SALES INCENTIVE COMPENSATION 101: FOR EMERGING COMPANIES

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1 SALES INCENTIVE COMPENSATION 101: FOR EMERGING COMPANIES

2 Incentive compensation can be a very effective motivational tool for any business. With a system of bonuses based on performance in place, you can make sure that those who do well for the company are properly rewarded. This is even more important when it comes to sales incentive compensation. Giving salespeople a commission based on what and how much they sell is a motivational tool to encourage them to work harder and bring in as much revenue as they can. Some salespeople work entirely on commission, which makes a sales incentive compensation program even more essential. Just as essential as the program itself is making sure you have a way to implement it effectively as well. If your implementation is sloppy, or if you don t have enough resources committed to it, your salespeople might not get the compensation they deserve, or there could be errors or long delays in receiving payment. The quickest way to ruin the motivation behind an incentive is for it to turn into a problem. So what do you do? How do you implement an effective and efficient sales incentive compensation program in your company that does what it s supposed to do and keeps everyone happy? Let s take a closer look. 2

3 Sales Incentive Compensation Basics The first and most important aspect of incentive compensation is to have a clearly defined plan for the compensation you re providing, so that everybody knows exactly what to expect. How much compensation are you planning on giving your salespeople? Is it based on the number of sales, or the value of each sale? Will the percentages go up with employee seniority, or will they be based on performance over time? If you already have an incentive compensation program implemented in your company, then you probably know the answers to these questions. Still, it s essential to have everything documented so it s clear to all involved. Some companies choose to make their sales incentive compensation packages intentionally complicated and vague. For example, they may offer commission only on sales that are above a certain percentage of improvement over last year s sales. The thinking is that this will get their salespeople to work toward a goal without actually having to provide value for the thing they re working towards. This may seem like a quick and easy way to boost motivation and increase sales for a lower overall cost. However, in the end, these tactics benefit no one. Sales will improve if sales reps are given quantifiable and attainable goals. The more they re able to yield results for themselves, the more motivated they ll be to yield results for you. 3

4 (con t) Sales Incentive Compensation Basics Once you have your sales incentive compensation plan clearly defined, you need to determine the payment schedule. Will compensation be given monthly or quarterly? Will you add SPIF s? You may also choose to implement a long- term compensation plan. In this type of plan, typically a percentage of each salesperson s earnings are paid regularly and a percentage is held over for a period of time and placed in a separate fund. The fund is then able to earn interest and can make a good retirement package. Whatever payment schedule you decide on, it s important that you adhere to it religiously. You need to pay your salespeople what you ve promised was due to them, when you ve told them that you would pay it. This may seem like a given but if you do have a sales incentive compensation plan in place, you know how hard it can be to keep on top of it for a small or medium sized business. There are a million little details to handle for each employee and they can be easy to lose track of. Which is why, once you have your payment schedule firmly in place, the next thing your company needs is a sales incentive compensation management tool. There are two basic types of management tools that you can implement. Either you ll use a manual system or an automated tool. For the reasons outlined below, we strongly recommend an automated system. 4

5 Why Sales Incentives are Used This may seem like a basic question. However, there are many companies that do not use incentives of any kind for their sales people. They pay their salespeople a salary and maybe a yearly bonus, and that s it. Chances are, that model is not working as well as it could. Why? Because human nature dictates that people like to be rewarded for their behaviors. People like to be compensated for their hard work and they want that compensation directly tied to specific actions they are doing to move your business forward. 5

6 (con t) Why Sales Incentives are Used With the global trend of allowing employees to share in company profits, successful companies realize that sharing the wealth is absolutely critical to growth. And most of them simply believe that it s the right thing to do. Treating salespeople like company owners can be a great move. Sales incentive compensation works the same way. They feel more invested in the company. They are happier. They will produce more. So how do smart emerging companies use incentive compensation to drive profitability? By selling high value, high margin products and services By connecting specific sales behaviors with key metrics and KPI s By selling products and services that lend themselves well to upsells and repeat purchases By attracting and employing sales people that respond to attractive financial (and non-financial) incentives By focusing on these four factors, you can effectively use an incentive compensation program to fuel improved sales and positive morale among your sales team. 6

7 Manual Sales The most basic way to manage your sales incentive compensation plan is using spreadsheets on your computer. After all, the data in and of itself isn t that complicated. It s mainly just a bunch of figures. You enter in each sale for this month in one column, for next month in the next column, and so forth. You can even program the spreadsheet to do basic math for you, so that it will figure out the commission for each employee automatically each month, based on the figures you input. Problems arise when you consider the sheer volume coupled with the inevitability of human error. In a small to medium sized company, you may have anywhere from a couple of dozen to hundreds of salespeople on staff and each one requires their own spreadsheet. Each of those spreadsheets needs to be kept careful track of and submitted to accounting every month or every quarter and then submitted to payroll as well. Additionally, there is potential for human error every step of the way and amid that avalanche of spreadsheets, those errors are unlikely to be spotted or corrected. There simply isn t enough time to manage incentive compensation with spreadsheets. 7

8 (con t) Manual Sales For a micro company with only a handful of employees, manual sales incentive compensation management might be feasible. But for an SMB, this way of doing things is behind the times and just results in a catastrophic mess. No one is ever sure who owes what to whom, and looking it up takes forever, if you re able to find the figures you need at all. Payments take ages to process and can t be done with any kind of regularity. It eventually reaches the point where salespeople never know when they re going to get their next incentive check until they re holding it in their hands. If you run an SMB, you need to find a more practical option. 8

9 Automated Sales An automated sales incentive compensation system is a SaaS (software as a service) platform that s designed to simplify the compensation process. It unites your sales data into one easy-to-use interface that can keep track of all of your records, all of your employees, and all of the incentives that have been paid or need to be paid. It can be accessed by any department in your company, when and how they need it. This eliminates bouncing files around from one department to another. There are a plethora of benefits that a good automated sales incentive compensation platform can bring to your company, including: Easy-to-Use Interface Rather than wasting time with tedious data entry, an automated system lets you take control and streamline the process. All the data you need and all the tools you need to use it are together in one place, right at your fingertips. It can be implemented quickly and your entire company can be taught to use the new software with minimal training. This way, everyone s on the same page and you can see immediate improvement in your compensation practices. In addition, you can get updates instantly, as soon as they re ready, rather than having to worry if your software is outdated and not keeping track of necessary upgrades every few months. 9

10 (con t) Automated Sales Saving Time When you have errors and discrepancies in your reports, or even the possibility of errors or discrepancies, it takes time to resolve them. Someone, or even several people, need to pore over endless documents and search through piles of data in order to find the right figures and make the necessary corrections. This can waste several days of your employee s time-time that could be used much more productively elsewhere. Automated sales incentive compensation software greatly reduces these errors and when discrepancies do pop up, makes it easy to find the proper data and correct things within minutes. This way, your company saves a tremendous amount of time and resources. 10

11 (con t) Automated Sales Cloud Based Functionality In the past, software packages were installed individually on each computer in your office. Everyone used the same tools, but they used them separately. Sending information from one person or department to another had to be done manually. Not only was this a hassle, it made it difficult to integrate all of your data across the entire office, so that everyone was on the same page. Nowadays, many Software as a Service platforms are based in the cloud, and your incentive compensation software should be no exception. Everyone can access the platform from wherever they are, even if they re not in the office and make updates to the database visible to the rest of the company in real time. This eliminates the needless sending back and forth of reports and allows you to send your figures from sales to accounting to payroll in the blink of an eye. 11

12 (con t) Automated Sales Transparency Not only does cloud computing make things faster and more convenient, it also improves accountability. Every department has access to exactly the same figures and can check them from their point of view, virtually eliminating the possibility of overpaying or underpaying. In addition, management can keep an eye on the sales incentive compensation process as well, to ensure that the entire operation is running smoothly. They can make adjustments to a particular compensation plan if necessary, so that it remains aligned with the company s overall objectives. Scalability Your business may be small now but over time you may grow, expand, and evolve. If you try to use the same compensation plan as your business develops and changes it will end up becoming a drain on your bottom line, simply for the sheer volume of salespeople and the increased administration needed to handle them. Your compensation plan needs to grow and evolve with your company in order for your business to stay competitive. An automated platform should include architecture that allows you to scale your compensation plan to meet your current demands and expand your sales force as needed without adding more administrative resources. 12

13 (con t) Automated Sales Flexibility By the same token, your company may end up changing in some other way that requires you to change your overall business objectives, whether subtly or drastically. A good automated system will allow you to make changes to your current plan quickly and simply, to make it fit with your new objectives. Those changes will be automatically reflected across the entire platform and applied immediately to all employees, without requiring a major overhaul of the system s programming. Integration As a company that deals in sales, it s likely that you already have some sort of Customer Relationship Management software platform, such as Salesforce, implemented in your company. Which means you may be thinking, great, does this new automation service mean our employees will need to balance two separate software platforms for all of their sales? Not at all. Your sales incentive compensation management software can integrate seamlessly into your CRM software, allowing you to run both from the same place. They do use a lot of the same information, after all. So now they can both be used as one, instead of switching back and forth. 13

14 (con t) Automated Sales Reduction of Errors This integration with CRM can in turn help you to reduce human error in your compensation plan and make sure that everyone gets the incentives they earned. Rather than having each salesperson enter the figures from every sale manually into a spreadsheet, you can simply import all the necessary figures from Salesforce into your incentive compensation platform. When you do this, the program has a record of all the sales made by your company, which it can then automatically categorize by salesperson in order to get a quick and accurate figure of what their compensation should be for this month or quarter. 14

15 (con t) Automated Sales E-document Handling Even with all of your data united under one easy-to-use platform, there s still a tremendous amount of documentation involved in sales incentive compensation. Each sale has at least one document attached to it, along with a plethora of other important papers. It s important to have these documents on hand and be able to access them when needed, in order to confirm a particular salesperson s compensation, resolve disputes, correct errors and more. You could fill the basement in your office complex with file cabinets and spend hours searching for the right document when needed. You could store them on CDs or flash drives and have almost as difficult a time sorting through them as with physical papers. Or you could use an incentive compensation software package that includes document handling. It puts all your important documents in one place, stored in the cloud, and allows you to sort them by salesperson. That way, you have all the documents associated with a particular employee at your fingertips when you need them. 15

16 (con t) Automated Sales Analytics So you ve got your sales incentive compensation plan in place, and thanks to your automated software, it s become a well-oiled machine. But what effect is the plan having on your company? Are you over-paying your workers? Under-paying? An automated software program can help you implement your incentive plan, but it can t make sure if it actually works, can it? Well, not exactly, but it can help you find out. An analytics application lets you view all of your sales and compensation data at a glance to see what s working, what s not, and what needs to be changed. It helps you to keep your plan up to date and enables you to do what s best for your employees and for your company. Increased Motivation The entire point of sales incentive compensation is to motivate your salespeople to work harder and do more. But when filling out and submitting your reports is a hassle fraught with errors and problems, it can end up being more of a worry than a motivator. If your salespeople are never even sure when their compensation checks are going to come in, it weakens the association in their minds between the work and the reward. However, thanks to the benefits listed above, an automated sales incentive compensation platform eliminates the hassle and allows you to pay out incentives like clockwork, without error or worry. This will help put things into perspective for your salespeople and they will see the benefits of their labors, inspiring them to work harder and sell more. 16

17 Conclusion Sales is an essential part of any company that relies on selling products or services. Your salespeople are key contributors to the future growth of your company and the happier they are, the better they ll sell and the more your company will be able to prosper. A manual incentive compensation plan often ends up doing more harm than good. It s a detriment to morale and it can make your company lose revenue due to errors and the excessive time it takes to manage. However, if you implement a high quality, cloud based, automated sales incentive compensation platform for your company, it can turn things around. It will not only save you time and resources, it will also improve your sales, your profits, and your operations. The right incentives will help your company meet its overall goals and align employees with these objectives. 17

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