Recently Selling Power magazine publisher Gerhard Gschwandtner talked with Xactly CEO Christopher Cabrera about how sales teams can benefit by expanding beyond CRM and into sales performance and compensation management. Here are some highlights of their conversation:
GG: What is the relationship between sales performance management and compensation management?
CC: Compensation management is a piece of the overall sales performance management picture. It’s an important piece of the strategy but by itself doesn’t drive enough behavioral changes in the sales force unless you combine with other technologies, like quote and territory management, analytics and modeling, and so forth. It’s the combination of all those elements that allow companies to really maximize the performance of their sales teams.
GG: How many times do sales compensation plans change in the average company during a year?
CC: They change a lot, and that’s a good thing. If companies are not changing their complex, it’s usually a sign that they’re losing track of their market. Companies must recognize that compensation drives behavior, which means that compensation must adapt as economic conditions change or the competitive environment changes. Also, when companies do acquisitions or add more people, it changes the way everyone else is compensated. Unfortunately, most companies try to manage their compensation plans using Excel spreadsheets. They end up tweaking the compensation plans without proper modeling and analysis. Because of this, they don’t know what will result from those tweaks. And that can be very bad for business, indeed.
GG: A recent survey revealed that the number one concern among CEOs is improving sales productivity. How can a good compensation plan help?
CC: One of the most exciting things about the sales performance management space is that it’s very complementary to CRM but more in tune with the DNA, as it were, of the sales team. Sales professionals want to log in and see how they’re being paid and understand how the compensation plan will operate – prior to closing a deal. Because of this, we have customers who have used the acquisition of our service to increase the adoption rate of their CRM application!
GG: A minute ago you mentioned Excel. What’s wrong with Excel?
CC: Excel’s a great application. I use it almost every day just like most other business people; however, it just wasn’t designed to manage the complexities of a large sales force of 200, 500, or 1,000 people. The market research firm Gartner recently released a study showing an average 3 to 8 percent error rate in these manual, Excel-based compensation plans. In a large company paying hundreds of people, those errors could involve tens of millions of dollars.
GG: Not to mention that the errors will result in disputes between sales reps and managers.
CC: True. But that’s not the worst of it. The worst part of having a manual, Excel-based compensation system is that you don’t have that Web-based visibility. Consider this: The reason companies have compensation plans is to motivate salespeople to go do something different, like up-sell or cross sell or sell a particular set of offerings. If you don’t provide them with Web-based visibility, you’re really throwing your money away because they won’t know what expected of them or how they’ll get paid for doing what’s needed.
GG: So salespeople get a quick picture of where they stand with your solution?
CC: Absolutely. In fact, it’s virtually instantaneous. As soon as an order comes in to our system, the compensation is calculated and appears on the reports on the Web. More importantly, because we work well with many other applications, like Salesforce.com, that information is provided in using the same interface that the sales team uses every day, making it even easier to access, and therefore more likely to drive the desired behavior.
GG: So salespeople can count their money a lot quicker?
CC: A lot quicker, yes. But they can also make and review the content of the deal before they close it to ensure that they get the best commission. They can decide to add something or change the price – before quoting – in order to maximize their commission. And if the compensation plan is set up to achieve certain goals, that aligns their sales behavior exactly with the overall sales strategy of the entire company.