How Much Does Sales Compensation Software Cost?

Are you having trouble working out how much Xactly costs? Can’t figure out how much Varicent will eat out of your budget? There’s a frustrating reason it’s not easy to get a straightforward answer to the question: how much does this sales compensation software cost?

Whether you're exploring sales compensation management software for the first time or looking for a replacement for your current solution, this article should help you identify the many costs of owning incentive compensation software. 

Sales Comp Software Ownership is More Than Subscription Fees 

Many organizations woefully underestimate the true costs of owning enterprise software. There's an additional set of costs associated with software ownership at an enterprise scale that even top organizations have trouble accounting for.

These hidden costs are particularly troublesome in sales compensation management because it’s a process that affects so many employees. 

The Cost Areas of Enterprise ICM Software Ownership 

Enterprise software ownership costs fall into three types.

The first and second types of costs are apparent to all. They're relatively easy to quantify and are generally an undesirable requirement of enterprise software ownership. But even the most diligent accountants have difficulty accounting for the third type of costs, despite the fact that these have the most significant impact on future revenue.  

1. Initial software purchase costs

These are the initial fees that result from procuring the software, implementing, and integrating it into your organization. The total cost of onboarding new software: 

  • Initial and ongoing license fees for purchasing the software
  • Initial setup, integration, and onboarding fees (often wildly underestimated)
  • Initial training and onboarding your team to the new software
  • Any third-party support you require for a successful implementation

2. Ongoing costs of ownership

These are the fees and costs associated with owning enterprise compensation management software over time.

Many vendors include annual price increases as standard, so it's important to estimate this inflation in advance, as well as any additional costs that you will incur as your enterprise grows and your use of the software scales. Most enterprise software platforms get cheaper the more you use them. 

  • Ongoing subscription fees
  • The cost of employees and resources to maintain and administer it
  • Training and certification for team members (to keep in-house experts & new hires up to speed) 
  • Premium customer or technical support access fees (from the vendor or otherwise) 
  • Additional features, modules, add-ons, or additional costs incurred for scaling usage of the software requirements (not often but should be mentioned)
  • Professional Services and Consulting from either the vendor or a third-party specialist in that software (these can quickly run into six or seven figures over a year or two).

3. Hidden costs of software ownership

The third type of cost is "hidden" because they're inefficiency costs and missed opportunity costs; they're tough to quantify. The larger your organization, the more worthwhile it is attempting to estimate them.

The financial impact of poor execution and restrictive structures has a very real impact on the success of a large organization, where even a small error rate or inefficiency has a huge impact.

Inaccurate compensation payments result in incremental administration time, costly overpayments, field dissatisfaction, decreased employee engagement, earnings restatement, and even lawsuits. Once your reps stop trusting the sales commission process, the impact on profitability is huge, and it compounds over time.

These hidden costs of owning sub-optimal enterprise software were, until recently, inevitable and unavoidable. AI has now made it possible to mitigate many of these hidden costs and we discuss this issue and its solution in part two of this article.

How to Calculate the Total Cost of Owning Your Sales Compensation Software 

Buying most sales compensation automation software is like buying a Tesla and having to learn how to program the onboard computer. And then pay someone else to drive you around in it, while you pedal to charge the battery. How can you calculate the full cost of the time and resources involved?

It's incredibly challenging to estimate how much SPM/ICM software like Xactly or Varicent costs from the outside, even on average. But it's possible for you to figure out how much your setup costs you.

Getting the Numbers for Your Cost of Ownership Calculation

If you want the most honest, accurate estimations of how much it will cost, don't ask your ICM software vendor. Get the basic subscription fees and estimates as a starting point but don't rely solely on them. It's not that they'll mislead you, per se, but the on-paper cost and the real-life costs of implementing and managing sales compensation software rarely align. 

We've seen five-figure setup fees quickly spiral into multiple six-figures because the vendor’s salespeople drastically underestimated the complexity of the implementation. And of course, once you're committed, it's not easy to back out.

The best way to determine the actual cost of implementation beforehand is to ask existing customers how their setup went and what their budget was. Input the numbers you know, weighted for your company size, and then slightly overestimate the costs to be safe. 

We dive deeper into the hidden costs of ICM software ownership, including how to calculate the impact of "shadow accounting" and missed opportunity costs in part two of this article next week.

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