Sales compensation leaders face a key challenge demonstrating the ROI of Sales Performance Management (SPM) to other key stakeholders in a firm, particularly, the CFO. Of course, for people working in sales operations, the value of SPM technologies is clear. For example, according to a recent sales compensation study by CSO Insights, 63 percent of organizations surveyed calculate and manage commission payments manually or use spreadsheets. An additional 19 percent calculate and manage commissions using an internally developed incentive compensation system. Here’s a representation for an approach to calculating and managing commissions:
Imagine manually calculating and distributing commission statements for hundreds of sales reps in your organization, across multiple territories, product groups and pay grades. No wonder sales compensation managers are a proponent of automating this process with SPM technologies.
But what other benefits does an SPM solution provide, and—perhaps more importantly—why should key stakeholders in your organization, such as your CFO, care about an investment in SPM? Use these three strategic arguments to advance interest and investment in SPM:
The compensation management process is the lowest hanging fruit for savings and efficiencies. This situation was the case for one IBM customer who discovered it was overpaying its sales reps by $1 million annually prior to implementing the IBM Incentive Compensation Management (ICM) solution.
Spreadsheet-based approaches also don’t scale cost-effectively. As the business grows and becomes increasingly complex, additional headcount is required on the compensation team, and the total costs for supporting the existing spreadsheet approach increases. Compensation errors are often costlier than they appear. If sales reps sense they are being treated inequitably, they are more likely to leave the organization. With unsophisticated SPM tools, you are capturing the wrong data, making the wrong calculations and leaving the sales reps disgruntled. The amount the reps get paid is never what they think they are going to get paid. A study by CFO Research estimated that sales turnover decreases by 25 percent when a company shifts to an automated system to manage all incentive plan components and processes.
2. Revenue growth
SPM solutions provide sales reps and sales managers instant visibility into compensation plans. Sales reps are immediately able to see what they are being paid and why. If reps can see where they are making quota, they will be highly motivated to close deals. They might even push to make that next sale to get to the next tier or multiplier in their compensation plans.
In addition, SPM solutions give sales reps confidence that they are being paid accurately and on time. Employees no longer have to engage in shadow accounting when it comes to checking compensation statements. This confidence results in a spurt of productivity from sales reps spending more time on selling rather than time spent on checking compensation payments.
And improved sales management visibility drives coaching, leading to increased sales among marginal performers. ICM sales management dashboards offer enhanced visibility into rep underperformance and overperformance.
3. Highly accurate forecasting
Organizations can mitigate risk by producing more accurate real-time forecasts than they could previously. Using an SPM system, a CFO has the ability to run multiple income-statement forecast scenarios and to accurately match various revenue and sales-mix scenarios with a precise commission-expense forecast.
See how SPM technologies are driving growth and efficiency in companies around the world and read the white paper on the changing role of finance in pay for performance for critical insights into how SPM solutions can empower Finance.
Download the incentive compensation paper