If you have more than 50 reps in your sales team, the pain and cost of processing sales compensation increases drastically. To avoid discrepancies, confusion, and hours of manual busywork, automating your commission process is the way to go. You can streamline commission management as well as give reps access to their commissions data on demand. That’s where incentive compensation management (ICM) software comes into play. But are automation and visibility of payouts the only aspects where ICM solutions add value? As a revenue leader, how can you get more out of your ICM?
To truly accelerate sales teams, leverage the following four key metrics.
Sales quota attainment is a widely used metric for assessing the performance of your sales reps.
Quota attainment reflects the productivity of your sales teams and influences other factors such as performance plan triggers, president club benefits, etc. Quotas are popularly used to increase sales teams’ motivation and performance. However, most companies miss out on the insights that can be derived from quota attainment data that can help make crucial strategic decisions.
For example, you can evaluate the efficacy of quota allocation decisions. Observing the shape and dispersion of your quota attainment distribution curve will help you better understand the potency of your set sales quotas.
A high-skewed quota attainment distribution curve means the quotas are easily attainable targets for your reps. You may be overpaying them. (refer to Figure 1)
A low-skewed quota attainment distribution curve means the quotas are unattainable targets for your reps. Overall, business performance may not be working as expected. (refer to Figure 2)
In summary, unbalanced quota allocation leads to undesirable outcomes such as low morale, increased turnover, and under or overpayments of incentives to your sales reps.
Ultimately, the quota attainment distribution curve guides you to perform quota allocation improvements (as and when required). You can identify allocation inaccuracies that affect sales compensation outcomes. To support an effective quota program, sales managers should regularly examine quota allocations at a granular level for categories like region, role, tenure, product, account, and industry.
A standard bell-shaped quota allocation curve is critical to maintaining a motivated and cost-effective sales force. The figure below illustrates the performance of your sales teams if your quota allocation is done correctly.
You can plot rep performance on a graph and then compare it with the above desired distribution. This will tell you if there is any skewing in your distribution curve.
On-target earnings (OTE) is the total amount reps can expect to earn if they hit 100% of their sales quota. It is an annual figure and can vary depending on every rep, experience, industry, goals, and other factors. Try and understand how to arrive at the right quota-to-OTE ratio. The general rule of thumb is for the quota to be around 3-7X the OTE.
It has to serve both your reps and your business revenue model. It is commonly used by the finance teams in annual planning exercises to decide critical aspects like headcount, hiring plans, etc., for sales teams. Quota-to-OTE in isolation is not very helpful. You need to compare it with the attainment-to-earnings ratio. Attainment is the revenue the rep brought in. Earnings is the sum of the base pay and the final incentive pay.
When you plan with a quota-to-OTE ratio of 5X, you expect $5 in revenue for every $1 you pay to reps. Of course, there will be both under-performing and over-performing reps. The under-performers bring in less than 5X worth of revenue; in contrast, the over-performers will get you more than 5X of revenue.
However, in reality, companies reward reps a lot more nowadays with accelerators, bonuses, spiffs, etc. What ends up happening is you don’t actually know if you are overpaying them, as the data is not readily available.
An incentive compensation tool should be able to get this metric at scale instantly, which makes the job of acting on this data much more efficient. ICM tools like Everstage already hold information about incentives, quota, and attainment. By integrating with your HR systems, you should be able to quickly derive the overall earnings and pull this information instantly.
If you calculate this at your firm, you may be surprised. We aren’t making a case to reduce incentive rewards, but you need to be aware of what your planned quota-to-OTE ratio is versus your realized attainment-to-earnings ratio. This should give you a sense of fairness of compensation, budget utilization, and planning for next year.
Due to the nature of sales incentives and the complexities involved, your reps don’t know how much they stand to make until they receive their payouts. This is not ideal when you want to keep them well informed and motivated. So the smartest way to keep your reps driven to close more is by empowering them to predict their future payouts.
Commission forecasting intelligence is a feature that lets reps choose the deals they’re confident of closing and run them through a simulator. They get an accurate prediction of what their payouts would look like upon closure of these deals.
Your reps can also get granular and see predictions based on structural changes to the deals. For example, what will my commission be if I offer a lower discount, or what if I push for a longer deal tenure? This level of visibility will drive your reps to close the deals at the best possible terms.
Curious to know more about the gamification of commissions? Learn about sales commission forecasting intelligence.
Ever felt like you want to change your compensation plans for the next year but were worried about getting shot down due to budget constraints? It’s hard to simulate what the performance improvement or even the financial implications of comp plan changes will be like, but an ICM tool makes this exercise more logical and mathematical.
You can simulate and backtest your incentive plans so you can validate your budget with your executive teams. Also, you can test new components against historical data and optimize your commission structure in real time. In this way, you ensure your planned budgets are not overshot due to the rollout of new incentive structures. You will be prepared for commission expenses and the outcomes of your new compensation plans before they are implemented.
This helps companies be agile when it comes to managing their incentives. These are just a few metrics we can use to truly leverage ICM platforms.
ICM software like Everstage can encourage operations teams and reps by providing them with a great commissioning experience. Such software can also help you optimize your compensation plans to ensure great performance, thereby helping you unlock the true power of incentives.
Learn more about Everstage and how it can automate commission processing and enable sales teams with on-demand access to error-free performance insights.
Adithya Krishnaswamy is the head of revenue and growth at Everstage, a leading sales commission management platform focused on providing sales teams transparency and real-time visibility of performance and motivating them through a gamified incentives experience.
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