For sales people, the vast majority of profits are generated by sales commissions. Therefore, a miscalculated commission can be disastrous for the employee, the team, and the entire company. Once settled correctly, the commission will drive and encourage sellers to raise their own bar each day. As long as selling is a commission-based role, the structure and effectiveness of your commission plan will be the biggest motivator for your team to improve your game performance. But what happens if you wrongly settle your commission? Imagine you are the best sales representative in an IT company. Work hard every day to reach and exceed the limit. Then one day, you receive a transfer with a commission that is light-years away from what you should be getting. What do you feel? Nothing reduces the sales team’s productivity more than the lack of organized procedures in the department, like: design, implementation, and consistent update of the sales commission plan.
Making a fatal error in making a commission payment to a seller can:
- Kill the sales team’s spirit
- Lead to loss of employer’s trust
- Reduce your team’s productivity
- Make your best employee leave-
- Prevent the attraction of new talent to the company
- And even some legal consequences.
All of the above means you are wasting time and money. Don’t underestimate the danger of not implementing a commission management system that ensures accuracy, creates trust and rewards efforts.
Why do companies choose spreadsheets to calculate commissions? Sometimes it is a lack of technology, sometimes technology does not keep up with the company’s development… Spreadsheets are great for sales teams that validate their concepts. They are known to everyone, flexible and easy to use. The problem is they have a low growth cap and collapse under the pressure of a more complex commission plan.
Companies using commission spreadsheets are one mistake from crossing the fine line that separates the luck of the sales team from inaccurate calculations and a commission payment error that can undermine team morale. Although the use of technology is a big step in reducing the risk of making payment errors, there is still a danger of breaking the commission plan itself. In a changing sales climate, offering new and innovative ways to deliver commission plans with greater complexity and better transparency, not designing an attractive plan can be just as bad as paying a miscalculated commission to an employee. Just as the right plan can attract talent and inspire great results, a poorly designed or boring commission plan can be demotivating and repulsive to potential new hires.
The REAL cost of commission errors
Whether it’s a flawed commission plan that is not an encouragement or a human error that results in incorrect commission payouts, a wrong commission is sure to leave a bad taste among employees.
Now imagine that you are a sales representative and your commission plan is unbearable. Would you like to work for a company where low commission rates mean severely low wages compared to the margins you provide to your employer?
What about unrealistic limits that cause the best to achieve only 50% in each cycle? This demotivates the entire team.
Here’s a look at what you can lose by failing to pay your commission.
Killing team spirit
Commission errors are a misfire that cannot be disarmed. A single mistake on commission, undermines trust and calls into question the organization’s ability to function properly. Once trust is lost, it is difficult to regain it. Additionally, this distrust is likely to spread. Each employee will now double-check their commission statements to see if they have also been changed. This level of distrust is toxic. The same goes for representatives who start complaining about low commission rates or unrealistic sales targets. If your incentive plan is unfair, it won’t take long before it becomes discouraging.
A demotivated sales team means low productivity. Less cold calls, less e-mails, fewer meetings with clients. It is expensive for you. Not only does it mean that the offers do not end with signing the contract, but they deteriorate over time, lowering sales results.
Loss of job talent, vacancies
When the sales team experiences a lack of trust or low motivation due to a poorly executed commission plan, the risk of increased attrition soars! The best players who feel that their money may not be fully accounted for will move to a new company with a well-structured commission plan or one that guarantees transparency in payouts through specially designed tools. Moreover, it is likely that the word will spread through online opinions, making it difficult to attract new talent and fill vacancies.
Human error and legal responsibility
As if that were not enough, making mistakes in paying your commission can even have legal consequences. Did you know that an error in paying commission that affects your entire sales team could put you at risk of a class action lawsuit? In 2017, the Oracle sales team filed a $ 150 million class action lawsuit against the company for unpaid commissions. In 2019, IBM lost a class action lawsuit against its sales staff for denying a commission.
Is it worth the risk?
It should be obvious by now that the actual commission cost is very high. Not only in currency, but also in lost productivity, lost talent, lost time, and potential legal liability. Perhaps you can avoid one or two mistakes and possibly satisfy some employees despite a poorly designed commission plan. Perhaps. Consider the benefits of using technology to automate the calculation of incentive pay and provide salespeople with a more flexible, transparent, and accurate compensation management system.
Interested in learning more?
Book a conversation with a software developer – CaptivateIQ or with us – a technology implementation partner; to find out how we can help.
This article was created by cooperation with Partner.