Business software is not inexpensive. It’s a mission-critical tool that needs to be stable, contain the right features, integrate with the right systems and deliver the right user experience to the right users. That requires a lot of development effort, usually from a lot of very smart people working very hard, and that means that the cost of the software is nontrivial.
When it comes to compensation management software, that cost can delay the decision to switch to a dedicated solution – “if what we’re using now works, why spend the money to upgrade it?” Usually, that means that commissions are managed with Excel spreadsheets – and if they’re working and disruption is perceived as minimal, justifying the switch can be hard for business leaders who merely look at the surface of the problem. After all, a dedicated commissions management platform costs money, and Excel is basically free, right?
That’s a dangerously narrow reading of the question. Businesses should not ask, “which is cheaper: Excel or a commissions management platform?” That question ignores a host of productivity and opportunity costs, and when they’re taken into consideration they reveal that Excel is anything but free. In fact, it imposes a set of costs that are nearly unbearable for companies with more than a dozen salespeople.
First, consider that spreadsheets are a manual tool that requires a lot of data entry, and when data must be added manually errors naturally find their way in. According to a study by Domo, 88 percent of all spreadsheets have errors. When that happens in your commissions process, that causes a number of very expensive things. It can lead to commissions overpayments, which are bad – as much as 8 percent of total compensation expenditures each year, according to Gartner. Worse, it can lead to underpayments to sales staff. Not only does that lead to disputes – which then require an inordinate amount of time and manpower to research and resolve – but it creates an atmosphere of distrust among the sales force. That causes sales staff churn to increase, which damages the effectiveness of the sales team and imposes huge staff replacement costs on the organization. It also results in shadow accounting, which steals time and productivity from the sales team who stay with the business. Spreadsheets are inefficient in and of themselves, but they cause additional inefficiencies that ripple through the organization.
Next, think about what your company may want to do with commissions. Ideally, commissions are more than just a way of meeting sales payroll – they drive sales behaviors to improve profitability, build customer loyalty or achieve any objective the business has. Adding bonuses, accelerators and spiffs is easy in concept, but when it comes to adding to them to a set of spreadsheets, they add exponentially to complexity. As a result, some businesses refrain from using commissions in the most effective ways, and others struggle to implement them in a timely fashion, before the business need evaporates.
And don’t forget that we’re in the era of analysis. Your commissions data is a goldmine of information that can help you coach individual sales people, create more effective territories, generate data-driven forecasts and look for areas where the sales cycle can be shortened. If that data is contained within automated compensation management solution, that analysis is as easy as integrating with an analytics application. If it’s in spreadsheets, not so much – the data must be extracted and may even need to be entered manually, essentially replicating all the effort that went into creating into your spreadsheets, with even more opportunities for the introduction of errors.
So, even if you don’t pay for Excel, you pay for using it to manage commissions payouts – in time spent by your compensation administrators entering data and resolving and researching conflicts, in lost productivity by your sales force while they haggle with administrators and keep their own second set of records to catch mistakes, and ultimately in sales churn and sales staff replacement costs. If costs you in the form of overpayments. It prevents you from being able to analyze data and move decisively based on that data with confidence that those moves will be reflected accurately in commissions payouts.
Each of these things imposes a cost – an actual cost, in the case of overpayments or in spending for data entry, or an opportunity cost, as in the case of lost time, productivity or business agility.
Compensation management, which pulls data in from ordering and CPQ systems, adds data to the commissions solution automatically, greatly reducing disputes and automating dispute research, and re-establishing the sale team’s faith in their commissions payouts, allowing both administrators and salespeople to focus on more productive activities. It allows changes to the compensation plan to be made quickly, and can accommodate complexity that would overwhelm a spreadsheet-based approach. It also enables comprehensive analysis of commissions data that would be impossible using spreadsheets.
How much is all that worth? If your business is bigger than just a few salespeople, it’s worth much more than the cost of a commissions management solution.
So, the next time someone argues that Excel is the way to go, remind that person that business software should not be judged on its sticker price – it should be judged on the entirety of its economic impact on the organization. Looking at commissions through that prism, Excel looks like a dangerously costly option.