Variable compensation has been a fixture in the sales world for decades, with the promise of commissions, bonuses, sales performance incentive funds, and other incentives viewed as a key factor driving sales behavior. In fact, in CSO Insights’ most recent incentive compensation management study, 96 percent of the more than 1,100 firms surveyed stated that their approach to sales rep compensation had a variable-pay component.
The need to develop and manage comprehensive compensation programs is clear, especially once you consider everything that’s expected of today’s salesperson: Hit your number, build customer loyalty, improve margins, garner more business from new accounts, shorten the sales cycle, cross-sell and upsell, etc. You might even assume that administering these plans would be one of the key uses for CRM technology—but you’d be wrong.
As part of our study, we asked firms that had variable-compensation programs in place to tell us how they managed those programs. A summary of the responses is seen below.
Only 12 percent of the firms surveyed are leveraging CRM solutions for compensation plan administration. This could be the capabilities inherent in their core CRM systems, or CRM 2.0 applications from solution providers such as Merced, Synygy, Xactly, Varicent, etc., that they can integrate into their existing CRM platforms.
The more-popular alternatives involve spreadsheets or in-house compensation applications. Having benchmarked hundreds of internally managed incentive management applications over the years, they tend to come in three flavors; fast, robust, and cheap. The problem is that you only get two out of the three. In the case of spreadsheet-based compensation management you typically get fast and cheap, but only by sacrificing the robust. Internally developed programs can be robust, but you typically get either fast or cheap development—not both.
If compensation plans are truly meant to drive selling behavior, then we need to upgrade the systems we use to manage these plans. Because of this, I expect to see many more companies migrate their compensation management tasks on to CRM applications because the systems available today deliver fast, robust, and cheap all at the same time.
Developers of these applications have created a wealth of capabilities that can be up and running as soon as you implement the solution. The sophisticated analytics engines underpinning these applications then allow you to enhance the robustness of the compensation programs based on your individual needs. Finally, whether you choose to implement on-premises systems or have them delivered via on-demand options, the total cost of ownership is predictable and controllable, which is often not the case for internally developed programs.
So if you haven’t recently considered leveraging CRM to help out with this aspect of sales management, I encourage you to do so. Using the right tools to implement the right plans can generate a better return on your incentive dollars.
Jim Dickie is a partner with CSO Insights, a research firm that specializes in benchmarking CRM and sales effectiveness initiatives. He can be reached at jim.dickie@CSOinsights.com.