Cost of Sales Compensation Problems

An Executive Brief

Sales compensation is an important catalyst for any sales organization. When done right, it can increase performance and motivate the sales force. However, problems often arise, rendering the plans ineffective and causing financial losses. Optymyze analyzed over 100 companies with large sales forces and identified six major cost categories triggered by sales compensation problems.

The Cost of Sales Compensation Problems

The Cost of Administrative Resources

1. Cost of Administrative Resources

Sales operations, HR, finance, and sales leadership play an important role in managing sales compensation, but their time is valuable and finite. As organizations expand their sales forces, they naturally encounter more compensation issues, and administering sales comp becomes a costly burden on existing staff.

The Cost of Information Technology Resources

2. Cost of IT Resources

Sales compensation problems related to systems can take up more IT time to resolve errors, maintain software, and ensure all tools are in sync. Licensing third-party software, cloud technology, and upgrading infrastructure also add to IT staff costs.

Cost of Overpayments and Errors

3. Cost of Overpayments and Errors

In companies with global operations, sales compensation problems caused by overpayments and errors occur frequently. Such failures are often caused by human or technical glitches and can jump to over $300,000 a year, depending on payroll and other variables.

Up to 8% of all sales compensation expenditures are overpayments
Source: Gartner

Cost and Lost Revenue Due to Sales Force Turnover

4. Cost of Turnover

The average turnover rate for sales organizations is 35% – an expensive problem for any company, especially when they lose top sales reps or people selling niche products. With the average sales rep receiving $3,400 in training per year, adding ten new reps can dramatically impact the budget.

For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them
Source: Eremedia

Lower Revenue Resulting from Less Selling Time

5. Cost of Lost Selling Time

From shadow accounting and compensation inquiries, to disputing plan results – sales compensation problems decrease selling time. Lost selling time can have a financial impact ranging from hundreds of thousands to millions of dollars a year.

Lower Revenue and Margins Because of Undesirable Behaviors and Poor Motivation

6. Cost of Poor Motivation

The highest cost of sales compensation problems is from low motivation and the wrong behaviors. When sales reps are demotivated, they simply don’t turn in a strong performance. They may target clients inefficiently, price deals incorrectly, and generally put in less effort, which impacts sales and revenue.

60% of sales reps’ time is spent on activities unrelated to selling, such as shadow accounting.
Source: CSO Insights

Types of Costs Caused by Sales Compensation Problems

Mix of costs

 

The Optymyze research on 100 organizations revealed an average mix of costs triggered by sales compensation problems.
The biggest challenge for most organizations continues to be the poor motivation and undesirable behaviors of their sales force. These prevent them from achieving quota and cause additional expenses.

 

Bottom Line

Sales compensation management is a complex process with significant strategic implications. When done right, it improves motivation and helps leaders understand their team’s performance. However, many organizations struggle with sales compensation problems that lead to additional expenses like administrative resources and training new reps.

Compensation problems also impact companies in terms of lost productive selling time, due to high turnover, shadow accounting and disputes, and demotivation. To prevent these costs, many organizations work with sales performance experts, like Optymyze, who can bring enabling technology, as well as business process management to the table.