Is Your Sales Compensation Process Scalable? Here are 7 signs that your commission process is limiting business growth.

As your business continues to grow and your sales force continues to expand. Will your Sales Compensation team be able to support this growth without creating additional layers of complexity and cost? 

Organizations spend a lot of money trying to build out their sales force. Whether that’s adding to the current headcount, creating new incentive plans or expanding into new markets. All these efforts are designed to help drive growth. But are we able to scale our Sales Compensation operation along with the rest of the business?

Having a process that allows you to easily manage your commission calculation for 200 reps may not be as effective once you reach 2,000. There are more transactions to manage, more credit scenarios, more plans to administer, territories to account for and plan changes that need to happen more frequently.

You will find yourself using more spreadsheets. More manual work, taking longer to pay your sales force and having more exceptions. Putting more stress on your Finance and Sales Operations team.

The key question you want to ask is not if my commission process works today, but will it continue to work as my business continues to grow and I’m not creating more complexity and cost to support it. 

Below are 7 signs that may indicate your Sales Compensation operating model may not be scalable.

1. Adding more people to your commission team each time the business grows.

If you find yourself adding more analysts each time your sales force grows this may be a sign that your current process isn’t scalable.

For example you have 500 reps and it takes you 5 analysts to process those commissions. Once your sales force doubles to 1,000 you now need 10 analysts to keep up.

While this may resolve your issue for the time being, your process may not be built out to allow you to scale.

You want to be able to process more employees by utilizing better practices, decreasing manual touch points and ensuring everyone knows what they’re responsible for. Not by adding more people. 

The goal should be to be able to support more employees with less cost.

 2. Using Spreadsheets to process your commissions 

Everyone uses spreadsheets in some form or fashion. But when those spreadsheets start being used to calculate commissions, make credit decisions, reconcile transactions and make payout adjustments you may want to take a look at your process.

Think about how your organization is set up today. Maybe you have 5 countries and each one uses different spreadsheets to calculate and approve commission payments.

Now you want to make a change to an accelerator or rate. You’ll have to update each of those spreadsheets and make sure everyone is doing the same thing.

The more companies or regions you have this becomes more difficult to keep track of.

If you’re looking to scale you want to have your commission process standardized and limit the amount of spreadsheets being used.

3. When new plans are created your operation gets more complex.

Your business is going to continue to launch new products, strategies, partners and programs that will help drive sales.

But are you able to support all of these plans efficiently?

Let’s say your company sells software and wants to create a new plan around selling Cloud. This plan may have new criteria, minimum amounts and could even have accelerators that reset quarterly.

If each new plan you create requires more work from your operation you may want to look at how your process is setup.

To ensure you can scale you need to have good controls around your plan designs, calculation methods and how you test them.

4. Your Exceptions and Adjustments continue to grow. 

Another sign that your process may not be scalable is if you see an increase in your commission adjustments.

Say you have 1,000 statements that you process each month and are making 50 adjustments after calculations are done. Now your sales force has grown and you’re making 200 adjustments.

You now have to spend more time trying to figure out what transactions are missing, why sales didn’t get credited, fix calculations and get approvals for these adjustments.

Although your business is growing so is your commission operation.

As you continue to scale you should see less errors and know where they’re coming from so you can put controls in place.

 5. Everyone does things differently within your organization. 

There are many departments that play a role in paying your sales force. From Sales Ops, Finance, HR, IT and Payroll all have some type of involvement.

When these departments aren’t working together you can run into issues that may prevent you from scaling your operation.

Territory changes may be handled by Sales Ops. Employee information by HR. Commission expense by Finance and payroll will pay out your sales force. If you don’t have a process in place and know who owns what you will run into issues.

To ensure you can scale your operation you need to make sure everyone is following the same process and have a governance structure in place.

6. It’s taking you longer to process your commission payments.

How long it takes you to process your commission payments is also something to consider when looking at your operating model.

Maybe it takes you 5 days to calculate and approve your commissions when you have 300 reps. Once you’ve grown your sales force to 1,500 it now takes 12 days to process.

Not only is this going to delay your payouts but it will cause more issues with your finance department.

As you grow you want to ensure you have processes in place that will allow you to scale.

7. You can’t provide your executive team with visibility into your commission spend.

If you can’t tell your executives how much commission your organization is paying out you may want to re-evaluate your operating model.

Maybe your CFO knows how much you’re spending in incentives each year but can’t answer the following questions.

a. Which business units are driving the most adjustments?

b. How many of my payments are being adjusted manually?

c. Where am I over or under paying my sales force?

d. How much time am I spending on my commission plans?

e. Do my commission accruals match what I expect to pay out in incentives?

These are all questions your executive team may want to know about your commission operation.

By building out your operating model you’ll be able to provide these metrics and controls to your organization.

Summary 

As your business grows you don’t want to be growing your commission operation at the same rate.

If you’re relying on spreadsheets, multiple teams not communicating and making adjustments to your payouts your process may not be scalable.

Make sure you’re following best practices and have the right tools and people in place to help drive your operation.

Remember when evaluating your operating model think about where your business is going in the future and not just where it is today.

Will you be able to process double the amount of commission statements and continue to grow your business?

So what do you think? Is your Sales Compensation team allowing your business to grow or is your business out pacing your commission process?