An $80,000 Mistake (and What I Learned about Comp Plans)

Today's blog post is by Christopher Cabrera, CEO of Xactly Corporation.

Note: hear Christopher Cabrera keynote on June 7 in London at the Sales & Marketing 2.0 Conference. Email larissa@salesdottwoinc.com for more information.

Would you brush your teeth with a toothbrush duct-taped to a blender?

This is the question I posed to an audience of sales and marketing leaders last month at the Sales 2.0 Conference in San Francisco. I wasn’t being flip.

While many of us are out there selling cutting-edge products, we still somehow justify motivating our teams with a tool from 1982 (Excel).

I’m not knocking Excel. It’s a great tool. We use it at Xactly every day. But, Excel was not designed for managing the commission payments for a sales team, any more than a blender is meant to safely power your toothbrush.

You are creating real problems when you use Excel to motivate a sales team of any size. Gartner estimates that errors can amount to 10% of commissions. How much money is that for you—$10k a week? $100K?

The math is too big; the equations too complicated. The system is too slow to truly reward and actually encourages communication breakdowns. When you try to turn Excel into a sales motivator, you create real business problems.

Consider an example I shared at the conference: Back when I was a sales manager, I was mistakenly paid $80,000 instead of $8,000 in commissions. When I reported the mistake, my manager said to me: “Wow, Chris, do you realize we would have never caught that?” Turns out, my employer overpaid three of us $72,000 each and didn’t realize it. Combined, that’s more than $200,000!

And just imagine all of the incorrect payments they didn’t catch over the years. These errors happen all the time. They cost companies millions. But this isn’t the only cost. Salespeople who don’t trust their paychecks aren’t motivated to try for incentives. Why should they if their pay is essentially random? They may even waste time tracking their commissions.

But more and more companies are eliminating the sales roadblocks -- like errors -- created by running commissions in Excel. When they swap Excel for automation, they tap into the science of human psychology—the desire to compete and win.

Research from CSO Insights and the Aberdeen Group even shows that companies that use new incentive solutions sell more, more efficiently. Xactly’s customers, for instance, see 146% revenue growth and 36% shorter sales cycles once they ditch manual compensation processes. What these leading companies understand that others don’t (yet) is that the science of effective motivation can be built into incentive compensation tools.

To see what I mean, consider these not-so hypotheticals. Would your sales reps be more motivated (and capable) to outperform quota if they could:

• Track their performance against goals every minute of the day?  
• Know exactly how much they’d get if they closed a potential deal?  
• Trust the accuracy of their payments?

What about your sales managers? Would they be more effective if they could compare sales reps’ performance by territory, product, and margin? All with the click of a button?

We all know the power of human motivation. When sales leaders ditch the thing that stands between incentive programs and real motivation -- Excel-driven errors -- they create a company culture that encourages top performance, healthy competition, and accelerated revenue. So why are you trying to force 30-year-old technology to do something that it was never meant to do?

Publisher's note: Join me on June 7 in London and hear Christopher Cabrera’s keynote, "The Science of Sales Performance," at the Sales & Marketing 2.0 Conference. 

Comments

[M Ashford - ROI for Sales]

Excel is a great tool but your points are so true! You would be amazed what excel is used for in some businesses.

Retailers use Excel to plan all their merchandising to stores ($millions).

Warehouse track inventory in Excel!

Wholesales do their forecasting in Excel!

I use it everyday, and yes it has bugs!

[Laura Roach]

Very true point. I believe on average 3-5% of commissions have errors which adds up significantly as you point out in your example. Imagine that across multiple sales and sales support comp plans.