How to Drive Revenue with a Unified Sales Compensation Program
Today, most organizations approach sales compensation as a set of disconnected activities.
This approach may have worked for the last 50+ years but is incompatible with the way business is done today.
Decision-making in the modern enterprise is driven by insights, analysis, and objective truth rather than “the way it’s always been done.”
Adopting a unified sales compensation program has allowed many organizations to maintain an analytical environment and “source of truth” for managing and optimizing their sales team’s performance.
A sales compensation program can be broken down into six distinct activities that fall into two buckets — three strategic activities and three execution processes.The most successful modern enterprises are driven by data, analytics, and objective truth rather than gut feel, experience, and "the way it's always been done." #salescomp #salesperformance #icm Click To Tweet
On the sales comp strategy side, organizations must determine a territory design, set quotas, and design incentive plans.
On the execution side, they must manage territories, manage quotas, and administer incentive programs on an ongoing basis, usually with specialized sales incentive compensation management software.
These six closely linked activities are managed in silos in +90% of organizations.
What happens in organizations that fail to unify sales comp?
Organizations that fail to unify sales compensation will be inefficient in their approach to assigning territories, setting quotas, and updating comp plans.
In the worst-case scenario, their processes will be inefficient, creating a lot of inequity between sales reps’ opportunities to earn, leading to disengagement, sales rep attrition, and lost revenue opportunity.
Surprisingly, most organizations generally don’t have a data-driven method of identifying if their sales compensation program is failing them.
When strategic changes are evaluated independently, the quantitative impact across the sales incentive system is unknown. Decision-making about what will likely be the most impactful change is limited to intuition and guesswork of sales leadership.
For example, if significantly fewer reps hit quota than expected in one geo or vertical than another, there was likely a problem with territory assignments or quotas (or both) in the incentive plan. That would have been identified and avoided in planning had the organization taken a unified approach to sales comp.
The purpose of this article isn’t to tell you that a siloed variable compensation program is a recipe for failure. But in a business world that is driven by data and insights, a siloed approach increases the odds of creating a sub-optimal sales incentive program.Surprisingly, most sales organizations don't have a data-driven method of identifying if their sales compensation program is failing them. #salescomp #sales #salesperformance Click To Tweet
When organizations commit to a unified approach, their operations teams can quickly run territory and quota refinements and calculate realistic attainment payout scenarios. At the same time, management can make data-driven decisions regarding investments in the sales organization.
These organizations are no longer confined to the time constraints of a siloed approach or the restrictions of their sales compensation software. When organizations have the data to back their program updates, they can prioritize sales performance optimization over risk avoidance.
What used to result in a sales compensation program that rewarded mediocrity is now one that promotes sales excellence.
Territory design, quota setting, and incentive plan design should be approached as one scenario-driven exercise. When any of the three items are being evaluated for change, scenarios of simulated rep attainments must be run to determine the impact of that change on business outcomes and the other elements of the plan.
Assuming your sales organization is focused on hitting a sales goal for the period, the scenario model should be constructed to evaluate that given goal. The scenario model will take in varying changes in quotas, territories, and plan design to output an array of likely sales performance results based on varying levels of attainment and attainment distributions.
This modeling exercise is only feasible if your system allows the modeler to quickly apply different quota allocations or territory assignments to a plan design. The system should give the modeler multiple attainment outcomes based on account segmentation and sales potential.
Without a purpose-built system for this exercise, each step must be done manually to arrive at a simulated result. If an organization cannot model changes to territories, quotas, or sales plans through a set of simulated sales results, leaders can only guess the best scenario for their business at any point in time.Organizations that unify their sales compensation program are no longer confined to the time constraints of a siloed approach or restricted by the functionality of their ICM software. #icm #salescomp #salesperformance Click To Tweet
The ongoing maintenance and administration of quotas, territories and sales plans are where many organizations lose efficiency as they scale.
Time-consuming manual processes managed by compensation analysts drive up the cost of running day-to-day program operations. As the organization grows, they have no choice but to hire more people to run the manual processes they are trapped in.
For this reason, organizations should strive to automate data and information management processes. The upfront cost may be higher, but you will realize ongoing cost and resource savings as your business grows.
The easiest (and most economical) way to do this is by investing in sales compensation management software with a robust and flexible data pipeline that becomes the source of truth for territories, quotas, and incentive calculation.
This system should allow you to layer in data attributes needed for strategic analysis of sales results. This data should be organized to make front-end reporting and visualization easy for all stakeholders, from Rep to Senior Leadership.
Many companies underinvest in end-to-end sales performance management data and visualization infrastructure because it can be achieved with a mixture of disconnected tools (Excel, BI dashboards, EDWs, and comp calculation point solutions) and smart people.
The ROI of investing in a unified approach is difficult to assess because much of the return is driven by top-line improvement vs. operational efficiency. It may be more challenging for the risk-averse to estimate, quantify, and ultimately justify the investment.
But should that stop you?In a fiercely competitive landscape, you can't put a price on strategic agility. #sales #salesperformance Click To Tweet
Any experienced business leader knows that when they can review results augmented with related data rather than intuition, they can quickly make calculated adjustments to their GTM strategy, resulting in a better outcome for their organization.
In a fiercely competitive landscape, you can’t put a price on strategic agility.
Who is Forma.ai?
Forma.ai has developed and delivered a sales performance management solution that organizes and connects the data required for optimal GTM strategy and execution. Our clients experience benefits through sales rep behavior-driven top-line improvements and bottom-line savings through operational efficiency gains.