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Sales Performance Management (SPM) Explained

Digital transformation is always upon us and will be for some time. AI is at the forefront of our lives and seems to get more convenient albeit seemingly scary at times, especially because there’s no roadmap for what the progression of artificial intelligence really means. Yet, Comcast is still selling phone landlines. “Hey, I called for internet service, how did I end up with a premium cable package AND a landline?” When was the last time you called someone from home on a landline? 

When it comes to your software SPM tech stack, sometimes it’s easy to get wrapped up in the what’s what and what you actually need to suit your business needs. A common misunderstanding between SPM and ICM is that they’re the same thing. Sure, they’re both parts of driving performance, but a fairly common nomenclature is that they serve the same purpose and they’re both needed. We’ll sort through the key components of SPM and the most integral portion of SPM to get right in order to be successful in any given scenario.  

Understanding how to motivate your sales reps and drive their performance is a difficult task that takes more than just charismatic leadership. Without the underlying elements of fairly apportioned territories, appropriate quotas, and an incentive compensation plan that aligns with organizational goals, even the best leaders will struggle with team underperformance, employee turnover, and poor culture

These three elements (territory planning, quota planning, and ICM) are collectively known as Sales Performance Management (SPM). SPM looks to sales data analysis to make informed decisions that motivate sales reps and optimize their performance.

In this article, we’ll cover:

Sales Performance Management (SPM)

Businesses utilize complex sales ecosystems made up of the people, systems, processes, and technology used to acquire new customers, make sales, and generate revenue. Sales Performance Management (SPM) is a comprehensive and data-informed approach to planning, implementing, and optimizing many of the interrelated aspects that go into building and managing this ecosystem, in order to improve sales performance.

SPM is not restricted to any one position. Executives set revenue goals and expect reports on sales performance. Sales compensation administrators assign incentives in order to maintain or increase sales performance. Sales leaders are held accountable for their teams’ performance. And sales reps are compensated for their performance. All of these roles (and more) engage in parts of SPM.

SPM is a set of disciplines and practices—but without digital help, it may be difficult (or even impossible) to enforce disciplines and enact practices. Due to the complexity of today’s sales ecosystems and the data they rely on, most sales leaders need a dedicated software solution.

This software tracks sales performance, progress toward quotas and goals, and compensation earned. It analyzes sales data to identify problems and opportunities, create sales forecasts, and empower territory management. It automates repetitive tasks and reduces the likelihood of human error. And it provides a seamless interface for sales leaders and sales reps to manage their sales, see their progress and performance, administer incentive compensation, and resolve potential disputes.

This leads to some confusion. Because SPM is frequently conducted through SPM software, it’s common for an SPM software tool to simply be referred to as “an SPM.” (It’s the same thing that happened when we started calling platforms that help us manage customer relationships “CRMs.”) In this article, to avoid confusion, we will use “SPM” to refer to the set of disciplines and practices involved in sales performance management, and “SPM software” as the digital tools used to manage sales performance.

How SPM differs from ICM

ICM stands for Incentive Compensation Management, and it refers to the process of managing sales reps’ commissions, bonuses, and other forms of compensation in order to motivate their performance and align their sales activities with organizational objectives.

Most organizations consider ICM the most important part of SPM, and because of this, the terms “SPM” and “ICM” are often used interchangeably. But there is an important distinction between the two. SPM encompasses two additional processes: territory planning and quota planning.

For the vast majority of businesses, territory and quota planning won’t demand a dedicated solution. Unlike ICM, which requires continuous ongoing management, territory and quota planning usually occur only once per year or sales period, and only enterprise-sized sales organizations will ever need to use more than a simple spreadsheet.

Additionally, while ICM doesn’t include territory and quota planning, it generally does include territory and quota management. Only once organizations reach truly massive size (think Amazon, Google, or Boeing) do they need dedicated software for territory and quota planning.

Because ICM is such a crucial component of SPM, and because it’s the hardest to do well at scale without dedicated software, ICM software usually suffices for most organizations’ SPM tech needs. It’s understandable that people would use “ICM” to mean “SPM” as a kind of synecdoche (a figure of speech where a part of something refers to the whole). But being precise about the distinction will allow us to examine each component of SPM in its own right.

The three components of SPM

PFMO_Blog_SPMInfographic_R2.2-150pSPM is comprised of three main components that work together to optimize the sales process, increase efficiency, and generate revenue. Let’s take a look at each one.

1. Territory planning

Your customer base isn’t a monolith, and there will often be huge differences in their purchasing behavior depending on where they’re located. Some territories will be more profitable than others and thus require greater resources applied to them, others will be less so, and some won’t be profitable enough to be worth having a presence in at all. Additionally, some territories may be more interested in certain products, have different purchasing concerns and objections, and have unique requirements for you to meet.

If you assign the same amount of sales reps to each territory, regardless of profitability, and if you hand them all the same sales strategies and methodologies, regardless of customer preferences, you’ll be wasting resources while putting some of your sales reps in the unfair position of being unable to sell as much as those assigned to other territories.

Territory planning allows you to give each territory the specific attention it requires. Using sales data analysis, you can identify the different purchasing behavior of your customers and then divide them into logically grouped territories. With the different territories properly segmented, you can devote appropriate resources, assign the right number of sales reps, and develop strategies in ways that will most specifically target the needs of each territory.

2. Quota planning

The quotas you set have a significant impact on the performance of your sales reps. When planned well, quotas will motivate your reps to achieve an ideal amount of sales each period. But when quotas are too high or too low, they can have the opposite effect.

When quotas are set too high, reps will feel overworked and become discouraged at their inability to reach them, leading to poor morale and decreased productivity. And when quotas are set too low, reps will reach them too quickly, causing their motivation to drop for the rest of the sales period. Either way, quotas that are not planned correctly can negatively affect your sales reps’ performance, team culture, and turnover.

Quota planning allows you to carefully set quotas that drive motivation and keep up morale. By using sales data analysis, you can see what sales reps have been able to achieve in the past, what current conditions look like, and what broader company goals you need to accomplish. All this can inform sales quotas that are realistic and achievable while also pushing your sales reps to do their best.

3. Incentive compensation

The compensation you pay your sales reps not only motivates them to make sales, but it also incentivises specific kinds of sales and sales activities depending on how you structure your comp plan. Your incentive compensation can make the difference between sales reps who haphazardly go after whatever sales they can and those who have a laser focus on the sales that will most contribute to broader organizational goals.

This makes ICM the most important component of SPM. Using data analysis, you’ll be able to see how reps are performing based on specific sales activities, strategies, products, etc. You’ll identify what’s working well and what needs more attention. And that knowledge will help you structure your incentive compensation plan around the right goals and motivate the right kinds of behaviors—so that it supports rather than distracts from your business objectives.

Benefits of using SPM software

To do SPM well, especially at scale, you need a dedicated software solution. For most businesses, that means ICM software. The incentive compensation component in particular simply isn’t possible to efficiently manage through manual processes. But that hasn’t stopped many organizations from trying to use spreadsheets or other homebrewed solutions instead of purpose-built tools. Let’s take a look at why that isn’t viable, and what benefits you’ll gain by switching to dedicated software.

Saved time

The biggest benefit of using a dedicated software solution for SPM is that it saves a lot of time and hassle around your sales comp process. Manually completing your SPM processes, especially your sales compensation processes, is difficult enough with a small sales team, but it becomes completely unmanageable once you reach around 50 reps or more. When you have thousands of rows of spreadsheet data to sort through by hand, nothing is quick or easy—except making mistakes.

A dedicated ICM platform automates all the repetitive busywork for you, saving astonishing amounts of time and freeing you up to work on more important things. One of our clients, Simpli.fi, was able to slash their time spent on processing commission payments from four to five days per month to just four to five hours!

Reduced errors

Manually inputting data into spreadsheets isn’t only a waste of time, it’s also begging for errors to be introduced. No matter how careful you may be, mistakes will happen. And when they do, they’ll be costly. You could end up with faulty data that skews your forecasts and throws off your sales strategies. You could underpay or overpay your sales reps, and then have to deal with disputes or clawbacks. And of course you’ll waste even more time trying to find the error before you can fix it.

The automation that comes with a software solution doesn’t only save you time upfront. It also safeguards against human error. Computers are simply much better at performing these kinds of repetitive tasks than we could ever hope to be, especially as comp plans increase in complexity and sales teams increase in size.

Increased transparency

Transparency is essential for keeping your sales reps motivated and on task. They need to be able to see what they’ve accomplished so far, how close they are to meeting their quotas and goals, and what they can expect to earn. Lacking this transparency, they’ll resort to “shadow accounting”—an attempt to keep track of everything themselves using homebrewed calculations that waste time and are rarely accurate, leading to unnecessary disputes and frustrations.

With ICM software, you can provide your sales reps with dashboards that provide all the information they’ll need about their performance. This keeps them motivated, reduces disputes, avoids wasting time, and makes your sales team more efficient and productive. 

Additionally, you’ll get advanced reporting for sales leaders and management, giving you a complete picture of your business’s sales performance, how reps are progressing toward their quotas, and what territories are performing the best.

Advanced sales insights

As you track performance metrics and meet (or fail to meet) goals and objectives, you’ll build up a wealth of sales data. With advanced machine learning and AI, you can mine that data for invaluable insights.

Using sales data analysis, you’ll be able to measure the effectiveness of your sales strategies, identify areas that need improvement, and continually refine your sales processes for optimal efficiency. You’ll also be empowered to more accurately forecast revenue and sales, which in turn facilitates planning and enables greater sales-finance alignment. And data analysis allows you to align your compensation strategies with organizational objectives in order to most effectively motivate your sales team.

How to know when it’s time for a dedicated solution

If you aren’t yet using a dedicated solution, you need to start by taking stock of what you currently do to manage sales performance. 

Many small businesses initially use spreadsheets for ICM. It’s understandable, as spreadsheets offer an inexpensive entry point, and they can work well enough to get by if you only have a small sales team. However, the complexity increases exponentially as the number of your sales reps increases.

Typically, around 50 sales reps is the point at which spreadsheets become completely untenable. So does that mean if you have fewer than 50 sales reps, you don’t need a dedicated solution? Not quite.

For one thing, you likely don’t plan on staying that small for long. You intend for your business to grow and expand, and it will be far easier to transition to an ICM solution now—before the complexity of your sales process reaches a breaking point and starts causing serious problems (like driving away your best reps or increasing turnover).

For another, while spreadsheets may allow you to get by, they will never be able to provide you with the crucial insights from sales data analytics that you’ll need to grow your business. A dedicated solution not only allows you to expand, it empowers your expansion.

If you’d like for your business to continue experiencing growth, then the time to invest in dedicated software is now.

How to choose the right solution for your business

Dedicated ICM software is a big investment. The right solution will serve your business well for decades to come. But a subpar solution could be barely better than spreadsheets, wasting your time and money. You need the ICM software that will best cater to the specific needs of your business. Follow these three steps to make an informed decision.

1. Determine what you want to get out of your solution

Your first step in choosing the right solution is setting clear goals for what you want to achieve. What are the obstacles you face with your current system, and what are you hoping to improve by switching to a dedicated solution?

For example, how much of your process would you like to automate? Calculations only or also dispute resolutions? What commission information do you want your reps to see? What sales insights best enable you to develop your strategies? What kind of reporting will your leadership need?

Make lists of the things that are important to you, the things that would be nice to have, and the things you can live without. Then be sure to ask potential vendors about their solutions’ capabilities in these areas. This will help ensure you’re getting access to the tools you really need, rather than being swayed by superfluous features that aren’t as applicable to your situation.

That being said, be sure to consider not only what you need today, but also what you can expect to need over the next few years as your company grows. It’s important to select a solution that will be able to scale along with your business. Otherwise, you’ll have to go through this whole process again a few years later.

2. Research potential vendors

Once you’ve determined your requirements, the next step is to research vendors to find the one that best aligns with your needs. 

Start by creating a list of vendors that can satisfy your basic requirements. You can look at the specifications and features listed on vendors’ own websites, as well as curated information and reviews from sites like Gartner Peer Insights, Capterra, and G2.

A key consideration is breadth of functionality. Vendors can broadly be categorized as either small-to-medium business (SMB) or enterprise-grade. SMB vendors may be easier to use, but they may also be 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. Look for their particular areas of expertise, and check whether they have experience with organizations like yours.

Try to narrow your list of vendors down to three or four options you like, and then go through an evaluation process with each. This usually involves an initial conversation where you communicate your goals, and the vendor determines if they’re a good fit.

A demo will typically follow to give you a better idea of how the product looks and works, as well as what features it offers. During the demo process, make sure you get a custom demo. The vendor should take your actual data and compensation plans and build out a proof of concept for you. This will verify whether the vendor can actually handle your comp plans and meet your specific goals. You don’t want to rely on a generic demo based on data from some other business.

3. Look for the necessary functionality

As you talk to each vendor and go through their demos, watch for the features they offer to ensure they will meet your specific needs. A given vendor may look great in all other areas, but if they’re missing a key bit of functionality you require, then that’s going to create an ongoing pain point you won’t want to deal with.

If you aren’t sure where to start or what functionality you’ll need, here are a few of the more important features to consider.

A centralized repository for your sales information

Many SPM and ICM solutions gather all your sales data into one centralized location, making it easy to find what you’re looking for, while avoiding redundancies or information silos. This increases operational efficiency, allows you to track and measure your sales metrics more accurately, and leads to better analytics and decision-making capabilities. Ideally, it should also utilize role-based permissions to ensure that everyone only has access to the information relevant to their positions.

Real-time access to your sales data

Real-time sales data allows you to continuously monitor your sales performance and the effectiveness of your sales strategies. You’ll be able to spot problems as they arise and make on-the-fly improvements to your strategies, rather than simply analyzing the data after the fact. It can make all the difference when it comes to consistently hitting your sales quotas and goals.

Advanced data analytics

Your sales data provides a wealth of valuable insights, but you’ll need advanced analytics capabilities to properly extract and utilize them. The right application of sales data analysis can help you incentivise revenue-driving opportunities in your compensation plans, reward the best performers on your sales team, and identify and remove bottlenecks from your sales processes. And predictive analytics lets you identify trends and take advantage of them before your competition, helping you stand out from the crowd and generate more revenue.

Long-term scalability

As your business grows, your circumstances, needs, and requirements will evolve. You’ll have more sales teams, more reps, more processes, and other technologies and platforms to manage your sales processes. So it’s crucial that your SPM or ICM software be able to scale with and adapt to your business’s evolving needs. It should effortlessly accommodate however many users, teams, and territories your future may hold without adding any complexity for you to manage.

Seamless integrations with your other systems

Your ICM or SPM solution must be able to seamlessly integrate with the other systems you use, such as your Customer Relationship Management (CRM) platform and your product management software. You should be able to easily share sales data across platforms and use that data for analysis and automation. But if the proper integrations aren’t built in by default, it may require a painstaking process of exporting data from one system, manually converting it to a usable format, and then importing it elsewhere. It’s a huge waste of time that you shouldn’t have to deal with, and it opens the door to the introduction of errors.

4. Understand the implementation process

Any SPM or ICM solution, regardless of its features or complexity, will have an implementation process, and some will take longer than others to complete. While it may be tempting to prefer a solution that offers the shortest implementation time, it’s much more important to ensure that the solution is thoroughly tailored to your specific needs and requirements.

Automating sales compensation is unique to each company, requiring deep domain expertise. During this process, the implementation team should work to understand your unique requirements and configure the solution to your needs. Then they’ll follow that up with a thorough testing and onboarding process. If the implementation process is done haphazardly, you could end up with far greater problems down the road.

The key dimensions to think about here are speed, quality, and cost. You can usually get two out of three, so choose wisely! Make sure you understand what a given vendor’s implementation process will look like before making a commitment.

Drive sales performance for your business with Performio

To increase your sales and generate more revenue in a competitive market, you must track and manage your sales team performance effectively and efficiently. When done correctly, your sales team will be motivated and productive, leading to optimal performance.

But this can be a complex process, especially when managing a large number of reps and sales teams. You’ll need to rely heavily on sales data analysis in order to make informed decisions that will best motivate reps and drive revenue.

Performio’s ICM gives you a start-to-finish look at your sales data, producing valuable insights at every step along the way. Our software tracks everything for you, providing sales managers with all the data they need to keep their teams on course toward meeting their goals, and giving sales reps a real-time window into how they’re doing and what they can expect to earn.

Ready to see what Performio can do for your business? Request a demo today.

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