of how their performance has impacted their compensation. Ultimately, CaptivateIQ allows you to cultivate an environment in which you and your sales team can focus on the growth and future of your company.
Want to learn more about the advantages of using software for compensation management? Here are five reasons why incentive compensation management software is a better choice!