What CFOs Need to Know: The Seven Deadly Risks of Sales Compensation (Part two)
In last week’s blog post, we began talking about the deadly risks when it comes to relying on manual-based spreadsheets to manage variable compensation plans.
We were able to cover the first four of those seven deadly sins, along with what CFOs should be asking themselves. Below, we continue the conversation with our remaining three deadly sins:
- Inefficiency – In addition to being error-prone, spreadsheet-based processes are laborious, time-consuming, and do not scale well. In order not to delay month end and quarter end close, far too many personnel hours have to go into updating the spreadsheets used to manage compensation – resources that can be better deployed elsewhere.
Ask yourself: How much faster and more efficient could commission processing and payment be if my company automated?
- Lack of Visibility and Alignment – When compensation is managed via spreadsheets, reps lack real-time visibility into how they are doing compared to quota and how aligned they are to corporate goals. They can’t even easily see how large their next commission check is going to be. And if reps have to wait until several weeks after quarterly close to see that next check, then it is usually too late to influence better, more strategic sales behaviors.
Ask yourself: If my reps could see their quota attainment or “estimate” how various deal changes could improve the profitability of a sale, how would that change their behavior, and in turn, my bottom line?
- Sub-optimal Compensation Plans – Lack of visibility extends to the creation of compensation plans as well. Spreadsheets don’t yield the timely and accurate data and insights required to develop the most effective plans. It is also extremely difficult to make changes to existing plans on spreadsheets. And there is no good way to model new plans and changes in order to assess their potential impact on sales motivation, revenues, and profits.
Ask yourself: What risks could I avoid if I was able to “model” sales comp plans in advance of production? And what sort of insights could help me create better, more effective sales compensation plans?
There are other problems associated with spreadsheets too, of course, including how they can lead to dumbed-down compensation plans because managing via spreadsheets is so cumbersome. But the overall message is that continuing to manage sales compensation using spreadsheets presents serious risks to a company’s financial performance.
So ask yourself, what finance sins are you committing by leaving sales compensation management to spreadsheets?
More importantly, what’s your path to salvation?
Bringing Sales Compensation Into the Light
One of those paths could be automating the sales compensation management function. Not only does it open the door to solving the deadly sins of compensation above (as if those weren’t enough), but it also opens the door to a whole new realm of opportunities. For starters, it unshackles sales data from the silos of spreadsheets; allowing key information to be integrated with other business systems, such as finance systems, CRM, ERP, payroll and more. This fundamentally improves efficiency while also opening finance up to a whole new level of analysis and insight.
The best way to truly discover what it takes to drive optimal performance with the least amount of risk is to have historical data and a way to analyze it, so you can see what worked, what didn’t, and why. For finance this can mean looking at the most profitable product mix, analyzing what products sold best in what territories and when, how sales-crediting rules are working, when the biggest rep turnover occurs, etc. This is all critical information that will help the finance organization better plan, forecast, and re-jigger compensation plans to be more impactful and profitable for both reps and the company alike. It also gives organizations a baseline so they can compare their data versus like companies in their industry.
Only by leveraging accurate data and timely insights can financial executives hope to alleviate sales compensation risks while properly motivating and influencing optimal sales behavior. But this kind of big data sales analysis simply isn’t possible in a spreadsheet model.
Take Control of Compensation
Establishing and keeping effective control over sales compensation is among the most important things a CFO can do. It’s essential to compliance and critical to a company’s top and bottom lines. It is also central to finance being a trusted strategic advisor to the CEO and the board.
Organizations can’t count on spreadsheets and manual processes anymore—not if they want to minimize their financial risks, eliminate massive system inefficiencies and inaccuracies, align sales rep behavior with their company objectives, and discover new ways to drive both revenue and profitability growth. The downside is too severe and the upside too immediate not to engage in a more automated, data-driven, and modernized approach to sales compensation. Chances are, you’re already automating key processes across your organization, from HR to Marketing. So why risk getting burned with something as important as sales compensation?
CSO Insights – Sales Management Optimization Study
This report shares key trends and best practices for sales compensation and performance management, as well as insights based on company size, industry, and annual revenue.