Transforming Sales Compensation into an Enterprise Strategy
Sales compensation is one of the most costly investments enterprises make every year. On average, companies spend about 9% of overall revenue. When you do the math that adds up to a lot of dollars. Of course, it’s money enterprises have to spend in order to grow, but the problem is that this cash is often burned without much thought. There’s basically no other expenditure that equates to nearly 10% of revenue that is left unoptimized.
From our years in the compensation space, we’ve found that 45% of compensation plans actually drive the wrong sales behaviors. In other words, 45% of the time, compensation plans are leading to missed selling opportunities. These missed opportunities stem from misalignment between sales and overall business objectives, i.e. poorly executed strategy.
This brings us to a common misconception that is not only costly but moves enterprises off a path of growth: sales compensation treated as only a tactical concern.
Admittingly, sales compensation does have inherently tactical elements to it. Yet, this perspective is reductive. The fact is that sales compensation is undoubtedly a strategic lever for enterprises or any company that pays incentives.
There are some key ways to leverage sales compensation as a strategic effort, but before we jump into the “how to” let’s take a moment to understand the problem.
Why Your Sales Compensation Is Inefficient
In the case that you do have your sales compensation totally figured out, feel free to skip this section. But if the research is any indication, it’s likely that there’s at least room for improvement.
The surprising part is these key challenges are simple to understand. When it comes to inefficient sales compensation you often see 3 problems.
- Spreadsheets are treated as a solution: According to Forbes, “88% of spreadsheets have errors.” Spreadsheets may be useful, but that doesn’t mean they’re optimal. The fact is that spreadsheets are costing you time and money. Compensation automation is key.
- A lack of transparency: sales reps shadow accounting is time that could be used to sell. But this need to keep their own records can be curbed if you increase transparency. Mobile apps and desktop views of estimated and actual payouts boost trust and performance.
- Big data, small insights: homegrown systems are inadequate at providing actionable information at scale. Even if you have some sort of sales analytics dashboard implemented, it’s likely not tied to the driver of your revenue engine: your compensation process. And without proper channeling of that data, you end up with subpar decision-making intel.
But There’s a Twist
For those companies that have gone beyond spreadsheets, we’ve discovered that automation is table stakes. It’s often nothing special and their ICM or SPM solution remains stagnant in the ROI it provides the organizations. Without the access to the right data, optimization is impossible. The sales engine runs in the background without any meaningful improvements.
It’s only the marriage of compensation automation with best practice data that offers up an opportunity to drive the right behavior and transform sales comp into a strategic initiative.
Analytics > Data
While data is, of course, useful—it’s what you do with that data that matters—i.e., the applied analysis that is derived from the numbers. Data and analysis is the difference between a basic thermometer displaying the temperature and a Nest thermostat offering up recommendations for your home based on those numbers.
Watch the webinar, "Incentivize to the Power of Xactly: Life of a Sales Leader," to learn how to drive the right rep behaviors using Xactly Incent.
What the Right Rep Behavior Can Earn You
So what does driving the right rep behavior look like?
A sales performance study by CSO Insights found that 20% of reps who are the top performers generate more than 60% of a company’s revenue. Now with the right practices in place to move more of the middle towards the top or even a +1% increase in performance.
Now 1% doesn’t sound like much, but let’s do some simple maths to calculate potential ROI. The results should be eye-opening.
If on average your sales team is performing at 80% productivity, we can get your sales team to perform +1%. If your company is doing 100M, you add $1M. Are you going to say no to an extra 1 million dollars for your business? Note a 1% rep performance increase is simply the minimum viable benefit. You’re obviously going to shoot much higher than 1% and it’s totally doable—with the proper analysis and application of compensation spend and the like.
What if we could provide our dataset trends in your industry to help you drive the right behavior in your own organization? For example, our data states that SaaS companies that pay at 75th percentile or higher see 50% less turnover. It’s here that you start shifting from basic compensation automation to strategy that drives enterprises.
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.