I am often asked about the drivers of Sales Performance Management projects. What specifically are organizations looking to accomplish? How do they determine the Return on Investment (ROI) on their Sales Performance Management initiative? What are the first priorities?
While every organization is unique and they each have their own challenges, perspectives and priorities there are three categories of benefits that are common across Sales Performance Management projects.
· Efficiency gains
· Business enablement
· Reduced risk
One of these goals normally takes precedence over the others and tends to get most of the focus from project teams. Organizations are well-advised to look at the opportunity for business gains across all three drivers.
Organizations often start projects with the goal of looking for efficiency gains. The pains associated with high commission error rates, delays in processing times, and significant effort and administrative burden are tangible and it is relatively easy to quantify the benefit of gaining improvements in this area.
Improved efficiency is about doing more with less. The expected gains are in area of reducing the time and effort it takes to process and manage commissions, quotas, roster and territories. Reducing effort to maintain the current systems, reducing the number of days to process month ends, reducing errors rates in commissions are all common themes. This makes a lot of sense as industry analysts cite that organizations implementing a Sales Performance Management System (SPM) can reduce the administrative and IT staffing effort by more than fifty percent. They can also expect to reduce incentive compensation calculation errors by over ninety percent. Organizations looking for a hard ROI can generally find find ample evidence of organizations than have had major successes in processing efficiency.
The second area of benefit that most organizations find is in enabling the business to do something that was previously too impractical if not impossible to do. Many organizations are unable to implement certain types of components in their plans as their current systems, processes and technology preclude them from doing what they want. Common examples include implementing margin-based versus revenue-based plans, introducing quarterly SPIFs, and incentives to drive certain packages or bundled offerings. Being able to adjust to market shifts and implement changes quickly can help organizations take advantage of new market opportunities and react to other market shfts quickly. The overall result is that incentive compensation plans drive the desired sales behavior and help with organizational alignment. The inability to do this has long been the frustration of many sales leaders. Modern SPM systems provide sales leaders with the speed and flexibility to drive the sales organization the way they want, ultimately driving increased revenue, increased margins, and increased organizational alignment.
The third driver of interest in Sales Performance Management software is risk reduction. According to the respected analyst firm Gartner, approximately ninety percent of organizations with over one hundred sales reps are using home-grown or spreadsheet based solutions to manage incentive compensation. While these 'systems' lead to many of the inefficiencies and create roadblocks to improved effectiveness that I referred to earlier, it is often the case that there is a compliance or audit driver that is behind putting in a new Sales Performance Management software solution.
From a compliance viewpoint the challenge is to provide a holistic view of commissions from an overall view down to individual performance. Increased checks and balances, multiple approval levels, tracking down exceptions and other compliance requirements tend to put a burden on home-grown and spreadsheet based systems that slow them down and create more rigidity - exactly the opposite of what is required. Modern Sales Performance Management solutions provide built-in complete audit trails, plan approvals, dispute resolution and compressive reporting on exactly how and when territories, quotas, plans and commissions were changed. For many organizations this increased visibility replaces error prone and time consuming email chains and voice mails. Payees appreciate the clear and consistent view of their commissions, administrators save significant time and effort tracking down reasons for adjustments, and sales compensation administrators are much better prepared for both external and internal audit and compliance requirements.