Commission ROI part 2: Shadow Accounting

Commission ROI part 2: Shadow Accounting

Having done many implementations of Commission systems, we’ve found that one of the most prevalent reasons people implement has to do with clarity of commissions. Most feel like their sales people walk around all day not having a clue how or why they got paid what they did. I suspect this has a lot to do with the plans they have and the confusion created by the countless calls to the people who admin these systems. I can get into how that clarity gets provided, which is transparency in the data and better than adequate reporting, but for our purposes today, we will discuss how it affects the bottom line and how you can recapture that time for use in a more purposeful manner… Selling!

So how does one calculate the ROI they will receive by reducing Shadow Accounting? I think I should define the term first. Shadow accounting is the countless hours your salespeople spend looking and recalculating their commission statement. This is generally due to their lack of faith in your ability to calculate accurately but can also be attributed to general paranoia that this group of people have.

Of course the less detail provided to them will only increase this complete distrust in the organization. So how does one calculate the cost of Shadow accounting?   Quite simply you need to examine on a monthly basis people are spending on those calculations. A simple survey can determine this or one could spy on them, to help their paranoia. Once you have the general number of hours spent, you can then look at the general hourly cost of a sales person, multiple it by the cost of that person and you have your total cost for shadow accounting. Estimating that a new system will save you 70% of this cost (you can never shake all the paranoia), you will then have the ROI of the new system for shadow accounting in commissions. I am giving an example calculation below.

Remember that shadow hours include time spent looking at plan, disputing errors, admin time, etc. Also how much revenue is lost due to focus on non-selling activities.

Lost time selling, lost revenue. Take yearly revenue avg / rep / 2000

Also could value this time by lost/wasted sales person salary. Avg salary / 2000 hours

ROI-Overhead & Savings
Savings Hours Person Rate Percent improvement Savings Per Year
Sales Productivity 9 100 $65/hr 70% $163,800

 

These number only reflect cost and not revenue. Pretty compelling argument already for the ROI of your new commission system

  • Posted by Lanshore
  • On August 27, 2015
Tags: Accounting, Behavior, commissions, ROI