Let’s start this blog by posing an important question: Do you and your team know how your Incentive Compensation Management (ICM) scheme works? Whether the answer is yes or no, the follow-up is: do you and your team have faith and trust in it?
Tough stuff to ponder, especially if you’re reading this in the morning ahead of your first caffeine hit. So, take a sip of coffee and consider this: If there’s any shadow of a doubt concerning transparency and fairness, or if you have even the vaguest sense that the sales executives that report to you are feeling demotivated because of a possibly inaccurate or unbalanced compensation structure, then it’s time to overhaul your current system and find a solution that meets these needs.
What’s Your Compensation Issue?
Before imparting the good news of how to make almost all your current commission issues go away, let’s take a closer look at what may be misfiring right now. If your business is either using a ton of different compensation processes built on unreliable legacy systems or relying on manual inputting, you’re likely exposed to the toxic fallout that results from inaccurate reporting, unbalanced pay-outs, and ultimately, dissatisfied sales employees. The most common and lethal problems are:
Legacy systems: This is a catch-all phrase for anything that is unreliable, slightly historic, and can chalk up more failures than successes when being graded. In the context of compensation payments, that means there may well be more than one commission scheme, even in a single team, and the all-important information that determines what someone will receive could easily be calculated incorrectly if there are any manual processes involved. And when that occurs, it leads to…
Shadow accounting: When there’s a shadow of a doubt, shadow accounting will follow. Your high-performing sales team will be quick to spot any underpayments on their sales commission statements and therefore get into a regular habit of doing their own sums. This not only undermines the work of your compensation administrators but takes the focus off selling and can create a palpable sense of mistrust across your organization.
Discover more about shadow accounting and how to stop it here.
Unhappy stakeholders mean more auditing and compliance checks: When the books aren’t balancing, that type of worrying news will reach the boardroom in a nanosecond. And that will have repercussions. Hand in hand with that potential bomb going off will be further intervention and scrutiny from auditors. Trying to gather the evidence when the numbers are coming at you from all sides and all sources makes your job and their job harder, longer, and costly. And more invasive, especially if they are external auditors.
The Value of Modern Commission Planning Systems
Whether you use legacy platforms or your trusty spreadsheet to manage commission, you should understand how these applications have changed in recent years. There’s so much more to commission planning than simply working out what commission rate you need to pay on your salespeople’s deals.
Salespeople work best when they feel that their target is challenging but achievable. If you make it achievable – guess what? They’re more likely to achieve it.
So how do you best do that?
The best place to start is to understand how big your market is. That way, you can see what sales targets – and commission – your business can justify in your target market. This’ll depend on the number of prospects in your market and how long it takes to sell your products to your customers. That number helps you determine how many salespeople you need, how large your territories will need to be, and what your salespeople’s quotas should be. If you get all this right, you can create a commission plan for your salespeople that they are more likely to achieve – and even overachieve.
What Your Sales Commission Software Should Provide
This article, covers this issue in more detail, but this should be your essential shopping list:
1. Easy to use, easy to understand:
Good looks can only get you so far, so check that the interface lives up to its description. It needs to be intuitive and accessible from anywhere. Make sure your team can access the data fields that matter to them – whether they’re in sales, management, or sales operations. They also need to know how to get to the reports that give them a real-time picture of issues like individual and team performance to date, quota achievement to date, and how well specific sales incentives are working.
2. Integration capabilities:
Moving to a one-platform solution means you can see everything at once; you can easily see – at-a-glance – what’s working well and what needs your attention. You can create relevant dashboards and reports on quotas, territories, and sales pipelines. This helps you maintain a single picture of your ICM model, which makes managing remuneration easier and fairer for everyone.
3. Surfacing issues and building solutions:
As well as wanting to ensure the top performers are being justly rewarded, you’ll want the ability to detect your underperformers – whether individually or as a team, covering a territory. Once you have that information, you’ll want to know the “why,” not just “who” and “when,” so you can begin to sort the issues out – whether it be around extra coaching, training, or a review of how you recruit people. Real-time updates allow you to stay on top of every person and situation, so you can track the changes you make as you develop your business.
4. Value-rich data and functionality:
On the flip side of your current data, having some historical context is also a must, especially when finalizing commission plans or setting performance objectives. Your historical data will help you grasp the unique dynamics of your market and create a suitable commission model based on who your prospects are – current and potential – whether it’s a geographical region, business sector, or demographic. Use accurate market data to determine how many people could buy from your systems or external sources. This data can also help you determine how your customers buy from you. Some people are old school – they like to buy from people directly. Others prefer to make their own decisions, looking online for everything before they buy from you online. Many people make their decisions by doing plenty of research upfront to make the right decision. Your customers’ buying cycle significantly impacts how long your transactions take to close, whether in minutes, hours, weeks, or months.
Without that information at your fingertips, you’ll either create a commission model that’s too challenging for your salespeople (who may just leave) or one that fails to create the right volume of business for your company, which ultimately works for no one.
The Benefits of Installing Sales Commission Software
1. Increased Efficiency
You access numerous efficiency savings when working with a single, universal sales commission solution — such as the Varicent ICM solution— that automatically and accurately calculates incentive compensation payments.
Time and labor lost to calculating sales commission, and compensation payments can never be reclaimed. The pain and frustration are compounded when the output is incorrect or needs to be verified. If you’re familiar with working out sales commissions from a spreadsheet or data from several sources, this is likely to be a typical scenario. In a recent study that Forrester carried out for Varicent, it was calculated that in the dark days before implementing sales commission software, the main negative numbers for the businesses reported on were as follows:
- One hundred and twenty-five hours per year were spent creating and implementing sales commission plans.
- Four compensation administrators were required to do the work.
- The average salary was $36 per hour per administrator.
Post-implementation, it was a different story. There was a 75 percent reduction in time spent working out sales commissions. In terms of the study, that meant that almost from the start, businesses could cut back on admin staff and salaries, ringfencing resources and finances for other projects.
2. Greater Accuracy
Let’s talk about accuracy. While a single keystroke error may not run into the $100 million mark as it did for one bank, a tiny blunder can be costly regarding your bottom line and internal trust. The efficacy of a reliable sales commission software suite means that even the most complex of compensation rules becomes bulletproof. With a platform such as Varicent Incentives, which includes customizable features such as Workflow Manager and Scheduler and uses real-time data and analytics, you can expect a 90 percent improvement in accuracy.
3. Improved Sales and Tracking
An old legacy system may be able to provide some pictures of what a sales rep has sold and earned in a quarter, but does it have the capability to tie in with quota and territory metrics? Can you pull one report or a dashboard you can configure to see how close a team is to their commission target for any given day, month, or year? Equally, one feature many sales professionals desire greatly is being able to post queries or sales receipts at any time from any device. That means they can view exactly where they are in real-time regarding target attainment. A robust sales commission software will offer this and is a valuable way of keeping your sales team on track.
4. Enhanced Transparency and Visibility
Keeping your team satisfied requires more than proper tracking tools; it’s about building trust in the platform and how the compensation scheme operates. We’ve already covered the trend for shadow accounting when that trust is eroded, so apart from working with reliable, straightforward software, what are the other advantages of reversing that behavior?
When sales reps no longer spend hours checking every statement and sale, they use their time and skills to negotiate and sell. They aren’t attempting to be accountants, nor are they flooding the admin team with queries and complaints, who are then distracted with endless tasks to review these queries.
The other huge benefit is that with access to all the relevant data and information, your sales team won’t feel “in the dark” or that there’s some mystery connected to their compensation or that of their colleagues. Rather than just telling your team that all is fair, putting that into practice via comprehensive sales commission software is a sign of good faith. This builds trust and openness and motivates your team to do their best.
Better Results
The best reason for investing in modern commission planning systems is that they’re the best way to make more sales and grow your business. Creating a commission model without understanding your market first is a missed opportunity to do something better for your business. Modern commission planning models take the guesswork out of planning your commission models, so you can plan to build your sales territories, quota models, and commission models based on what your market support. Guess what the result is? More sales at better margins. Now, wouldn’t that help you?
Aligned and Focused Sales Teams – the End Game
Ultimately, it all comes down to this: An average sales commission system relying on spreadsheets and goodwill may pay out regularly at best and attract a low number of complaints and queries from the beneficiaries. With any luck, it’ll also not be subject to aggressive auditing because of data entry errors. But why should you settle for that and risk losing money, dedicated employees, and reputation when there’s a better alternative for your business?
By implementing a system that is dependable, intuitive, and accessible, you aren’t just changing the way you handle commission payments; you’re changing how your team operates. Instead of running on purely competitive and sometimes combative energy, your best performers can work better together to realize wider organizational KPIs.
And as a final but crucial bonus, the analytics allow you to build even more vital ICM programs than the one you’re currently offering. By utilizing the operational models available on the platform, you can plan bigger and perform better.
Discover how your organization could benefit and reinvent your sales commission strategy by reading our latest guide, How to Create Better Compensation Plans in 2023.
Originally published April 18, 2021 - Last Updated June 6, 2023
