The nightmare of calculating incentives in spreadsheets.
9 out of 10 spreadsheets have errors. The majority of these errors are made by people like you and me. Yet, we continue to use spreadsheets to calculate one of the most complex things invented by mankind: incentives. Calculating incentives can look straightforward at the beginning, but it doesn’t take too long before you lose your way. With spreadsheets, it will only get more complicated, especially as you scale and grow.
What are the disadvantages of using a spreadsheet?
Let’s look at the 7 most common problems of calculating incentives in spreadsheets:
1. Manual Data Updating is Laborious
You must access the most recent information from the CRM, ERP, and payroll systems to correctly calculate your incentives. Spreadsheets are not interconnected; therefore, you will have to update your incentive plan with the most recent information manually. This is incredibly difficult, time-consuming, and error-prone. Excel will require more time to process incentives than commission-tracking software would. It requires a lot of manual editing, creation, and computation setups, which are cognitively and physically taxing.
2. Chaos in Auditing
Every incentive plan is unique and varies depending on various variables. Therefore, it would be impractical to maintain track of every update made to the spreadsheet.
Let’s think about an example. The financial team has to review the Q3 incentives from the previous year. Do you believe they will grasp it quickly? Your finance team will have difficulty resolving the matter because the last one where you added exceptions is probably not version controlled and stored in the audit folder you keep.
Compliance with accounting requirements is essentially impossible when using commission spreadsheets. Organizations must amortize the cost of incentives over time to comply with accounting standards. It’s difficult to comprehend how one might pass even a simple financial audit with commission data dispersed among dozens of spreadsheets (with different versions and algorithms). Additionally, since financial audits are likely to include incentives, any anomalies there may result in fines or penalties and, more importantly, may impact the overall effectiveness of the incentive plan because the natural response would be to simplify the plan to avoid these mistakes. While doing so, remember that your new plan might not be ideal for your salesforce.
3. Little Modifications Can Pose a Threat to the Incentive Plans
Your plans won’t stay the same the entire time, so you’ll need to make the appropriate alterations occasionally.
Spreadsheets for calculating sales incentives will be prone to mistakes because you’ll probably copy data to them and manage it by hand. Similar to how one wrong piece of information will affect your entire computation when using the sophisticated formulas you’ll utilize. If there is a problem, you will spend hours identifying it because spreadsheets are notoriously difficult to troubleshoot.
Ultimately, this results in overpaying or underpaying, which may cause conflicts with your sales representatives or, worse yet, a loss of motivation.
4. Complex Calculations Are Extremely Difficult to Implement
Your incentive plan may remain straightforward for the time being, but that won’t last for very long. Including more variables will become confusing, and there might already be too many things going on with incentives.
You might end up rejecting any beneficial or efficient incentive plan changes that sales teams might propose to keep the spreadsheet simple. This isn’t going to do any good for your reps and your business. Remember that incentives are there to inspire the sales team, not to make operations’ jobs easier.
5. Difficult to Spot Errors
You may have to update the formulae you use in your spreadsheet often. Organizations use a number of managers to design employee remuneration. In turn, this increases the likelihood of error. Even production suffers, and the financial risk rises as a result.
Errors may creep in and increase as each manager submits their customized version of the planning spreadsheet template. For instance:
- Removing rather than adding
- Wrongly applying or altering formulas
- Unknowingly deciding on remuneration outside of the prescribed parameters
- Forgetting to include new hires
- Use an outdated spreadsheet planning template
Your compensation team now faces challenging responsibilities, including aggregating manager input, discovering inaccuracies, recalculating models, and following up with managers to remedy the errors when these errors are multiplied by hundreds of managers.
6. Real-time Data is Unavailable, Which Causes Your Reps Anxiety
Sales reps would not have real-time visibility if incentives were calculated using spreadsheets; instead, they would have to wait until the end of the month or quarter. They will become frustrated since they cannot point out the mistakes earlier. Real-time data keeps your salespeople motivated as they work to meet their quotas, and openness ensures they are fully aware of how their incentives are determined.
When there is a manual payout mechanism in place, calculations are usually not something you have as much time to focus on, but there will almost certainly always be some level of worry. Shadow accounting is a method of auditing incentive payments used to determine payouts for sales incentives outside of official accounting records. Shadow accounting is fundamentally a method of auditing incentive payments used to determine payouts for sales incentives outside of official accounting records. The mechanism itself is prone to problems and was created as a safeguard against manual error payments, which makes incentive compensation management more stressful for sales reps.
7. Visualization of Data is Difficult
Users can make charts and graphs in spreadsheets. But the essential phrase is “make.” Any type of data visualization requires a lot of time and effort to put together in a spreadsheet. Since the visuals are optional, managers may decide to omit them entirely. However, showing a spreadsheet with tens of thousands of rows would definitely make your team members’ eyes glaze over.
Final Thoughts!
Spreadsheets might be effective in the early stages of your business, but they are unquestionably not a long-term solution for incentives. You would require something else to manage intricate incentive schemes, such as sales incentive software. Despite the many reasons why you should quit using spreadsheets, you still have needs that won’t go away. What should we use instead? When it comes down to it, the solution is rather straightforward. A speciality programme! You can eliminate the requirement for manual labor by putting the appropriate solution in place. You can actually avoid all the unnecessary labor using automation.
