Clearly, compensation matters to sales reps. And in sales, compensation is tightly linked to performance. So, anything you can do to keep your reps motivated and help them hit their quotas will make them more money, be more productive, and encourage them to stick around.
The turnover rate for sales reps sits at almost 35%, which is nearly three times the average for other professions. The biggest factor behind this is insufficient compensation, which causes 89% of sales reps to leave their jobs.
Despite this, designing and administering sales comp is diabolically difficult. Creating fair territories, setting appropriate quotas, pulling in the right data, and calculating commissions involves lots of variables and complex calculations. This takes a lot of time and effort to get it to a stage where both you and your team are happy.
That is where Sales Performance Management (SPM) comes in. Sales Performance Management describes software that helps you design territories, come up with quotas, calculate commissions, and report on performance. It is a way of helping plan, manage, analyze, and improve sales performance.
And with the right system, you will instill a high-performance culture that is based on accurate and transparent commission calculations, less errors, and insightful analytics. This means your sales team does not spend countless hours anymore verifying their commissions, rather spending that time on what they are good at, making sales.
Both Sales Performance Management and Incentive Compensation Management (ICM) give you this functionality. But what do they do exactly, what are their benefits, and when is the right time to consider one? In this guide, we will delve deeper into these questions and show you how they can benefit your business.
SPM and ICM Compared
Both Sales Performance Management (SPM) and Incentive Compensation Management (ICM) software provide the core capability of calculating and communicating sales compensation. But what is the difference between the two?
Gartner, one of the world's leading research and advisory companies, has set out a management model about SPM that begins with a definition of critical capabilities.
These capabilities include:
- Rule definitions
- Workflow and collaboration
- Data transformation
- Advanced analytics
- Customization and extensibility
These capabilities are then looked at from a use case perspective. The use cases are:
- Incentive compensation
- Quota management and planning
- Territory management and planning
- Objectives management
According to Gartner, then, these are the core capabilities a SPM system should have. There is, however, a different perspective on what these systems should have that includes more use cases and additional capabilities. Here, the whole process starts with setting goals and objectives which ultimately gives an organization their selling strategy and the SPM results from that selling strategy.
The seven steps to achieve this are:
- Design. The whole process starts with design and there are several questions you should ask during the design process. This could come up for instance, be how do you design, model, and cost your compensation plan or how do you compensate specific roles within the organization to achieve the desired results.
- Target. Targeting is comprised of two primary capabilities, territory, or account management only one hand, and assessment on the other. In other words, how are sales targets defined, how are they set, and how do you measure specific performance against those targets.
- Acceptance. The next step is a matter of communication and acceptance. Here, it is crucial for sales reps to know that they have a plan, a target in their territory or the account coverage they are responsible for.
- Administration and reporting. This process is how companies make sure they get the data they need, and the right people get credited. In simple terms, this is where commissions are calculated, and sales reps are paid the right amounts.
- Inquire. It happens that sales reps are sometimes unhappy with their commissions. This then requires an inquiry or dispute resolution process that is effectively managed. A proper system has the necessary workflow, the investigations, and the analysis capabilities to make sure these concerns are addressed adequately.
- Coaching. Coaching is how sales managers help reps achieve their rewards and it focuses on rewarding the behaviors and activities that makes a rep successful. When a rep gets the compensation, they feel they deserve, it will help them to achieve the result both they and the company want.
- Analyze. During this step, the company takes all the data generated by all the previous steps to spot trends and gain valuable insights from it. In this way, the company can make good, data-driven decisions around their sales processes and its outputs.
In contrast, an ICM does not have all these capabilities. It has a subset of these critical capabilities and it focuses on the administration and reporting aspects. So, in other words, it deals with the specifics of the administration of the operational aspects of what it takes to calculate and pay people, and also the reporting aspects to help these people understand what they got paid and why.
In a nutshell, SPM encompasses additional functionality around quota and territory planning.
The Benefits of Using a SPM or ICM
As you have probably noticed from the critical capabilities of an SPM solution, they can be highly effective in planning and executing a compensation plan that not only makes the overall sales process more efficient, but also increases the productivity and satisfaction of the sales team.
With that in mind, let us look at some of the benefits of using a SPM or ICM.
It saves time
Similar to ICM, the biggest benefit of using an SPM solution is that it saves you time and hassle around your sales comp process. Manually calculating sales commissions each period is time-consuming, challenging, and can lead to frustrating errors. It is tricky enough when you have a small sales team (less than 50 reps), but if you have a large team the task can be downright impossible.
ICM and SPM solutions help by automating the process, often reducing the time it takes to manage commissions from weeks to hours. And it eliminates the risk of human error in the process.
For you, this means you free up time to concentrate more on your core competencies and for the team, it means they get paid what they should.
Another major benefit of an ICM and SPM solution is a higher level of transparency for your sales reps. You can provide your reps with dashboards that tell them exactly where their commissions are coming from and how much they can expect. They can see if they are on track to hit their quota and which of their customers are contributing most to their performance.
Individual sales rep dashboards showing basic commission information are table stakes for all SPM and ICM solutions. But the more enterprise-grade ICM solutions and most SPM solutions provide advanced reporting for leadership.
With leaderboards and reports, managers and executives gain a complete picture of their sales team’s performance. They can see how reps and teams are performing against their quotas, which reps are over-performing, which are under-performing, which territories are generating revenue, and much more.
To a certain extent tying in with transparency and reporting, data analysis helps sales managers to improve sales performance and company revenues. In fact, a report from McKinsey shows that companies who make data-driven marketing and sales decisions, increase their return on investment by 15 to 20%.
This means you can use data to help your sales reps do a better job, sell more of your product or service, and ultimately improve all the other aspects of your sales processes.
Quota and territory planning
As we have pointed out before, where SPM solutions differentiate from enterprise-grade ICM solutions is around quota and territory planning. For most companies, Excel is sufficient for designing territories and setting quotas. But companies with especially complex territories, many differently sized territories, and multiple quotas per rep may find the additional planning capabilities in an SPM solution valuable.
This allows these companies to plan proper quotas that need to be achieved to make the company numbers which promotes realistic quotas with more transparency and not less. Besides, when you plan and develop proper, transparent quotas, you drive high performance in your sales team.
Ultimately, both SPM solutions and enterprise-grade ICM solutions save time for medium to large companies around calculating and communicating sales comp. SPM provides additional benefits around territory and quota planning. Both tools will help you align your sales goals with your overall strategy, reduce attrition, and puts your salespeople in the best position to succeed.
When Is the Best Time To Buy an ICM or SPM Solution?
Most small companies use Excel to manage their sales commission process. Sure, for one or two, maybe three sales reps this may be a perfectly viable solution without too much hassle.
However, as you scale, the number of sales reps increases as does the complexity of their plans and the data used to calculate their comp. Before you know it, you will stare at Excel cells trying to figure out, and manage, which formula goes where and who has to be paid what.
So, by the time you get to 30 sales reps you will likely feel some pain using spreadsheets, and by 50 sales reps that pain will likely be untenable.
Ideally you want to invest in an ICM or SPM solution for your business before the problems associated with spreadsheets become too much for your organization to bear. You can almost think of it as the runner, with a niggling injury, who keeps running. Soon, that niggle turns into something worse, and the running stops. Or, in other words, you want to act proactively rather than reactively.
When you begin to find excessive errors in comp calculations, you are getting commission statements out too late, or you are spending more than 10% of your time on comp-related issues, it is probably past the ideal time to get an ICM or SPM. You certainly do not want to get to the point where you are losing high-performing sales reps due to commission problems.
An appropriate ICM or SPM solution will solve these problems and will save you time, while creating trust among your sales team, and delight your sales leaders with the additional information they will have around sales comp data.
Getting Started With an ICM or SPM Solution
When you are ready to get started with ICM or SPM, is it simple as doing a search online and picking the first one that comes up? Or maybe just look for the cheapest? Not so fast. When you want to choose the right solution for your needs, you will have to consider a few things.
A vital part of choosing the right ICM or SPM, is setting clear goals for what you want to achieve. Consider how much of your process you would like automated (calculations only or also dispute resolutions?), what commission information you want your reps to see, and what reports your leadership needs to be effective.
Also, do not consider only what you need today, think about what you will need over the next few years as your company grows. Here, future proofing is important because, as your business scales, the solution you pick now should also be a solution then. This saves you money and time because you will not have to go through this process again.
Picking a Vendor
Once you know your goals, you will have to pick a vendor that offers a product that aligns with your goals. For instance, you do not want to pick a vendor that can meet today’s needs only to find they are inadequate as you scale. Remember, future proofing is crucial.
So, considering your goals, come up with a list of vendors that can meet those goals. There is plenty of information available online at sites such as Gartner Peer Insights, Capterra, and G2Crowd about each vendor’s offerings. A key consideration is breadth of functionality. Vendors can broadly be categorized by SMB or Enterprise-grade. SMB vendors are typically easier to use but light on functionality and may not scale with you. Enterprise-grade vendors vary in their ease of use but have a rich feature set that will handle all your use cases as you grow.
You can then narrow your list of vendors down to 3 or 4 names you like and go through an evaluation process with each. This usually involves an initial conversation where you communicate your goals, and the vendor determines if they are a good fit.
A generic demo of the product will typically follow so you can get a sense for the look and feel of each platform and the overall functionality. The most important part of this process is the custom demo. The vendor should take your actual data and compensation plans and build out a proof-of-concept for you. This will get you comfortable that the vendor can indeed handle your comp plans and meet your goals. Simply put, this demo shows you that the product is fit for your needs, both current and future.
Making the Choice
Now comes the fun part, deciding which company to go with. There are three key areas to consider when selecting a vendor:
- Functionality: Determine if you want an enterprise-grade or SMB feature set. Even if you are not at enterprise scale yet, you want to be sure that your vendor can handle your needs as you grow. This is where establishing your goals can be helpful. When you know what you want to achieve with your solution, you know what tools you need to make it happen and you can select a vendor that helps you reach those goals.
- Usability: Ease-of-use is important with an ICM or SPM solution. If you cannot easily teach your team how to use a platform, adoption is going to be low. Worse, if you have to contact the company every time you need to make changes in the system, the costs associated with your ICM or SPM are going to be higher than you originally planned. Choose a vendor that has an easy-to-use platform, and your team will thank you.
- Implementation Process: All ICM or SPM vendors with even the most minimal functionality involve a setup process. Automating sales compensation is unique to each company and requires deep domain expertise and a quality team. During this process, the implementation team will understand your unique requirements and configure the solution to your needs. Then there should be a thorough testing and onboarding process. The key dimensions to think about here are speed, quality, and cost. You can usually get two out of three, so choose wisely!
The sales process is getting more complex by the day and making numbers is not getting any easier. Manual processes, complex systems, and multiple data sources are making things even more complicated. This, ultimately, leads to wasted time, less efficiency, and unproductive sales reps. An ICM could be the answer to your prayers to solve all your compensations woes.
If you are ready to see what an enterprise-grade ICM can do for your business, let us chat. Performio can help you automate your sales compensation calculations, gain increased transparency for your sales reps, and provide meaningful insights for leadership through reporting. Book a demo today.