In any organization, salespeople are going to do what they do best—make money. But on their way to meeting quota, are they taking the company with them? Or are they leaving the company’s business priorities behind in the wake of their personal success?
Companies invest a considerable amount in their sales organizations. In fact, according to Harvard Business Review, sales force compensation represents the single largest sales and marketing investment for most B2B companies. Ultimately, it is up to a company’s finance leaders to ensure that this major investment is worth it. However, without transparency and visibility, it is nearly impossible to know the true ROI of a sales organization’s effort, much less influence it.
This is where effective sales compensation planning can make a significant strategic impact. Having reliable insight into all areas of sales gives finance the ability to optimize performance in the following ways:
Increased productivity. Docurated’s State of Sales Productivity 2015 study revealed that only one-third of a sales rep’s time is spent actually selling. The numerous administrative and non-sales related tasks that take sellers away from their core selling duties unquestionably lead to decreased productivity. Unreliable sales performance tracking systems, such as manually updated spreadsheets, further add to a decline in productivity. Sales people will squander precious time deciphering complex variable compensation plans or shadow accounting to ensure that they’re not missing out on commission.
With a designed-for-purpose system, however, the sales team is equipped with detailed and trustworthy data, resulting in increased sales productivity. Through the elimination of systematic complexities and inefficiencies, sales reps are able to refocus their efforts on selling, thereby reducing sales cycles, decreasing the cost of sales, and taking pressure off of margins.
Improved forecasting. To allocate budgets and make enterprise planning decisions, finance leaders must make accurate and justifiable forecasting decisions for all departments. Armed with down-the-line operational visibility across departments (Sales, HR, IT), finance executives are able to eliminate assumptions and accurately predict sales costs and sales revenue, as well as target areas that can be streamlined through automation. This not only mitigates risks, but also sets an organization up for realistic and sustainable growth.
Reduced overpayments. According to Gartner research, the average estimated payment error rate in any sales organization is 3-8 percent. Depending on the size of an organization, this could result in millions in overpayments to salespeople. By automating incentive compensation data calculations, organizations are able to reduce the risk of overpayments that occur as a result of manually intensive processes. This creates a healthier bottom line in some obvious and not-so-obvious ways—for example, consider the possible reduction in turnover when sales reps are being treated equitably and are no longer the victims of inaccurate calculations that result in perceptions that the playing field is not level.
Enhanced risk management. Organizations are able to meet auditing and compliance needs by tracking, organizing, and collecting relevant sales compensation data that can be easily accessed and generated into different types of audit reports without heavy IT dependencies.
Aligned goals. At any given time, a company’s business priorities may not be solely to drive revenue. Priorities could include growing market share for a new product, penetrating a new market, increasing client satisfaction, or any number of strategic objectives. Arguably, the biggest benefit of a sophisticated sales compensation approach is that a sales organization’s activities, even down to each individual sales rep, can be quickly and seamlessly aligned with corporate goals through rapid deployment of new incentive compensation plans that drive desired sales behaviors. This is the ultimate win-win scenario, when the needs of both sales and finance are integrated. If every sales “win” feels like a financial “loss,” there is a critical strategic misalignment that needs to be addressed.
Ultimately, integrating sales compensation planning for sales and finance provides the necessary line of sight in order to establish crucial revenue alignment for the company. Sales compensation planning allows finance leaders to optimize sales performance, thereby also optimizing financial performance, which transforms the sales organization from a cost center into a profit center.
If you recognize the challenge of driving the right sales behaviors for impactful business growth, join us at Hub London to hear how leading enterprises are conquering this and more with Anaplan. Tune back in here for the next blog in this two-part series on sales compensation planning for finance. Part 2 addresses the critical questions to ask in order to create the best sales compensation planning strategy for your organization’s goals.