The objective of any sales team is pretty clear: sell more and drive revenue.
In fact, many companies have based a salesperson’s pay on sales alone in an effort to motivate the representative to sell more. However, in most industries we’ve learned that a mixed approach is more reasonable.
Today, most companies have adopted a variable pay structure that combines a base salary with commission-based pay. These structures have led to the practice of Incentive Compensation Management (ICM), which is the management and administration of compensation plans, quotas, crediting, adjustments, and the processing of commissions.
Variable pay creates a feeling of security because not all pay is at risk, yet the commission component still rewards hard work to sell more.
Finding the right balance of salary and commission depends on your company’s goals, stage in growth lifecycle, and more. It’s a complicated balance.
However, what’s not complicated is knowing that you should pay your salespeople what you promised and that the more they understand it, the better motivated they will be. If you think most companies are able to hit this mark. You’re wrong.
According to Jim Dickie, managing partner of CSO Insights, a sales-focused research firm, said, “The vast majority of companies are still using spreadsheets to do compensation management…” Often times, data is being combined from multiple divisions such as Finance and Sales in order to perform the necessary calculations for compensation management.
This method can lead to potential data errors and a discrepancy in administrating compensation in a timely manner. Manual data manipulation can also compromise its integrity, making it difficult to analyze performance. In other words, many companies still have ways to go when it comes to ICM.
So how do you do it right? Here are three tips to get you started.
1. Automate the management of incentive compensation
It may be easier to simplify your compensation plan but the point is that a stripped down plan may not motivate your team to sell what’s needed and where. Incentivizing your sales force to push product at specific times or to sell into a specific region complicates the design of the plan and overall management. Automating the calculation of the complex plans gives leaders a peace of mind that the plan was calculated correctly, avoiding any errors that are common on Excel. ICM tools give you the benefit of flexibility to align commissions with a variety of factors and automated calculations. Therefore, create conditions as necessary to appropriately motivate and align your sales force with your sales goals.
2. Make sure your salespeople spend most of their time selling
Shadow accounting is a term for when sales reps like to spend time recalculating their commission to ensure they are paid correctly. Tools that automate commission calculation and provide transparency to all levels eliminates this burden and allows the sales force to spend their time on revenue generating activities
3. Provide accurate and timely data on incentives to both management and salespeople
This tip is the most important and the least mastered.
Translation: this tip is an opportunity for differentiation.
You need an accurate and unified platform for sales data to achieve effective ICM. Your salespeople deserve access to real-time data that reflects their sales activity and incoming commissions. They deserve accurate calculations and data transparency.
You can also save the company money by eliminating inaccuracies so there is no commission overpayment. In fact, according to CRM Magazine, “it wouldn’t be unusual for a business to have single-digit decrease in its commission payouts after an implementation.”
In today’s world of software tools and real-time data management, there’s really no excuse for a sales organization to not have access to accurate and timely reporting on sales and commissions. When the numbers are confusing or don’t match a salesperson’s expectations, they may become frustrated or unmotivated. Amplified by the number of salespeople who are frustrated, this can really hurt your organization. If a large percentage of your pay varied, wouldn’t you want to know what was coming down the pipe?
Making sure the resulting data is accurate and timely can go a long way to build trust and motivation within your sales teams. Automate your commission calculations today.
For more information on how Obero SPM can assist your Sales Organization, please contact us for a demo.