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Why managing sales commission in a spreadsheet does not scale

You probably already use a sales commission calculator spreadsheet to calculate and manage your sales commissions. When we researched the topic, it became clear that many businesses manage their sales commissions in this fashion. We sure did when we ran our previous software business!

Scalable software_share

It worked ok when we had a few employees, but the ‘free’ spreadsheet-based process became inefficient and expensive as the company got bigger.

Managing your commissions directly in Excel or Google Docs works reasonably well when you have a very small sales team, but it quickly becomes inefficient and expensive as your sales team grows.

We created EqualTo to allow you to manage your sales commissions with the flexibility of spreadsheets, without any of the downsides typically associated with a spreadsheet-based commission system.

Why many companies use a sales commission calculator spreadsheet

Why is it so common to use a sales commission spreadsheet? Because spreadsheets are amazing! They provide a versatile environment for developing calculators of any sort, and have a smooth learning curve. It's so easy to learn that many people don't realize that when they build a spreadsheet they're actually programming custom software. It's probably safe to say that spreadsheet technology is the most used programming language in the world! Companies use spreadsheets for all sorts of purposes and the skills to use a spreadsheet exist in most teams.

For sales commissions, the big advantage of spreadsheets is that you can make any change you want yourself, right away. And this is very important, because for a growing business, things evolve constantly and you need the flexibility to adjust incentives and create new ones. This will help keep the behaviors of your sales team aligned with the changing needs of your business.

Our enthusiasm for spreadsheets was a big part of the inspiration for EqualTo.

Spreadsheets are used for incentive compensation of all sorts - not just sales

We used to manually manage many different incentive compensation plans in spreadsheets, for all sorts of roles, not just for the sales teams. Our vision was to offer variable compensation to employees whenever it made sense, and to tie it to an objective performance metric. As a rule, we never did discretionary bonuses. This meant designing KPIs as well as formulas to calculate a commission or a bonus. We ended up with more than 10 different plans. Below is a table of the roles and the metrics we used for our incentive compensation plans.

Role KPI 1 KPI 2
Account executives New ARR Renewal ARR
Sales development reps Sales qualified meetings  
Support SLA violations Problematic software deployments
Customer success Renewal ARR Upsell ARR
Consulting Billable hours Internal projects
Operations/finance Meeting monthly accounting deadline  
Managers Various team metrics related to EBIT, EBITDA or new MRR  

 

The reason why a sales commission spreadsheet doesn’t scale - nor does any other incentive compensation spreadsheet

As you grow, you have more deal data to collect and verify, and an ever increasing number of spreadsheets to maintain.

The last minute rush to calculate commissions, make adjustments and resolve disputes takes longer each time, and involves more people.

At some point, we made it someone’s job to manage all the spreadsheets. When it was time to pay, the process at our previous company resembled this:

  1. Send emails (and reminder emails) to everyone to enter their results data in a spreadsheet. For sales this was “deals closed”, “qualified leads” for marketing, “renewed contracts” for customer success, etc.
  2. When the data is complete, manually enter the formulas to calculate the payments
  3. Send emails to the team managers to approve the sales results and check payments for their teams
  4. Finance team compares sales results to invoices or customers contracts
  5. CEO approves payroll, including all variable payments

Complex discussions proliferated at every step - involving emails, spreadsheets comments and occasional in-person meetings. The process was time consuming, but it was important that all mistakes or misunderstandings were resolved before payroll was run.

This process doesn’t scale. As you add more sales people to your team, the resources required to manage your spreadsheet-based commission plans increase in kind. In fact - it’s worse than that: as your team expands, each new employee adds an increasing amount of work to the administration of the plans, because of the needs to keep an increasing number of workbooks, sheets and cells mutually consistent.

The problem with available commission software solutions

Available sales commission software is considered only interesting for very large companies. Why? Because commission software typically requires specialized technical skills to configure and maintain the commission structures and bonus plans. And since companies don’t have these skills in-house, this means becoming dependent on expensive external consultants. For every change you want to make to your commission structure, you end up having to ask, wait, and pay for an external consultant.

So the choice is between:

  • A: an inefficient internal process (one or more admin persons plus a large collection of spreadsheets) that you control, or
  • B: an external process where you become dependent on expensive external consultants to maintain commission software.

Because of the high costs that come with option B, it only starts to make economic sense when you are a large corporation with thousands of sales reps.

But what if you could manage your commission structures yourself, but within a scalable software solution?

Well, now you can! EqualTo offers the best of both worlds: the flexibility of spreadsheets combined with the scalability of a purpose-built SaaS solution.

We’ve created the product we wish we had when we ran our previous company, and we now help fast growing companies to manage their sales commissions in a fraction of the time that would otherwise be needed.

With EqualTo, you maintain your commission structure yourself, within a scalable SaaS application, without becoming dependent on expensive external help. And it also works for marketing, customer success, support, services - you can model any incentive compensation plan.

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