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A fundamental issue when evaluating the simulation of precipitation is the difficulty of quantifying specific sources of errors and recognizing compensation of errors. We assess how well a large ensemble of high‐resolution simulations represents the precipitation associated with strong cyclones. We propose a framework to breakdown precipitation errors according to different dynamical (vertical velocity) and thermodynamical (vertically integrated water vapor) regimes and the frequency and intensity of precipitation. This approach approximates the error in the total precipitation of each regime as the sum of three terms describing errors in the large‐scale environmental conditions, the frequency of precipitation and its intensity. We show that simulations produce precipitation too often, that its intensity is too weak, that errors are larger for weak than for strong dynamical forcing and that biases in the vertically integrated water vapor can be large. Using the error breakdown presented above, we define four new error metrics differing on the degree to which they include the compensation of errors. We show that convection‐permitting simulations consistently improve the simulation of precipitation compared to coarser‐resolution simulations using parameterized convection, and that these improvements are revealed by our new approach but not by traditional metrics which can be affected by compensating errors. These results suggest that convection‐permitting models are more likely to produce better results for the right reasons. We conclude that the novel decomposition and error metrics presented in this study give a useful framework that provides physical insights about the sources of errors and a reliable quantification of errors. Plain Language Summary: The simulations of complex physical processes always entail various sources of errors. These errors can be of different sign and can consequently cancel each other out when using traditional performance metrics such as the bias error metric. We present a formal framework that allows us to approximate precipitation according to three terms that describe different aspects of the rainfall field including large‐scale environmental conditions and the frequency and intensity of rainfall. We apply the methodology to a large ensemble of high‐resolution simulations representing the precipitation associated with strong cyclones in eastern Australia. We show that simulations produce precipitation too often, with an intensity that is too weak leading to strong compensation. We further define new error metrics that explicitly quantify the degree of error compensation when simulating precipitation. We show that convection‐permitting simulations consistently improve the performance compared to coarser resolution simulations using parameterized convection and that these improvements are only revealed when using the new error metrics but are not apparent in traditional metrics (e.g., bias). Key Points: Multiple high‐resolution simulations produce precipitation too often with underestimated intensity leading to strong error compensationErrors in precipitation are quantified using novel metrics that prevent error compensation showing value compared with traditional metricsConvection permitting simulations outperform the representation of precipitation compared to simulations using parameterized convection [ABSTRACT FROM AUTHOR]