A Sales Perspective on Incentive Compensation and Sales Performance Management

On April 13, 2012, IBM announced the acquisition of Varicent, a leading provider of sales performance management (SPM) and incentive compensation (IC) analytics software. The Ironside Group loves this move as it further sets IBM business analytics solutions apart from the pack. This acquisition is continued proof of IBM delivering on its strategic growth objective of expanding its analytics portfolio to help enable a “smarter planet”. When reviewing this acquisition, it appears the most quantifiable value proposition marketed is heavily weighted towards improving back-end sales operations; “reduce sales operations administration by 40-50%, reduce commission calculation and erroneous payments by 90+%, etc.” This article is going to focus on what I believe to be the real value of a commercial IC and SPM solution.

As someone who has been in the sales industry for quite some time, I can tell you some of the common administrative pitfalls that are commonly encountered. The territory assignment process has always seemed to be a long standing headache in the sales industry. Imagine it is January 2nd and the start of a new year. As a sales person, you are eager to get your comp plan and territory assignment. Management says it’s coming soon. You wait…then wait some more. Reality sets in and you realize that it probably won’t be available to you until almost February. That’s almost a full month of sales limbo.

Another issue I’ve encountered stems from the number of times compensation plans have changed. In my career I’ve had more than 14 different comp plans and more than 14 territory changes. Many of these changes led to incorrect compensation (both less and more) on some occasions.

A third major issue I see is “shadow accounting” performed by individual sales people. I’ve always kept my own spreadsheet of incentive plan calculations, so I can determine compensation on each potential deal. I would use this spreadsheet to track my progress throughout the year to ensure I was paid correctly. I spent more time maintaining this spreadsheet than I care to admit.

So what’s the result of all the above? In my opinion, LESS SALES!! Here is a list of items that I believe significantly impact corporate revenue and profit:

1. Delayed territory assignment. I can only imagine how my previous company’s “Excel Jockeys” sliced and diced the territory assignments maintained within Excel. Holding some accounts for select reps or recent acquisitions, reviewing this and making more changes, then even more when they receive the backlash from sales reps once presented. On average, I’d estimate that approximately 5 weeks of the beginning of the each year was not spent in front of customers setting vision, aligning to needs, building pipeline and closing business.
2. Sales performance against peers was not public knowledge, or at least readily made available. I’m pretty sure most if not all other sales reps on the planet are competitive like me. When a report goes out to all executives and reps that shows my relative ranking and performance against others, that motivates me. Further, it would be nice for someone other than me (i.e. Varicent) to automatically manage my attainment over time so that I can monitor and tweak my planned strategies to over exceed targets, and ditch time consuming, non-value add shadow spreadsheets.
3. I always questioned how much BI and analysis was used to reduce sales operation expenses. If I only had a nickel for every time I would see a colleague in the airport. They would be arriving in my state and I would be traveling to their state, or vice versa. I realize sales reps are becoming more specialized by verticals these days, but there are still pockets of generalists that could serve your customers better, have more time to meet customers and reduce travel expenses if simple geographic analysis were performed to align sales territories in close proximity to sales rep residences.
4. I believe more advanced analytics and what-if analysis should be performed to determine the best levers to pull to positively impact sales, at a macro-level.

Most sales reps I speak with believe 5-10% of their time is wasted on waiting for territory assignments, manually making pretty spreadsheets to determine how to maximize commissions, estimate pay-outs, reconcile payments made or resolve disputes. How much time are your sales reps spending on non-value add items that a commercial IC and SPM solution could help address? The math is simple; more sales meetings with qualified prospects = more revenue. Give back more time to your sales force, not to mention instantly improve their morale, by seriously considering how Varicent IC and SPM software could help you achieve your top line revenue growth targets and reduce sales operation expenses.

If you would like to learn more, the Ironside Group is scheduling a lunch-n-learn roadshow across the southeast to drill down into best practices of IC and SPM and show how Varicent can automate and improve this process to positively impact the bottom line. Click here to learn more and see schedule.  I hope this helps and as always, Ironside looks forward to serving your business analytics needs spanning Business Intelligence, Predictive Analytics, Corporate Performance Management, Data Warehouse, and Incentive Compensation and Sales Performance Management.