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Motivating Sales Team in the new SaaS world

The SaaS movement is all about how customers buy and pay for value delivered.  There is a dramatic shift with SaaS in how customers buy, and hence how we sell and thereby, incentivize sales teams. Before we can talk about how to adapt sales compensation plans to the new reality of SaaS, let’s understand how “we need to change our sales approach”.

Here are the key “sales approach” shifts happening with SaaS:

  • Focusing on our sales process → Helping customers make buying decisions
  • One big decision → Trying out things without exit barriers
  • Bulk Purchase → Incremental purchases and “pay-as-you-go” and “pay-as-you-consume”
  • Kill and move on → Land & Expand
  • Will they sign → Will they be a profitable account (strategic qualification)

Earlier sales teams were more like hunters. Now they need to be both hunters and farmers (customer success).  Even if customer success roles are separate in the organization, the way in which salespeople connect and sell sets up the foundation for customer success.  Salespeople need to think beyond meeting their quota or maximizing their commissions; they need to build customer success-driven growth momentum.

The SaaS shift is also having a significant impact on company cash flow.  Although there is a reduction in the “highs” of large deals, on the positive side, there is more steadiness in long-term cash flow in addition to the potential for reduction in overall sales cost. The SaaS movement has a huge impact on how we qualify and engage with customers, and how we incentivize our sales team.

Many software and technology companies that only sold “one-time” or “perpetual licenses” are now transitioning aggressively to selling “subscription licenses”. This is happening across the board for small and large value software licenses.

This shift has huge implications on how companies sell and how they design sales compensation plans for their salespeople. There is a higher risk of dissatisfaction amongst sales teams due to lower upfront commission earnings on new customers since the value realization is pushed out into the future.

On the other hand, the company has to be concerned about “retention” and “realization” from new customers and not pay commissions aggressively up front. This shift has huge implications on the sales force and sales plans.  How companies handle the sales force structure, role and sales plan will decide who the winners and losers are during this huge shift.


SaaS Plan Design considerations
Sales incentive plan design strives to optimize the interplay of three objectives:

  • Incenting the Right Behaviors
  • Protecting Earning Potential and Cashflow
  • Managing Incentive spend ROI


Incenting the Right Behaviors
With SaaS, salespeople are no longer just closers and hunters.  They need to be selective in which customers they acquire based on the long-term retention potential of the customer. Their focus has to be on transparency and value delivery to both the customer and the company.

The sales effort for a subscription fee model versus the upfront license model may not be that much less.  So while the revenues are realized over time, the sales effort is loaded up front. We need to recognize that and reward the salesperson with either a higher commission (on lower ACV of SaaS) or a sign-up bonus for new customer acquisitions.  

At the same time, salespeople need to be tied to the long-term success of the client and hence, need to have renewal, retention and upsell components that are more aligned to how customer value realization works for the organization.

Case-In-Point: A technology company wanted to grow rapidly and increase the number of customers they had.  They decided to give signup commissions to salespeople for any account they signed. At the same time, the company did not create specific qualification requirements in the sales or commission process.  They felt that they could have the same kind of success with more clients that they had with their past clients (who were very selectively picked). The end result – after two years – was poor revenue realization. Many of the customers they sold were not long-term buyers. Moreover, these were not ideal clients and consequently, whatever revenue they generated was not as profitable.

To incentivize long-term perspective in salespeople behavior, a company may combine both a carrot and a stick approach.  The company can give bonuses for retention rates, renewal rates, upsell and profitable product mix. On the stick side, the company can also claw back commissions on customers if the customer discontinues within a certain timeframe (say they cancel in the first 6 months).

Another way to ensure the quality of customers is by rewarding managers and leaders on customer success factors such as CSAT, NPS and renewal rates. In the SaaS era, it is important to tie the salesperson back to the long-term success of the customers.  They may themselves act as Customer Success Managers (CSM) or have a supporting CSM helping them. In either case, their commissions should be tied strongly to long-term revenue and profitability of customers.


Protecting Earning Potential and Cashflow
When the transition to SaaS licensing model is rapid for an organization, there is a reduction in first-year contract value (ACV) of new customers. To make up for this reduction in ACV and hence commissions, we need to reward the salesperson on subsequent year revenue through retention and renewals commissions.

By adding a retention and renewal component, we make the salesperson’s earning potential from a sale fair.  However, there is a delay in realization which means that their current year commission cash flow would be negatively affected at the cost of future commissions.

To make up for that negative impact, companies can do two things:

  • Increase the commission rate on first year ACV
  • Provide a reducing guarantee on commissions that runs anywhere between 6-12 months

The cash flow issue can also be mitigated by putting in an MBO or behavioral component for one or two years to help focus on the behavioral change needed, to how and what kind of customers should be acquired.  For example, they could get a multi-product bonus or a bonus for certain product line ACV above a certain amount.


Managing Incentive spend ROI
The shift towards SaaS models brings about significant “revenue realization”, “cost of sales” and “cost of commission” changes for a company.  Suddenly, the company is paying out more in commissions for “future revenue”.

The interplay between cash flow shifts, salesperson earning potential, customer lifetime value and customer acquisition costs have to be modeled accurately in designing the sales commission plan.

The incentive plan has to shift from direct upfront commissions to a combination of upfront commissions, subsequent commissions and additional metrics of customer success over time.  The worst thing that a company can do is break the incentive bank on “bad sales” in terms of the lifetime value of a customer. Another thing to account for is not giving guarantees for too long such that they become handouts.


Conclusion
The movement to SaaS is a huge shift and it will impact organizations both negatively and positively.  Organizations that adapt and change to the new way of selling will thrive and grow, while the others will languish.

To thrive, organizations will have to rethink and re-articulate their sales process and focus on delighting customers and creating customer success.  Salespeople will need to be motivated to become value creators and to build long-term success (versus meet quarterly numbers).

The sales compensation plans will have to be more nuanced and modeled extremely carefully to ensure that motivation is not only sustained but also strategically aligned.  The compensation plans will have to ensure that salespeople aren’t negatively impacted by the shift and companies can avoid having to compensate for the loss of income.

Moving to a SaaS model, if handled well, is a great opportunity for companies to leapfrog ahead of the competition.

Even with the pains of change, every disruption is a foreteller of a great opportunity!



Contemplating SPM Automation Tools? Is Your Organization Ready For The Road Ahead?

road2Sales Performance Management (SPM) involves multiple business processes, and hence, the procurement and implementation of an SPM Tool (such as Callidus, IBM, Xactly) requires a significant amount of planning and effort.

The planning must start long before you schedule vendors demos. There is no point in conducting vendor demos if your organization is not yet prepared to travel the road towards SPM automation. So how do you go about evaluating your preparedness?

To determine your organization’s readiness for an SPM tool, here are the top 10 questions you should answer:

1. What is the Business Justification?

The answer could be Cost Savings, Enhanced Reporting, Operational Efficiencies, Auditability, Calculating Payments or something related. Whatever it may be, if you can’t come up with a couple of strong business justifications, you will find it difficult to make a business case for the tool. Although it doesn’t all have to be about the financials, you have to be ready with a worksheet that shows the numbers. To learn how to build a business case, here is a link to a webinar that could be very helpful to you: http://bit.ly/2pvd1Ts.

2. Are the Executives on board?

Have you discussed your plans with your executives? Do they understand the high level budgetary needs for such a project? Do you have their verbal nod for a ballpark budget?

If your executives aren’t okay with the estimated budgets, maybe you have gotten ahead of yourself. Save yourself some time and initiate the vendor demos only after you see your executives warming up to the idea.

3. Are Compensation Plans Stable?

The most common reason for SPM implementation failure is that the compensation plans are in a state of flux, sometimes even changing while the implementation is in progress. Are your organization’s comp plans still going through significant changes because of evolving market landscapes?  If so, you will have a tough time keeping your SPM implementation on track.

Taking this into consideration, you are not ready for an SPM tool. And yes, when you are told that the tool can handle all future changes without any time or effort, take it with a grain of salt.

4. Do you have enough Time?

From vendor demos to go-live, SPM projects will take no less than 4-5 months. If you are too close to the beginning of the new Plan Year and the deadline for Pay file is already in sight, you have probably missed your window of opportunity. If you decide to move forward at this point, you will be scrambling to move fast, thereby compromising the quality of your decisions, and creating a huge risk to the project overall. You are better off planning a mid-year rollout, which will have its own challenges, but at least you have time to plan for it.

 5. Are Business Processes Mature?

When the organization is growing rapidly, HR and Finance are constantly tweaking the organizational framework. For this reason, or maybe due to a recent M&A, if the processes and policies in the organization have not yet been solidified, it is difficult for the implementation team to configure the new tool.  A lot of time and effort would go to waste in changing the tool configuration again and again.

For example, if the new hire draw policy is changing every few months, the SPM tool can’t really be successful.

6. Do you have IT Systems providing Reliable Data?

SPM tools can’t operate in a vacuum. If you don’t have HR systems providing reliable Payee data or ERP systems providing sales data, you will have huge challenges with the SPM tool. Garbage in, garbage out. For instance, if new hire notices are coming to the commission administrator on Post Its, you are not ready for an SPM tool. You must first invest in HR tools and processes.

7. Is IT Leadership ready for one more Tool?

SPM implementation projects require IT budget and resources. If the IT team has resource constraints, or there is another large IT initiative, such as an ERP upgrade planned for the year, then IT will not be very happy about supporting an SPM implementation. A quick synch up with your IT leadership would help ensure that no such major roadblocks exist.

8. Is the Cloud an option?

Almost all major SPM tools are now available only as SaaS solutions, where the software is hosted in the vendor’s Cloud. What that means is, if your organization has a strong preference for On-Premise solutions, your choice of vendors becomes very limited.

It’s better to clarify with your business leaders if Cloud solutions are an acceptable option. If not, knowing the road map for all software vendors, you may want to abort the idea of packaged solutions or wait for your organization’s mindset to change.

9. Do you have Resources to support this Project?

After the tool is implemented, you may be able to cut the headcount in commission operations. But initially, you will have to dedicate a great deal of time and energy in evaluating and implementing the tool. If you are unable to free up any of your current resources and can’t find the budget to hire external consultants, it will be extremely challenging for you to get this to the finish line.

10. Is there an M&A on the Horizon?

Last but not least, if there is an M&A on the horizon, it’s better to wait on an implementation project. The new company may already have an SPM tool, and it is almost guaranteed that your business team will want a single SPM tool catering to the joint salesforce.

If you need further assistance with getting you prepared for an SPM project, please contact us at mktg@spectrumtek.com.



The Evolution of Sales Performance Management

TTBlog_pic 2aSales Performance Management, A Look Back

Back when I started my professional selling career over 35 years ago, the term sales performance management meant sitting though weekly sales meetings and performance reviews every 3 months. Sales performance management in those days had little to do with analyzing productivity, team performance, sales enablement or incentive compensation, except, if you weren’t performing, i.e. hitting your numbers, sales management took the keys to the company car in return for your last check.

24 Carat Gold Calculators

From the early to mid-90’s, sales compensation management software started to hit the market. There wasn’t much science or empirical data to drive business outcomes based on historical or regression analysis, just a more streamlined and efficient calculator of sales commissions. This software was sometimes referred to as a ‘24 carat calculator’ because of its overall cost relative to its utility. A lot of IT organizations began building rudimentary commission calculators and reporting tools more cheaply. In fact, my team worked with our IT folks at Textron Systems to build such a proprietary system in 1990 using Lotus Symphony (before IBM) on Unix / Sun Solaris.

From SCM to EIM to ICM and Now SPM…

Over the next decade or so, sales compensation management (SCM) as it became known, morphed into EIM or enterprise incentive management as finance looked to increase its focus, and control, over incentive spend relative to performance. Then, by the early to mid-2000’s, incentive compensation management (ICM) became a more common definition as incentive compensation management moved across lines of business to now include other forms of incentives, both cash and non-cash for sales and non-sales staff with varying degrees of reporting and workflow.

As the new millennium was nearing the end of its first decade, sales performance management (SPM) became the defining terminology. With advanced reporting and analytics, territory and quota planning, improved workflow and flexible user interfaces, SPM software was now the quintessential tool designed to align sales performance with company goals. Sales operations suddenly had a new face, with new responsibilities and for some, a seat at the table.

From a technology perspective, the adoption of the Cloud (SaaS) and advanced integration technologies made the economics more attractive. The newer generations of SPM software became technically superior over just a couple of years prior. For better or worse, functionality also became quite similar across vendor offerings making vendor selection even more challenging, at least visually.

SPM Software, The Devil’s in The Details and The Requirements

Today, there are nearly 30 software vendors, including the leading ERP vendors, that perform many of the common SPM functional attributes. Out of these 30 software vendors, fewer than 10 are considered to be best of breed SPM software vendors. Of these best of breed vendors, most can satisfy at least 70% to 80% of the typical functional requirements found in technically challenging RFP’s. However, any one vendor can fall short on reporting, analytics, workflow, territory & quota planning, data volumes, managing overly complex compensation plans – the list goes on.

This is why it is imperative for stakeholders to take ownership of defining, gathering and documenting requirements for their particular line of business. The most successful implementations of a SPM solution occur when line of business owners are directly involved from the onset, executive sponsorship is established and realistic project goals are set. SPM projects are like ERP projects in some ways; there are a lot of fingerprints touching various segments effecting a lot of people, the way they work and the financial impact to the company. SPM is not a compartmentalized nor a departmentalized tool.

Human Capital Management Software

Human Capital Management (HCM), Human Resource Information Systems (HRIS) and Human Resource Management Systems (HRMS) also have variable compensation management capabilities. A few have rudimentary sales incentive compensation management functionality but none can manage the volumes of transactional sales data, perform complex sales crediting, perform simulated scenario modeling of plans, territories and quotas then analyze this data for outcomes against a prescribed forecast. That is a fundamental difference between HR tools and SPM, currently.

Many SPM tools can also calculate bonuses, assign and measure MBO’s while enabling scorecard functionality, a core function for HR tools. But, they cannot perform many of the core workforce management functions such as salary administration, equity or stock distribution, deferred compensation and merit pay, together known as total compensation or total rewards. In addition, HCM tools provide a unified view across all employees that can analyze role-based performance, measure skill levels and prescribe best-fit candidates for a particular job and provide a holistic view of the total workforce.

If a top tier HCM or HRMS vendor were to acquire a top tier SPM vendor, or, the other way, around, then integrating the two successfully, while offering either as a stand-alone solution or together as one, that would be a market moving game changer. I’m surprised that hasn’t happened up to this point given the speculation and rumors that have circulated throughout the industry for years. I think further consolidation of the SPM market is inevitable, which can be a good thing.

About the Author: For more than 15 years, Tom Troiano has been a successful senior sales executive with the leading Sales Performance Management vendors including IBM / Varicent, Synygy (Now Optymyze), Callidus Cloud and Oracle. Throughout these years he has helped 100’s of companies across many industries evolve from spreadsheets and homegrown tools to today’s data driven SPM solutions supported by a strong business case. Tom has been in sales and sales management his entire career. Starting in 1980, where he led a sales team at a small startup that grew into a big sales team while designing his first sales compensation tools.



Key Questions to Ask SPM Vendors Before You Buy

You have done the hard work with internal assessments of your sales performance management needs distributing RFIs and RFPs. Now you are getting vendors to come in for sales talks, and you better be prepared to ask them the tough questions.

Spectrum and its consultants have worked with well over 100 firms deploying SPM systems and based on our experiences, we have assimilated some key questions that will help you in the final selection process.

The questions fall under three categories – product features, pricing, and support.

1) Product Features

Basic feature evaluation is covered by most teams. Here are some of the important but often ignored areas to question the vendors:

SaaS versus On-Premise – If vendors offer both on-premise and SaaS deployments, understand if the vendor has a clear preference. In case of many vendors, only the SaaS product is being actively managed and upgraded.

Data Integration – Does the SPM product have a built-in ETL tool or does it rely upon other external ETL tools? Some SPM products include this while others do not. Typically if they’re included your end users can do more ‘heavier lifting’ within the product.

Reporting – You should understand what it takes to build new reports. This task is easier in some tools than others. Are there any out-of-the-box reports available? Are they useful for your organization?

Workflow – Another important question to ask your vendors is about the workflow possibilities. Ask the vendor if the software handles disputes, territory alignments, quotas (setting, communication, approval, and/or relief). Can the system generate email and other types of alerts?

Mobile Use – Look at how the end user experience is on mobile devices, especially for sales reps. How easily is that experience supported (heavy and specific mobile configuration efforts or part of general definition that then translate well to mobile)? Understand if the vendor has an app that they use or if this is done via web browser.

2) Pricing

Your vendors may provide you a range of pricing models. You have to spend some time to understand the pricing parameters of the contract and understand what may increase the prices. If it is SaaS model bid, you have to size up the hardware and build out databases. If the actual data used is much more than planned, you will end up paying more (sometimes a lot more) money to the vendor. Ask questions to understand the storage variables and how sensitive this is.

Most companies also base pricing on payee or overall user counts. Get your vendors to provide the incremental cost if your users increase as well as saving if your user counts fall.

Be sure to ask about the pricing after the initial term and seek a rate hike cap on the future pricing. Check if there is an early termination fee, and if so, seek to eliminate or negotiate this fee lower.

Don’t forget to ask about not-so-obvious costs related to implementation, training, upgrades, test environments, data retention, data archival, data backup, etc.

For implementation fees, you may have fixed bid contracts on the table which come with a set of fixed assumptions. Often these assumptions are broad enough that they leave your implementation vendor plenty of leeway to seek additional fees. Pay attention to these assumptions and seek to clarify them so you really understand the implementation parameters of your project.

3) Support

Be sure to clarify the ongoing support model with your vendor – what’s available for purchase and what you are in fact purchasing.

You want to first make sure your vendor provides a helpdesk and/or web support and then look for a service level agreement (SLA) on response times for fixing bugs and addressing product defects. Understand what self-help tools are available (i.e., online help, knowledge bases, user community, etc) and work to gauge their level of helpfulness (some are not actively managed and are more to simply say a YES on RFP responses).

Most vendors provide product support but not configuration support. You need to understand whether the support is a skill you want to build and maintain in-house or if you prefer to use outside assistance. If you want outside help, some of the software vendors provide this as an optional service as do specialized 3rd party SPM/ICM service providers, including Spectrum Technologies.

Last but not the least don’t limit your reference checks to customers provided by the vendor. Use your network to find out more customer references independently to gather as much information as possible to guide your decision.

Good luck with your upcoming vendor evaluation!  To discuss this further feel free to email us at info@spectrumbiztech.com.com or call us at (408)-813-1443.



IBM acquisition of Varicent – How does it impact the SPM landscape?

We were barely getting used to calling ‘Merced’ by its new name – ‘NICE’, when this news hit the wire – IBM buys Varicent!

This is the second major acquisition in the SPM arena in the last four months. M&A activities are a good indication of industry maturity. So is the SPM arena already maturing? And how does this acquisition impact Varicent’s customers and its competition? The news comes as a surprise, and the title of the press release is puzzling in itself. It reads “IBM buys Varicent to boost business analytics”. We think of Varicent as an SPM company, don’t we? And yet, IBM bought it for its Data Analytics, as though it discovered a hidden gem under the layers of SPM application that customers love! It is more likely that the author picked a name better understood by the masses(vs ‘SPM’), or maybe, it is indicative of the future roadmap – leveraging SPM data in an analytical fashion to improve overall sales performance.

The press release goes on to state ‘..the software will be folded into IBM’s Smarter Analytics line of software packages’. In the recent past, IBM has mostly acquired companies that offered IT Management or Infrastructure Technologies, whose products are were leveraged across a range of industries and functions. Click here, for a list of IBM acquisitions. I cannot think of any major application vendors acquired by IBM in the recent past. With the purchase of Varicent, Big Blue has stepped beyond its chosen path. If IBM plans to stick around and become a significant player in the SPM landscape, then it is a big reinforcement to the value proposition of SPM solutions. Quoting Chris Caberra, Xactly CEO, ‘We say welcome, IBM’.

All indicators point in the direction that Varicent would continue to operate as an independent entity, under the IBM brand, just like Netezza or Algorithmics. Both are thriving after getting acquired by IBM, and successfully serving small and large enterprise customers alike. I expect to see ‘Varicent, an IBM company’ in all their future messaging, and Varicent continuing to operate as an SPM player for years to come. With IBM getting into the SPM ring, we’ll have not one, but two niche SPM packages backed by the strength of publicly listed companies – Callidus and Varicent(not counting Oracle as a niche SPM player). Decision makers on the customers side, concerned about Varicent’s sustaining power, can now take comfort in dealing with IBM.

If IBM plays it cards as expected, folks at Callidus are likely to see serious challenges in more of their sales cycles. But in the short run, as it happens with every M&A, prospects and customers might get jittery, and competition(read Callidus and Xactly) will look to take advantage of the opportunity to lure away customers.

As for Varicent’s current users, it should be life as usual. I don’t envision IBM changing or discontinuing the SPM product line in the foreseeable future. The pricing may go up just to be in sync with IBM branding, but customers wouldn’t mind paying a premium for IBM’s brand value. In fact, IBM acquisition should help customers in three significant ways:

1. Global Reach – IBM with its global footprint is better equipped to serve Varicent’s global customer base.

2. Data Analytics – This is a no brainer. IBM will integrate its portfolio of big-data technologies to further enhance Varicent’s analytical capabilities.

3. Cloud Capabilities- IBM has acquired several cloud technology companies in the recent past – Cast Iron Systems, Green Hat and DemanTec etc. to name a few. With some innovative re-engineering, IBM has the opportunity to leverage these technologies, and significantly enhance the SaaS offering of Varicent. We can expect to see much more solid SaaS capabilities in future versions of Varicent.

Welcome, Varicent, an IBM company.

About the Author
Maneesh Gupta is the Managing Partner at Spectrum Technologies. Spectrum is a silicon valley firm providing niche services in the area of Sales Performance Management Systems since 2007.

Maneesh can be reached at mgupta@spectrumbiztech.com
To learn more about Spectrum please visit – www.spectrumbiztech.com



Single or Multi Tenant

A few weeks ago, I had interviewed Jeff Saling about the benefits and future of SaaS. In that interview we talked about single tenancy and multi tenancy and what options work for which companies. Customers are sometimes faced with the dilemna of whether to go single tenant or multi tenant. This post will help answers some questions about both kinds of hosting and help you in your decision making.

What is the difference between single tenant and multi tenant?

As the name suggests, a single tenant system houses the data for one customer only. The hardware infrastructure is dedicated to one single customer. Whereas in a multi tenant system, multiple customers are housed on a single server and the entire infrastructure is shared amongst all the occupants.

This basic difference between the two systems leads to other considerations as follows that are important when deciding which system to choose.

Resources

As pointed out above all the hardware resources ie processors, memory etc. are available to the single customer in case of single tenancy(ST) and these resources will be shared across all the customers in a multi tenant(MT) environment. This means that if you need to run resource intensive processes very frequently, you will be fighting for resources in case of MT whereas in case of ST, all the resources are always at your disposal.

Security

It goes without saying that a ST system will have a higher level of security and absolutely no risk of accidental data contamination between two customers. But at the same time, MT systems also employ extremely high security standards which are in most cases adequate for a company’s security needs. These systems go through rigorous security certifications that have to be renewed every few years in order to protect the data and the customers they house.

System/Software Upgrades

A MT system has to follow the upgrade schedule as per the product vendor and the customers have a little say as to when the upgrades can happen. ST systems have the luxury of sticking to their own upgrade schedule within a certain time frame. This may be important to some customers particularly in cases where the system utilization is very high and downtime for an upgrade is not affordable.

Cost

Although ST systems have a number of advantages, they come at a premium cost. The per user subscription fee for a ST system is significantly higher than a MT system.

In addition to the above, specific industries that have very high security guidelines or industries in certain geographical locations may need to employ ST systems in order to satisfy legal requirements.

It is only by considering all of these factors that you would be able to determine the right fit for your company.