The trouble with Excel
How to tell if your organisation has outgrown its spreadsheet-based commissions process
How risky is it to rely on a spreadsheet-based compensation calculator? Even for small organisations, there’s a surprisingly large scope for errors, leading to inaccurate payouts that can cost tens or even hundreds of thousands of dollars per year. So why are so many companies still relying on Excel for sales commissions?
Microsoft Excel is a great tool that practically everyone in commerce is familiar with. Launched in 1985, it’s been a staple on home PCs and company desktop images ever since. It’s ubiquitous because it’s a general office application that can be used for a wide variety of tasks. According to a 2024 cross-industry survey by Global Planning, 100% of respondents use spreadsheets for some planning and decision-making, with 50% agreeing that spreadsheets are their main planning tool.
As organisations grow, they tend to adopt specialist tools that are more efficient and designed specifically for the needs of functions such as finance, accounts and HR. These applications are custom-built to streamline and automate common transactions and tasks within the function, such as tax calculations, invoice accounting and payroll.
Can you afford to rely on spreadsheets?
It’s a smart decision, and not just because it makes life easier for administrators and saves time and headcount in the back office. There are substantial risks and quantifiable costs to weigh up if you’re relying on manual operation of spreadsheets for critical business functions. Organisations are understandably coy about admitting the losses they know about, but there are some well-publicised and eye-watering examples. Norway’s massive Sovereign Wealth Fund lost around $92m due to a spreadsheet error in 2022. Standard Chartered Bank incurred a £47m fine due to a cell of incorrect data in a spreadsheet in 2018. In 2020, NHS Lothian had to carry out £16m of remedial work to a critical care hospital, after human error in a spreadsheet led to incorrect specifications.
How does this translate to compensation? In our sector, we tend to refer to an estimated overpayment rate of around 8% of total compensation costs from spreadsheet-based, manual processing. It’s very difficult to gather specific data, because companies don’t want to admit to these errors or are not even aware of them. But this industry benchmark of 8% feels realistic, perhaps even conservative, to us, based on our direct client experience over the last decade. Applied to a business paying a total of £10m annual compensation, this would mean losing £800,000 every year due to spreadsheet and calculation errors.
Scaling up your organisation and counting the cost of the risk
As organisations grow and the scale and sophistication of their compensation plans increase, so does the likely number of errors likely in a spreadsheet. Mechanical errors are when something is typed or pasted in wrongly. Logical errors are when formulae or algorithms are wrongly created or applied. Omission errors are when necessary figures are left out. The more data and data sources, you have and the more formulae you’re applying, the more these factors can aggregate to increase that 8% error rate.
The biggest challenges in business planning are susceptibility to human error, data security and managing larger volumes of data, according to Board.com’s Global Planning Survey 2024
Beyond the impact on the bottom line, there’s also the problem that spreadsheets are static. They can’t provide the instant, accurate data updates that most sales and business leaders need to make good decisions and shape business strategy. As your commission instances and transactions increase, Excel may struggle to cope with the scale of your data. Data security can also be an issue, as well as auditability and transparency. If you’re relying on one key expert to understand and manage your Excel-based commission calculation, what will happen when they leave?
Investing in an SPM application is a no-brainer, as long as it fits your needs
For all but the smallest organisations with a handful of sales staff operating on very simple commissions, a purpose-designed SPM solution is a far better choice than a home-grown spreadsheet. And there’s a range of well-built, proven and flexible applications on the market that suit the needs and pockets of businesses at every stage of growth. Here at Compincent, our superpower is understanding each customer’s current and future needs and recommending the best solution. Because we work with many vendors, we’ll never force-fit a preferred application.
If you’re ready to reduce business risk and stem the flow of (known or hidden) commission losses by adopting a robust SPM solution that’s scaled to your business needs and ready to flex and grow with it, talk to us.