In 2010, two economists published a paper that drew links between high levels of national debt and low or negative economic growth. That research, titled Growth in a Time of Debt, has since been widely cited by politicians and pundits, who jumped on it as proof of the need for austerity budgets, slashed expenditures, and reduced budget deficits.

Everything hinged on figures plugged into a spreadsheet, which the paper’s authors thought to be irrefutable data. The problem? Some rows of data were missed in the final calculation.

The problem with this paper is that it seems to have been based on faulty spreadsheet formulas. Not all of the data “facts” made it into the spreadsheet, which resulted in totals that  just did not add up. But by the time the flawed formulas were discovered, their flawed conclusions had already been popularized. (You can read about some of the spreadsheet errors in Ars Technica’s recent article, “Microsoft Excel: The ruiner of global economies?” or a full response to the report on the Next New Deal.)

So What?

So what’s so surprising here? In a way, nothing. After all, the results of any spreadsheet depend on the data that its creators plug in. The surprise, then, is that we’ve been reminded of what we already know.

Now consider this: If a faulty spreadsheet has the potential to shape the beliefs of our country’s economists and politicians about a topic as important as our national budget, just imagine what it could do to the shape of your company’s budget.

Spreadsheet errors can carry far-reaching consequences when it comes to your organization’s bottom line. For example, relying on spreadsheets to pay out sales commissions and bonuses is a dangerous game for several reasons:

1. Formulas are fragile. One incorrect keystroke can destroy the integrity of a document, without providing any clue that something has gone awry.

2. Humans make mistakes. When busy sales reps and team leaders plug information into spreadsheets in a hurry, the chance of human error increases. Let’s face it, spreadsheets are dizzying to read. Unlike CRM-based sales performance management software that features an eye-friendly dashboard, spreadsheets lack visual cues that train eyes on the important information.

3. Spreadsheets aren’t critical thinkers. Even when numbers and  formulas are plugged in and applied correctly, someone still needs to interpret the results. Because spreadsheets can be hard to read, it’s easy for managers to misinterpret critical data.

4. Sharing spreadsheets is a losing game. When your sales department’s protocol is to pass spreadsheets around between reps and managers, there’s always a risk that individuals will write over essential information. Like playing Telephone, your original spreadsheet slowly morphs as it makes the rounds, and the final recipient is unaware of the difference.

Relying on spreadsheets to track vital financial information within your company might be costing you more than you think, and not just because you are at risk of paying out higher incentives than planned. Spreadsheet errors also can affect morale — the very core of your sales team — if they result in lower incentives than reps deserve, and they can even put you at risk of breaking Labor Standards Act compliance laws. Sales performance management relies on accurate incentive compensation tracking, so using the right tools is crucial.

To learn more about goof-proofing your numbers, read “Finance Leaders: Learn More From Your First Quarter.”

—Scott Broomfield is a Senior Vice President at Xactly.

Image by Peter Sobolev / Shutterstock.com

Not necessarily.

The fact is, compensation errors can be very serious and expensive. According to the IRS, about 33% of all employers make payroll errors that result in costly penalties. Compensation errors can also result in lack of compliance with the Fair Labor Standards Act (FLSA) and — you guessed it — more fines. Add to this the cost of overpayments and the cost of turnover when unhappy reps seek more accurate employers, and the price you pay for sales comp errors is high, indeed.

If you’re managing sales compensation manually, you know that keeping track of varying comp plans is time-consuming and confusing. Because the task is so tedious, mistakes — even though infrequent — are made by payroll employees.

When you find errors, here are four steps to getting back on track:

1. Contact the individuals/entities impacted by your mistake immediately — the IRS, the local or federal government, and/or your employees — and let them know what happened.

2. Own up to the mistake. Don’t try to cover it up, blame someone else, or minimize the damage. Admit it, and apologize.

3. Fix it, and fix it fast! The government starts exacting fines when you are as little as one day late, and employees get really grumpy when their paychecks don’t reflect what they’ve earned. If you don’t want costs to accrue, and if you want your best employees to stick around, make your mistake go away ASAP.

4. Prevent future errors. Use sales compensation management software to manage payroll. This type of software completely removes the manual element from the compensation process, ensuring deductions are correct and that you’re adhering to FLSA guidelines. You also won’t have to spend hours and hours slogging through spreadsheets only to go back when errors are found and spend more time correcting inaccurate commissions.

To err is human, but mistakes that seem small can have big consequences. To learn more about improving accuracy, read Get Executive Buy-In: Incentive Compensation Management.

—Erik Charles is Xactly’s Principal Incentives Strategist.

But not so fast.

If you want your business to gain strength, you have to finish your reps (and we don’t mean sales reps in this case!). Before you take a breather, go beyond profit and loss. Take a closer look at your Q1 results to see what’s working, and what’s not.

Sure, the thought of manually gathering information from dozens of sources is daunting, and you have other fires to put out. We get it. It’s already a challenge to meet goals with a less than optimal headcount and a smaller organizational structure. Fortunately, innovative compensation management software lightens your load by providing up-to-the-minute data for accurate research, analysis, and insight — all in one place.

Here’s how to use data to evaluate Q1 and drive decisions:

• Gauge the success of the organization. How do this year’s results compare to last year’s, and did you meet your goals? In a nutshell, your data will help you adjust the strategic plan that guides the direction of the business, allowing you to make better decisions about everything from hiring to spending.
• Evaluate your C-Suite. See how other executive leaders and their teams and divisions are performing, including your president, vice presidents, managers, and directors. Use the data to determine who is meeting goals, and who isn’t. Strategies to fix problem areas may include adjusting compensation and incentives or making changes to your staff.
• Analyze activity surrounding products and services. Reports from your compensation management software can give you insight on customer demand and opportunities for expansion. Use the information for forward-thinking development and implementation of organizational strategy.
• Assess your people plan. Do you have the right people in the right jobs to meet company goals? Data will highlight any gaps and can also tell you if current staff aligns with future projections. Accurate visibility makes it easier to hire the right talent right now — when you’re still in good shape — not when you might be struggling to keep it together in the fourth quarter.
• Keep tabs on risk. Run reports that provide insight on potential credit risks, project or service failures, competitive behavior, and shaky markets to help you make decisions that mitigate risk moving forward.

If you wait until the fourth quarter to tackle these issues, the load could be too heavy to bear. Use your compensation management software to perform a Q1 check-up now, so you have enough muscle power left at the end of the year to raise a celebratory drink to your organization’s success.

For more information on how an end of first quarter analysis can benefit your company, read Q1 Sales Compensation Plan Check Up — See What’s Working.

—Erik Charles is Xactly’s Principal Incentives Strategist.

To start winning from the beginning, perform a check-in at the end of first quarter:

• Compare sales goals to accomplishments;
• Determine factors contributing to being above, on, below, or seriously below target; and
• Gather information needed to make strategic sales decisions and adjustments.

To determine how well your compensation plan is working, ask yourself these six questions. The answers should be easy to gain from the data in your incentive compensation management software.

1. How do your first-quarter sales stack up to your first-quarter goals? How does what you planned on doing compare to what you actually accomplished? Where can you do better next quarter? Use this information to adjust your incentive strategy, so you start winning now.
2. How do your salespeople rank? Reps who perform poorly rarely become top performers, yet they often require lots of time and money. Look at your data to get a comprehensive picture of how your team is performing. Consider letting go of those who are dragging your numbers down. Provide coaching or mentoring to middle performers, and improve your incentives to motivate top performers even more.
3. How do each salesperson’s results compare to previous quarters or years? Does your data show that your top reps aren’t performing as well as before? It may be time to redesign your incentive compensation strategy.
4. How does performance vary by region? Assess the sales potential of territories and customers, the quality of your customer service, and if territories are properly balanced and provide equal incentives to all. All of this information is the key to optimizing your territories.
5. How does performance vary by your product or service? Know what’s hot and what’s not, so you can sell more of what your customers want, and less of what they don’t. Then, tweak your incentive plans to motivate your team to sell your highest-margin products that are most in demand.
6. How does performance vary by your team leaders or divisions? If a team or division isn’t performing as well as others, you may have leadership issues to address. Compare performance of teams and divisions to others, as well as to performance in previous years, to find red flags. What can you learn from the other better performing divisions?

An end of first quarter check-in provides the visibility you need to assess your sales strategy and start winning now. For more information on driving sales growth, read Create a Sales Growth Masterpiece with Incentive Compensation Software.

—Erik Charles is Xactly’s Principal Incentives Strategist.

Because we know that compensation drives sales reps’ behavior, it makes sense that revenue spikes go hand-in-hand with measurement periods. If you take a look at your own data, you’ll likely find that the same pattern exists at your organization.

Researchers behind a study at Stanford University (my alma mater) used a mathematical formula to plot patterns in sales for several reps. They found that the distances to quota had a significant influence on the sales profile, specifically concluding that sales increased as sales agents got closer to quota.

If revenue spiking is an issue at your organization, here are three ways to control it:

1. Spread out the measurement periods. Replace your current quota attainment periods with monthly or year-to-date quota periods. Let’s say, for the sake of easy math, a sales rep has a yearly quota of $1.2 million. The quota for each month is $100,000, with a goal of reaching $100,000 by the end of January, $200,000 by the end of February, etc. Good accelerators are offered for every dollar above year-to-date quota. In this scenario, there is plenty of incentive for the sales rep to meet and exceed the monthly quotas.
2. Encourage early action. Offer kickers or accelerators — an extra percentage point or a couple of extra basis points, for example — on deals signed at the beginning of the month.
3. Gratify immediately. Use automated sales commission software to easily and efficiently pay reps more frequently. Sending checks at the end of the month for deals signed at the beginning of the month will control end-of-month revenue spikes.

Spikes in revenue are always driven by reps. Control their behavior with an efficient compensation plan, and you’ll control spikes in revenue. It’s that simple.

To learn more ways to control sales rep behavior with compensation, read “Drive the Right Behavior with Automated Incentive Software.”

—Erik Charles is Xactly’s Principal Incentives Strategist.

Training and coaching can and does help most reps improve performance, but some just don’t benefit from education or guidance. Despite attention, some remain on the bottom tier, year after year, with little or no improvement. Yet managers continue to hold on to these poor performers. Why?

Many sales managers retain ineffective reps because they are on the edge of meeting their sales quota. A few sales, these managers believe, are better than no sales. But the cost of keeping bad performers may outweigh the benefit of meeting quota. Even one solid lead lost to the competition is a price that’s too steep to pay.

To help you gauge when it’s time to say goodbye to a bad rep, make the following three steps part of your regular routine:

1. Monitor reps in the lower tier closely to see if they improve with training and coaching. If data shows that a rep’s performance remains poor quarter after quarter, year after year, the rep is not cut out for the job.
2. Monitor manager behavior. Analyze data to determine who managers are letting go, and when. If data shows fewer bad reps are let go when sales teams are close to quota, managers may be holding on to these reps to gain a few sales rather than no sales. If a sales manager admits he would let a rep go if that rep’s quota was taken out of the group quota, consider giving the sales manager quota relief.
3. Keep track of how much bad reps cost. Use data to determine exactly how much a rep costs, versus how much he brings in. When data shows the contributions of a rep do not justify the costs of keeping him, a manager is more likely to let a bad rep go.

Keep a close eye on sales reps in the bottom tier, and learn to gauge when it’s time to cut them loose. Don’t accept poor performance, period. And don’t allow your managers to do so either. For every sale that brings you to or just beyond quota, many more are wasted.

To learn more about why you should shift the focus away from poor performers, read “Team Maintenance: Creating Top Sales Reps from Middle Performers.”

—Erik Charles is Xactly’s Principal Incentives Strategist.

On the other end of the spectrum are sales managers with too many management layers below them. This scenario results in inefficiency and waste, as well as an unnecessary increase in the organization’s compensation costs.

Ultimately, the goal of leadership should be to strike a balance — management should be lean enough to be efficient and cost-effective, but not so lean that engagement and productivity are affected.

How many layers should your organization have, and at what point do you know you have too many managers? One formula doesn’t work for every company, but, fortunately, your sales data should be able to tell you everything you need to know.

Follow these three steps to strike the right balance:

1. Use your data to answer this question: Out of every dollar I earn in revenue, how much am I spending on base and incentive? If the dollars earned don’t outweigh the cost, the number of layers in your sales team may be contributing to the problem.
2. Take a close look at shared credits. In this post, we told you that there are about 14 different checks written after the close of a typical sales deal. How many layers are there between the VP of Sales and those tasked with closing, and are all those compensated contributing to the sale?
3. Analyze the information so it can be correctly applied. Don’t make the common mistake of applying across-the-board decreases in sales staff without using data to guide you.

In the end, the best measure of whether your org chart works is profitability. Study your data to reveal how the numbers of layers in your organization are impacting profits, and use that knowledge to make adjustments.

How many layers does your organization have, and how did you figure out the right balance? Tweet your answers to @XactlyCorp.

If you aren’t putting as much thought into structuring your sales teams as the Marines do, perhaps you should. According to Gallup Organization research, businesses “have decimated the numbers of front-line sales managers, often without any real understanding of how this will affect employee engagement and productivity. We have seen “span of control” ratios climb from 7-8 representatives per sales manager to 15-20 reps per manager.”

How Does Team Structure Affect Employee Engagement and Productivity?

When managers are in charge of too many front-line reps, those reps stop getting the attention they need to succeed. Effective coaching and training is reduced, and so is performance.

There is no one-size-fits all answer when it comes to the structure and organization of sales teams, so how do you know when you have too many marines and not enough squad leaders? Use your sales data to answer the following questions:

1. Are mid-level performers stagnating? Leaders distracted by too many reps fail to give mid-level performers the level of coaching and training they need to improve.
2. Has turnover among top performers increased? Overloaded managers are unable to invest a lot of time in top performers. When the link between managers and top reps erodes, engagement and productivity suffer. Top reps are likely to look elsewhere to be more successful.
3. Have sales declined overall? If good managers aren’t pulling typical numbers from their teams, their span of control may be out of control. While increasing the number of sales reps per manager might sometimes seem like a good idea, it rarely makes financial sense.

If you want your sales teams to be as efficient and effective as a Marine platoon, pay close attention to their size and structure. Use your sales data to determine the optimal number of reps your managers can handle before distraction sets in.

For more best practices around efficiency and motivation, read: “Timing is Everything: Why It Pays to Measure Performance Frequently.”

And that’s just the tip of the iceberg, of course; turnover has a cascading effect.

There are more costs that won’t appear on your balance sheet. On average, it takes about eight weeks to recruit and hire an employee, and several more weeks to train him. During this time period, performance takes a dive and others are expected to pick up the slack. Those that do, feel overworked and stressed, and negatively affect morale.

This type of atmosphere creates — you guessed it — more turnover. And the cycle begins all over again.

To reduce turnover of top performers, follow these three steps:

1. Identify turnover spikes. Learn to recognize when turnover is going to occur, so you can head it off at the pass. Compare turnover data over several years to determine if spikes are occurring at typical times. Turnover spikes among top performers typically occur during the first and last months of the fiscal year, as well as in the middle of the fiscal year.
2. Use data to gauge the temp of top performers at critical times. Are top reps hitting their performance goals consistently? When you compare current data to previous data, what do you notice? If reps’ numbers are down, it could signal that they have their eyes on the door.
3. Introduce incentives at spike times, as well as when data indicates performance — and engagement — is lagging. Give disengaged reps a bit more attention by taking them to lunch, introducing a new SPIFF, or finding other meaningful ways to make staying the best option.

When faced with the choice of spending money on turnover or spending it on keeping a great rep, invest in the rep. Use automatic sales compensation software to identify typical turnover times, and to introduce incentives when warning signs occur.

To learn more ways to engage and retain your best sales reps, read “The Real Price of a Rock Star.”

According to an August 2012 Harvard Business Review article, U.S. companies spend more than $800 billion on sales force compensation every year — three times more than is spent on advertising. For many companies, sales force compensation is the largest marketing investment made.

If you’re not already doing so, spend some time reviewing your compensation plan. Find out how well you currently understand the cost of one sale by asking yourself these questions:

• How many checks are cut, on average, for one deal?
• How is payment determined?
• Does everyone receiving a check contribute to the sale, and do commissions complement the level of contribution?

You can find the answers to these questions in three steps:

1. Dig deep. Know how many people you are paying per sale, how you are paying them, and how much you are paying them. You may be surprised to learn that, on average, there are about 14 different checks written for every sales deal closed.
2. Consider contribution. Many organizations split up incentives, making their ties to action tenuous at best. Instead of splitting, use data from your compensation management software to assess how much each job contributes to the sale, and develop a pay structure based on this info. Let incentives drive and influence specific actions.
3. Remove those not contributing to the sale. As hierarchies and sales team org charts change, so do the people who impact a single sale. Be sure to keep up to date on who is contributing to a sale, and make sure compensation plans are current to the situation.

With a solid understanding of how much a single deal costs, you can drive specific actions and increase performance while spending less. Learn more about leveraging the power of your sales compensation plan by viewing our webinar on sales compensation plan strategies. Then, sit back and celebrate — enjoy the impact to your bottom line with wings and a cold beverage.

How many individuals are involved in a single sales deal at your organization? Tweet your answer to @XactlyCorp.

—Erik Charles is Xactly’s Principal Incentives Strategist.

Image by Shutterstock.com