Shadow Accounting May Be Chipping Away at Your Team’s Performance — Here’s Why

There are many pitfalls to a sales org that deals with patched-together tech and dated processes. Information is hard to track, and there's little transparency. For reps, this can translate into dollars and cents: a lack of commission clarity and effective tracking might mean they lose out on hard-earned money. That's where shadow accounting (number crunching by reps) comes into play.

In this article, we'll dive into what shadow accounting looks like in modern-day sales orgs and how it came to be. Then we'll take a look at some of the real-life impacts for sales teams across industries.

What you'll learn:

What is shadow accounting?

Broadly speaking, the term shadow accounting refers to the practice of maintaining financial records and calculations in a separate system that lives outside any official sources of truth. Shadow accounting often happens at the individual, team, or department level and can happen in conjunction with official record-keeping or workflows.

In sales specifically, shadow accounting often refers to the practice of individual reps keeping track of their own deals and commissions for the sake of ensuring an accurate paycheck down the line.

The origins of shadow accounting

Shadow accounting, also known as shadow auditing, is common on sales teams where there is a history of commission errors. The reason for this is simple: A single commission mistake can fracture the trust between sales and finance. Once that trust is broken, reps take extra measures to keep an accurate record of their own pay so they have the information they need to file disputes and make sure they're getting paid what they're owed.

Another common reason for shadow accounting on sales teams is a lack of visibility into sales compensation. If a rep feels they don't have a way to quickly check how and why they're paid, they'll create their own tracking mechanism.

The negative impact of shadow accounting on sales teams

On the surface, shadow accounting may seem harmless. After all, it makes sense. If you don't have what you need, creating it for yourself is proactive… right? Wrong. Let's take a look at why shadow accounting is likely hurting your sales organization:

• Decreased productivity: If your sales team spends a large portion of their time formatting spreadsheets and updating data manually, that's time they're not spending on the phone or selling.
• Lack of motivation: It's hard for reps to be motivated by sales commission when they're unclear how - or if - they'll get it.
• Mistrust in leadership: A rep creating their own commission spreadsheet is likely to believe that they're the only one who is looking out for their best interest. If leadership doesn't care enough to pay their reps accurately and on time, why should reps have any faith in leadership?
• Rifts between teams: Constant disputes and inaccuracies lead to rifts between sales and finance teams.

• More than 2/3 of reps' week is spent on non-selling activities, like shadow accounting. (source)
• 88% of spreadsheets contain at least one error. (source)
• 80% of companies pay salespeople inaccurate commission rates. (source)

The importance of giving reps real-time earnings visibility

While an understandable byproduct of scrappy sales orgs getting off the ground, shadow accounting can take reps away from the work they do best: selling. That means less money coming in and more difficulty hitting big sales targets. To avoid this kind of time suck, make sure you're offering pay and performance transparency across the company, with effective tools to support it.

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