Return on Investment of Sales Performance Management Systems

Transcription

1 WHITE PAPER NEXXUS SALES Return on Investment of Sales Performance Management Systems

2 If you are considering implementing a software system to automate incentive compensation and sales performance management, you are probably wondering how these systems can add value to your organization and its processes. This white paper will describe SPM systems and the benefits companies are receiving from implementing them; resulting in a quantifiable return on investment. What are Sales Performance Management Systems? Sales Performance Management (SPM) software systems automate the cumbersome and error-prone processes of measuring and communicating sales performance and pay. SPM is a term that describes a system that addresses many critical functions of Sales Operations, including Sales Compensation and Rewards, Data Integration and Management, Sales Reporting and Analytics, Sales Communication and Collaboration Automation. Because SPM systems have a sales incentive compensation engine at their core, they are often referred to as Sales Compensation Management (SCM) or Incentive Compensation Management (ICM) systems. But a true SPM system will give you a more comprehensive set of solutions. SPM systems are sometimes confused with a CRM system but the two are actually complimentary. A CRM system is focused on providing customer information to sales reps and collecting the call activity made on those customers. That data is often fed into an SPM system for analysis and performance measurement. The SPM system s output is often displayed within the CRM software in order to provide a single location for the sales reps to access all of their critical information on their customers and also on their own performance and compensation. RETURN ON INVESTMENT OF SALES PERFORMANCE MANAGEMENT SYSTEMS 2

3 Sales personnel spend on average between one and four days each month recalculating their pay that s 5% of sales time. Why are Companies Implementing SPM Systems? According to industry surveys, 91 percent of organizations polled believe that sales compensation systems should be a strategic tool used to affect behavior and drive sales performance. However, 84 percent rely on homegrown systems to automate this key function and 67 percent believe those systems did little to drive sales performance due to lack of real-time performance analysis and perceived accuracy issues. Fifty-six percent believed their existing solutions do not allow for accurate and on-time commission payments. Top pain points identified by survey respondents are: Lack of visibility into real-time sales rep performance metrics Time it takes to roll-out new plans or modify existing plans Lack of automation/too many manual processes Lost sales focus/too much time dealing with sales reps complaining about commission payment errors Accuracy in commission payments (26%) Sarbanes-Oxley compliance issues/manual process, no audit tracking etc. (5%) RETURN ON INVESTMENT OF SALES PERFORMANCE MANAGEMENT SYSTEMS 3

4 How can SPM Systems deliver value? Sales Performance Management software systems deliver quantifiable, as well as intangible, value to an organization in the following key areas: Increase Sales Performance Enhance communication with Field Personnel Motivate sales reps with more timely results and insightful reporting Create a Pay-for-Performance Culture Eliminate Shadow Accounting/Increase sales force productivity Increase Sales Rep Retention by remaining competitive with industry best practices Lower Administrative Costs Reduce errors and overpayments (7-10% of budget) No hardware expenses (with Software-as-a-Service method) Streamline collaborative processes Create and administer more targeted/detailed plans Achieve positive ROI within a year (Gartner) Cut IC plan design and implementation time by 50% Improve Compliance Better align corporate strategy to IC plans Reduce Risk Comply with Sarbanes Oxley (SAS 70 Type II) Apply Data Governance rules (i.e. prescriber data restrictions) Administer plans that align with FDA off-label promotion restrictions RETURN ON INVESTMENT OF SALES PERFORMANCE MANAGEMENT SYSTEMS 4

5 65% of companies using a packaged software for incentive compensation management gave the products a score of 8 or higher out of a possible 10. SPM System Costs The cost to implement and administer an SPM system can be broken down into the following categories: Up-front costs: These costs can vary depending on whether the software vendor implements their own software or requires the client to contract with a third party. A good rule of thumb is to budget roughly 50% of the first year s license and support fees for the implementation of the system. Software licenses: Most SPM systems are deployed as Software-as-a-Service, which means the pricing is based on a monthly subscription fee determined by the number of administrator users and the number of payees. Expect these fees to start at around $10,000 per month for a typical 200 representative sales force. This fee will only include basic help desk, technical support. Ongoing Support and Administration: Whether you use the software vendor themselves or a third party professional services firm, the cost to administer the system each month and each pay period will usually be based on the number of hours it takes or a defined scope of work. The hours and scope will be driven by the number of plans, teams, data sources, etc., as well as the amount of change that occurs during and between pay periods. Integration costs: Integrating your SPM system with other Enterprise systems such as your HRIS, CRM or Payroll system can be time consuming and expensive depending to what extent you require they be integrated and to what degree your chosen SPM system has pre-built API connections and/or a configurable ETL module to import, transform and validate data from other systems. These costs will typically be part of the scope of your project implementation, but can be large or small based on your requirements. One company points out the irony that most companies focus heavily on business logic, especially plan logic, when their analysis of implementation projects shows that a significantly larger amount of money and effort goes into data integration. An average project has over 20 separate data feeds into the ICM system. Further, they say that bad data always causes more disputes than bad logic. Implementing a best-of-breed SPM system has its costs, but it s important to note that nearly 70 percent of in-house, legacy systems cost more than commercial off the shelf software and do not deliver the same long-term value. RETURN ON INVESTMENT OF SALES PERFORMANCE MANAGEMENT SYSTEMS 5

6 55% of companies said they had achieved a positive ROI and 88% reported improved efficiency from ICM implementations and 85% said effectiveness was enhanced. Quantifying Return on Investment A Gartner survey found 55 percent of the respondents said they had achieved a positive ROI, 88 percent reported improved efficiency from ICM implementations and 85 percent said effectiveness was enhanced. Here are the ways to quantify your ROI in several different categories. Operational Efficiencies An SPM system should deliver sufficient automation in order to reduce FTE requirements and/or allow sales operations departments (and IT support groups) to reassign FTE s to more strategic responsibilities. Sales Rep Productivity According to Gartner, Sales organizations that fail to execute reporting and payments of incentive commissions in a timely and accurate manner will decrease sales force productivity by 20% because of lost selling time, reduced motivation and the absence of organizational trust. Reduction in errors and overpayments Estimated to save 2% to 4% from IC budgets, which equates to as much as $200,000 per year for a typical 200 representative sales force. As the accuracy and consistency of results improves with an SPM system, the number of inquiries and disputes from the sales force will decrease, saving tens of hours in support time each month. Alignment of incentives to objectives An SPM system provides the tools for Management to build incentive programs that align to the company s overall strategy and brand objectives. For example, weighting incentives toward more profitable products and or behaviors will impact the bottom line. RETURN ON INVESTMENT OF SALES PERFORMANCE MANAGEMENT SYSTEMS 6

7 Compliance Implementing an SPM System can also reduce costs for a public company associated with the risk of not complying with Sarbanes-Oxley regulations. Fines and audits can be costly if sales compensation, a key element of financial reporting, is not secure, process-driven or able to be audited. The high rate of ROI associated with these (SPM) applications suggests that businesses struggling with cumbersome, inflexible, or inaccurate compensation systems should take a hard look at the potential value of replacing legacy systems with the current generation of ICM systems, according to a Gartner analyst. Bibliography On-Demand vs. On-Premise What Works for You?, Arcadia Solutions Compensation Quarterly, Quarter 3, 2008, Volume 2 9 Indicators it s time to replace your commission system, Actek Software, Centive Survey Results Press Release, Business Wire, Monday, August 22, 2005 RETURN ON INVESTMENT OF SALES PERFORMANCE MANAGEMENT SYSTEMS 7

8 IMS HEALTH EUROPE & WORLDWIDE 83 Wooster Heights Rd. Danbury, CT Tel: For all office locations, visit: ABOUT IMS HEALTH IMS Health is a leading worldwide provider of information, technology and services dedicated to making healthcare perform better. By applying cutting-edge analytics and proprietary application suites hosted on the IMS One intelligent cloud, the company connects more than 10 petabytes of complex healthcare data on diseases, treatments, costs and outcomes to enable our clients to run their operations more efficiently. Drawing on information from 100,000 suppliers, and on insights from more than 40 billion healthcare transactions processed annually, IMS Health s 9,000+ expert resources drive results for over 5,000 healthcare clients globally. Customers include pharmaceutical, medical device and consumer health manufacturers and distributors, providers, payers, government agencies, policymakers, researchers and the financial community. Additional information is available at As a global leader in protecting individual patient privacy, IMS Health uses anonymous healthcare data to deliver critical, real-world disease and treatment insights. These insights help biotech and pharmaceutical companies, medical researchers, government agencies, payers and other healthcare stakeholders to identify unmet treatment needs and understand the effectiveness and value of pharmaceutical products in improving overall health outcomes IMS Health. All rights reserved. Trademarks are registered in the United States and in various other countries 13025