This story was originally posted on the Intangent blog as Three levels of maturity for sales compensation plan cost modeling.Incentive compensation plan changes are a reality that organizations face every year. Sometimes plan changes are structurally significant and made in response to exciting new business initiatives. In other cases, these changes are mere tweaks to a model that is already operating well. In any case, change means entering into the unknown and one aspect of the unknown is the expected cost of the new incentive compensation program.Organizations that have automated their incentive compensation management processes have an advantage in modeling the cost impact of new plan changes (click to tweet). These organizations can leverage their existing investment to accurately model the impact of future incentive compensation plan changes using tools and data that they are already familiar with.Here, we will review three approaches to sales compensation plan cost modeling that can help your sales organization set expectations for next year’s incentive program.
Good: Basic incentive plan modelingA common method for understanding the cost impact of new incentive compensation plan changes is to simply test the new changes against last year’s data. Depending on the tools used, this can be a very straightforward process, broken into five parts:
4. Analyze the results and make adjustments Once your initial configuration is complete, you can begin your analysis of the results. Since we’re using a complete ICM model, all field rep, manager, and administrative reports should populate with representative data. Analysis using built-in data exploration tools or through existing reporting in the ICM solution can also be used to understand the forecasted impact of the plan changes. As the analysis is performed, adjustments to the plan can be made to refine the incentive program changes. This ensures best alignment between sales incentive programs and corporate strategy.5. Promote your changes Once approved, application administrators can quickly migrate the new incentive program configuration to the production environment in time for the new selling season.The advantages of this basic approach are that it’s quick, it’s easy to control, and it’s reasonably accurate. The primary drawback to this approach is that sales plans are often modified to generate a business result, which is not considered in the forecast data as prepared above.
- Create a sandbox environment. This is often a copy of your production environment that you can modify without any impact to actual production operation.
- Prepare the sandbox environment with the new plans. For basic changes, this might be building out the new rate tables, territory assignments, and quotas. For more complex changes, the new plans may need complete configuration within the application. Either way, the quality of the output will depend on the quality of the input, so we recommend a clean and accurate implementation based on the information available.
- Prepare the forecast data. In this basic approach, forecast data is comprised entirely of prior period data. For example, if we are performing this analysis in September of 2017 for the calendar year 2018 then we would copy January 2017 through August 2017 to January 2018 through August 2018. The remainder of the year would be a copy of September 2016 through December 2016. Most organizations will manipulate the inbound data at this stage to reflect a top-line increase in sales volume for the new year.