The 3 Hidden Costs of Sales Compensation Software Ownership

Last week, we talked about how to work out how much your sales compensation software costs. There were the typical, accountable costs of initial setup, subscription, and resources to manage the software. But we also mentioned several hidden costs, including "shadow accounting" and missed opportunity costs.

This article will use our experience with enterprise sales commission software to demonstrate why these are significantly more costly than most businesses realize and give you some suggestions on how to avoid these hidden expenses.

Cost 1: Shadow Accounting

If you haven't heard the term before, "shadow accounting" in sales compensation refers to sales representatives doing their own bookkeeping on the side because they don't trust the sales compensation software to calculate their commission correctly.

It's not the most common term, but it is an incredibly common practice. Most experienced salespeople will keep track of their commissions on a spreadsheet because their commission payments have been miscalculated in the past. It may not even have been at your company, but they distrust the system, at least until proven otherwise.

Why Shadow Accounting Cost More than You Think

It's easy to shrug off an hour a week of a salesperson's time until you factor in the cost of missed future revenue.

Say every sales rep has a quota of $1 million and there's a cross-company average quota achievement of 80%. Over the 48 selling weeks in a year, that makes each week of sales rep time worth around $8,300 in future revenue, or about $222 an hour + their hourly rate.

Factoring future revenue makes a sales rep’s time considerably more valuable than their hourly wage — in this case, 4x more. And that makes the time they spend double-checking your sales commission accounting 4x more expensive too.

Even at a very low estimate of two hours per month, this works out at over $6,500 per rep every year. We don't think it's unreasonable to estimate that the average cost per rep is about double that figure.

It's worth noting that because missed revenue impacts growth, this cost compounds over time. What is $6,500 of missed revenue worth in ten years?

Cost 2: Missed Opportunity

Missed opportunity costs are more challenging to estimate than shadow accounting but still worth attempting. Enterprise is, after all, about seizing an opportunity.

The easiest way to frame missed opportunity costs is to ask yourself: how many times have limitations in your current ICM process or solution limited how you execute your sales compensation plans? How many times have you been told to "keep it simple?" How many SPIFs failed to get off the ground because of a lack of time or resources?

All of these optimizations and tactics impact revenue. For many years, technology meant that the sales compensation department had to balance resources between making payroll and improving the system, and increasing sales. Urgency typically wins, and in this case, that meant making it to payroll unscathed became the driving factor and measure of success for sales compensation teams.  

Cost 3: Under-Utilized Resources

The final hidden cost of owning sales compensation software is related to number two; it's the flip side of the coin. Sales compensation admins are sophisticated, expensive resources. They shouldn't be spending their time doing basic admin tasks and learning to program software just to make payroll. It’s a tragic waste of talented resources.

Not only does this inefficiency cost the business in real terms, through accounting errors and repeated tasks, but it costs the business talent. Turnover in sales compensation is well above-average, and for a good reason: it's a brutally thankless role.

Sales compensation software is supposed to help you escape the "payroll treadmill" that most sales comp analysts end up on as their business grows. Instead, many legacy platforms just change the gradient, leaving sales comp teams to fight the same uphill battle to make payroll.

To escape this daily struggle, find a sales compensation solution that guarantees the outcomes you need. That means putting deliverables like payroll output and report creation in the contract. That will reduce the resources you spend on those functions, freeing you to deploy them to tasks that add real value to your business such as plan optimizations, running tests, reporting insights, and trends.

Ask and You Shall Avoid the Hidden Costs of Sales Compensation

Small businesses can ignore these kinds of costs, but they are a key growth lever for large enterprises, where efficiency and optimization have an amplified impact on the balance sheet.

If you're shopping for sales compensation software and want to mitigate these hidden costs, make sure you ask yourself some questions about what your business needs from a sales compensation solution first.

Then, ask the ICM software vendors in your shortlist to demonstrate the exact specific scenarios and processes that you need.

It's easy to show you a demo and say they can do whatever you need, but every sales compensation department has nuances and complexities that usually don't emerge until the end of year one when the comp plan and automation rules need to be updated. That is when most enterprises realize they are back on the payroll treadmill — only now it’s housed in an expensive software ecosystem.

We believe that the most successful businesses run on outcomes, which is why we guarantee our customers make payroll as part of our service level agreement.

We can do this because our AI-powered sales compensation platform learns to create automation rules and calculations based on your historical data. Then it makes recommendations to help you form a sales comp strategy that you can take to the boardroom.