3 Reasons Why Sales Compensation Errors Lead to Revenue Loss

If your salespeople aren’t selling, they aren’t bringing in revenue. They also aren’t earning commissions and sales compensation. Salespeople don’t want to lose this selling time, but sales compensation problems can directly contribute to less selling time.

Sales reps have less selling when they deal with payroll errors

Sales reps have less selling time when they deal with sales compensation and payroll errors.

Often, you need dig no further than your sales compensation plan to get to the root of the problem. Here are three major sales compensation issues that distract reps from getting the most out of their sales time.

Problem # 1 A poorly designed compensation plan

Too frequently, sub-par tools and technology are used to enter, collect, and process data related to past performance, territory saturation, quota attainment, current market trends, and the competition’s strategy.

When sales managers and sales operations staff don’t have the means to gather the information necessary for creating an effective sales strategy, they may well end up designing an unfair, lopsided sales compensation plan – one that fails to drive the desired sales behavior.

Problem # 2. Ineffective communication

Perhaps the most significant sales compensation problem, however, arises when salespeople do not understand the plan’s structure. Lacking clarity about how to maximize their earnings, they may simply ignore the plan altogether. Once this happens, the possibility that incentives will change their way of selling becomes nearly obsolete.

If the right channels aren’t used to deliver sales compensation-related information and offer support to reps, dissatisfaction among your team may lower revenue, lead to confusion about objectives, and even cause a higher turnover rate than anticipated.

Problem # 3. Errors in payment

Errors in accounting and related disputes may also prevent companies from executing a solid sales compensation plan. If your organization manages sales compensation manually, it’s even more prone to calculation and disbursement errors.

Errors in payment make reps resort to shadow accounting.

Errors in payment make reps resort to shadow accounting.

When salespeople catch payroll errors, they lose confidence in the effectiveness of the calculation process. They may even start shadow accounting, which is maintaining a parallel record of their sales and earnings, to validate their earnings during any given pay cycle.

In addition, payroll errors can unintentionally encourage reps to raise disputes over mistakes, both real and perceived. Ultimately, shadow accounting, and the resolution process it engenders, further reduces selling time and drains resources.

When sales operations and management spend an inordinate amount of time fighting fires and resolving disputes, designing a well-rounded compensation plan or collecting relevant, accurate data gets sidelined. Hence, the cycle continues.

But the scenarios above aren’t cast in stone. Review the strategies below to ensure your sales compensation plan is as impactful and successful as possible.

  1. Implement a simple, incentive-driven compensation plan and explain it thoroughly at the beginning of the plan’s period to reduce time spent in resolving misunderstandings.
  2. Keep the compensation plan fair and straightforward to instill positive selling behavior in the minds of your salespeople.
  3. Use automation to accurately record and calculate sales figures. This way, your salespeople won’t feel the need to resort to shadow accounting.
  4. Invest in a sales compensation management process that helps you leverage sales data to gain business insights.
  5. Use mobile tools to train, coach, and support your reps in the field.

These articles will help you further in designing and implementing a well-balanced compensation plan:

  1. Nancy Nardin’s Advice on Using Technology to Drive Sales Excellence
  2. Three Key Approaches to Building the Best Incentive Compensation for Sales Managers
  3. The Cost of Doing Nothing: How to Minimize Operational Expense

This article is part of a series dubbed The Cost of Doing Nothing.

Learn How to Model Incentive Plans for Sales Excellence

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Mike DeMarco

Associate Business Analyst at Optymyze

Mike has extensive experience in configuring and operating sales compensation systems as well as cultivating productive client relationships. He has worked with clients in the industrial manufacturing space.

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