Concorde Problem in Sales Compensation

Concorde Problem in Sales Compensation

You’re probably thinking, ‘What’s this Concorde Problem, and how does it impact sales compensation? Let’s dive in…!

Super Sonic Concorde Airplanes

Concorde was the most advanced passenger airliner ever made. It could ferry passengers from New York to London in 3 hours, that’s half the time a Boeing 747 takes. With the pointy nose and futuristic looks, it was the best-looking aircraft of its time. Still, it failed to make a place for itself, and after 27 years of service it was retired in 2003. Concorde – the fancy travel machine, failed to become an industry standard. Why?

While there were numerous reasons for Concorde’s failure, we’d focus on the reasons relevant to sales compensation.

a. The Concorde was a fuel hogging machine that consumed twice the fuel compared to the other airliners. And it carried just 100 passengers- one fourth compared to the other commercial airliners. Even with the most expensive ticket prices, the operating costs of this machine were overbearing on the business model.

b. The maintenance costs were way too high due to Concorde being a ridiculously complex machine. All repairs and fixes, required highly skilled engineers, drawing much higher salaries, compared to regular maintenance staff.

c. Concorde didn’t consider the needs of all stakeholders in its eco system. Its shockwave could shatter glass, and the cities filed numerous complaints against its super loud sonic boom. As a result, it was restricted to transatlantic route, and even on that route, it could go supersonic only over the ocean.

d. Most importantly, the interior design of the plane didn’t consider the overall experience of the real end user – the passengers. It’s best described by one passenger as, “Once through the doors of the sleek, tiny, cigar tube into the body of Concorde, things were small and cramped and uncomfortable.”

e. The unfortunate crash of 2000 was the last straw, creating massive trust issues, ultimately leading to its demise.

Overall, a bunch of smart engineers designed Concorde because they wanted to be at the cutting-edge of aviation technology. They didn’t consider the operating costs, the maintenance costs, stakeholder feedback or the end user experience.

Now, does it sound familiar to what we often see in our world of sales compensation?

Concorde problem in Sales Compensation

Over the last 20 years, several software tools have been launched in the market, offering technical capabilities not imagined before. These tools give plan designers unlimited power to design and implement a sales compensation program as they fancy, no matter how complex it gets.

It doesn’t matter which SPM tool you use – SAP, Varicent, Xactly or something else, more complex the incentive plan, more resources it takes to implement the tool. More complex the system is, more it takes to administer the system and handle the disputes. Small changes in plan design will require massive re-engineering efforts. Just like Concorde, these technically sophisticated incentive plans, will require higher operating costs and unexpected maintenance costs.

Armed with sophisticated SPM tools, the plan designers sometimes get carried away and bring in new complexity just to follow the business strategy. In the process, they often ignore the overall experience of the salesperson. They don’t redesign the commission statement, to ensure that every salesperson can truly understand the underlying logic. When sales team doesn’t understand, it leads to shadow accounting, productivity losses and lack of motivation. Passengers didn’t like the interiors of Concorde, and salespeople don’t like overly complex commission statements.

It is important that salespeople trust their sales compensation calculation. Once the trust is lost, it is hard to earn back. Concorde, after that crash in 2000, could never earn the trust again. Hopefully your sales compensation program doesn’t end up like that.

Recognizing Concorde Problems in Sales Compensation

There are several indicators that your sales compensation program may have a Concorde problem, and that it requires some corrective measures.

a. High turnover in sales team

b. High number of commission disputes

c. Large team of comp administrators, compared to the industry

d. High consulting budget for annual plan changes

e. Inability to swiftly rollout plan documents for the new plan year

The thumb rule is, if you are required to conduct training sessions to help salespeople decipher their commission statement, maybe you do have a Concorde problem!

We as humans often get excited about stretching the limits, sometimes leading to half-baked and unnecessarily complex outcomes. When this is done in the world of sales compensation, it leads to backlash and poor business results.

“Have you seen a Concorde problem in your sales compensation program?” If ‘Yes,’ please email me at mgupta@spectrumtek.com. I’d love to hear your experiences and what you did to make it better.

 

 

Navigating SPM Software Demos: What to Look for and How to Prepare

Navigating SPM Software Demos: What to Look for and How to Prepare

When it comes to evaluating Sales Performance Management (SPM) software, such as CaptivateIQ, SAP, Varicent, or Xactly, going through a software demo is a pivotal step in the decision-making process. While demos offer a glimpse into the capabilities of the software, it’s essential to approach them strategically to sift through the marketing hype and make confident decisions. 

Having facilitated numerous vendor evaluations for our clients, we’ve compiled a set of best practices to help you prepare for software demos and ensure that these sessions empower you to make informed choices.

1. Customized Demo: Tailor it to Your Needs

Instead of settling for a one-size-fits-all demo, insist on a customized presentation. Share your specific challenges in detail, outlining the aspects of your SPM operations that require improvement and your expectations from the software. Provide this information well in advance of the demo so that the vendor can craft a personalized presentation, focusing solely on the modules that interest you. 

 2. Preparing Vendors: Set Expectations

Arrange a meeting with the vendor(s) to discuss your problem statement and establish clear expectations for the presentation. Share essential documents such as Plan Documents and sample Statements for a few Compensation Plans that represent your SPM landscape. Additionally, provide insights into how you handle critical components of your SPM program, such as Draws, Guarantees, Termination, Claw backs, and Splits. If you have a Terms and Conditions document for the SPM program, sharing it can help vendors configure the demo to align with your needs. 

 3. Data Sharing: If Unique, Share Real Data

Share real-life sample transaction data ONLY IF there are unique characteristics about your data. For instance, if you expect the software to handle complex crediting rules, provide sample files for Transactions, Crediting Hierarchy, Territory Definitions, etc. Specify the use cases that the vendor should cover in the demo. In most cases, vendors can use dummy data to demonstrate your use cases. 

 4. Demo Script: A Comprehensive User Experience

The demo script should encompass the system interactions for key stakeholders, including Compensation Administrators, Salespeople, Sales Managers, and, if applicable, Finance and Accounting for tasks like T&Q, Accruals, and Plan Modeling. If you plan to utilize the system for analytics without an external Business Intelligence (BI) tool like Tableau, include the BI goals for each stakeholder. Ask vendors to showcase various reporting and analytics options, such as static reports vs. interactive dashboards and what-if analyses. 

 5. Capability Evaluation: Go Beyond the Surface

Rather than relying solely on surface-level demonstrations, delve deeper into system capabilities. For a few selected use cases, challenge vendors to reveal how configurations are executed behind the scenes. Ask them to build a new report or workflow during the demo that wasn’t part of the initial demo script. Evaluate the time and expertise required to implement system configuration changes. It’s advisable to have a technical resource lead this discussion.

6. Scoring Matrix: A Structured Approach to Evaluation

Even before creating the demo script, establish an Evaluation Criteria and Scoring Matrix. These criteria should be aligned with stakeholder problem statements and your future vision for the software. To create a Scoring Matrix, assign weights to each item in the Evaluation Criteria based on its business importance. After the demo, use a 5 or 10-point scale to assign a score to each criterion summarizing your team’s opinion on how well the software meets the expectations. The cumulative weighted total can serve as an objective guide for your decision-making process.

7. Evaluation Session: Making an Informed Decision

Immediately following the demo, convene the core evaluation team to review the presentation and assign points to each criterion in the Scoring Matrix. It’s crucial to assess the software’s capabilities, not the quality of the demo or the professionalism of the vendor’s sales team. Keep in mind that after the decision is made, you’ll rarely interact with the vendor’s sales team, but the software will remain a crucial part of your operations. 

Why Spreadsheet Don’t Work for Sales Compensation?

Why Spreadsheet Don’t Work for Sales Compensation?

You work for a fast-growing company with a vibrant sales organization. You feel good about the company’s performance, but when it comes to managing sales commissions – your commission operations team slogs within a pile of spreadsheets to prepare commission statements for every individual sales rep. Every month, your ops team and sales management deal with tons of inquiries and disputes from the field, creating an unhealthy work environment.  

Who is to blame? The sales team? The commission administration team? Or is it the spreadsheets system that you use?  

While spreadsheets are very efficient in automating all types of calculations, when it comes to sales compensation, they fail miserably. What’s so special about sales compensation that spreadsheets don’t work? Let’s find out!  

1. Manual Errors  

During the 2012 London Olympics, a staff member made a manual error in some spreadsheets. It led to a sale of 10,000 extra tickets, which had to be later refunded or exchanged. Even worse, in 2012, JP Morgan lost around $6 million in trading due to copy and paste errors. The examples are numerous, which means you are not the only one who deals with manual errors in the spreadsheets. Companies using spreadsheets for sales compensation have to heavily invest in manual verifications and checks and balances to ensure that manual errors don’t go unnoticed.  

2. Real-Time Reporting 

Most organizations using spreadsheets for sales compensation can publish the commission statement only after the end of the pay period. This is because data files must go through several manual steps before the spreadsheet system can churn out the results. It is just not possible to publish the numbers more frequently. This leads to shadow accounting, which means execs spend numerous hours tracking their sales and earnings, instead of selling.   

3. Auditability 

Sales compensation calculations evolve throughout the year. The underlying math, the planning logic, and the data interpretations may change. In spreadsheets, it is almost impossible to track what was changed, by who, and when. This lack of auditability is a huge concern for finance and internal audit when it comes to signing off on the pay numbers. This is especially a huge problem when multiple compensation administrators are working on the same set of spreadsheets from a shared server.  

4. Workflow  

Sales compensation is often a large expense item, and the end-to-end process touches finance, IT, sales ops, HR, and of course sales. With so many stakeholders involved, and large sums of money involved, it is important to be able to communicate and seek approvals as needed. Unfortunately, spreadsheets are not designed to automate or manage a multi-stakeholder business process. While one can build complex VBA scrips to trigger outbound emails, overall, it remains a clunky and unscalable solution.     

5. Time Dimension 

Sales compensation plan logic evolves every year. The sales transactions come with a commission date already stamped on them. This date determines the plan period to which the transaction should be assigned, and the entire calculation for that transaction should be as per the logic setup for that plan period. This process of applying date-specific logic is very difficult in spreadsheets. As a result, the companies using spreadsheets find it very hard to make changes to their plan logic. This negatively impacts their ability to motivate the sales reps and overall business outcomes.  

6. Dependency on Specific Individuals 

Spreadsheet systems for sales compensation often entail gigantic workbooks with dozens, if not hundreds of tabs, and several reference sheets for plan logic. This setup allows only one individual at a time to make updates to the data or the formulae. Thus, in a spreadsheet environment, it’s almost always one single individual who can debug the logic or make any updates. This puts entire commission operations at risk.  

Despite all the above shortcomings, spreadsheets are still a very popular tool for managing sales compensation. Primarily because spreadsheets are almost always the tool of choice if you have just a handful of sales reps. But as the size of the sales team grows, so does the complexity, and spreadsheets become unmanageable. It’s not easy to wean off the spreadsheets, but there are some proven methodologies to make the transition seamless and somewhat easy.   

If your company is successfully using spreadsheets for sales compensation, please email me at mgupta@spectrumtek.com.  I’d like to hear about your experiences.  

How to Keep Sales Moving Forward During the COVID-19 Lockdown

How to Keep Sales Moving Forward During the COVID-19 Lockdown

We’re in uncharted territory dealing with the personal, social, and business ramifications of COVID-19. Earlier I wrote about how companies can change their sales compensation plans as we neared the end of Q1. Regardless of how your organization handled Q1, you are now  faced with a sales team that may be struggling with occupying  their time. They are probably not making cold calls. They don’t have any in-person sales meetings. And there are no tradeshows to attend.

How do you keep them busy and engaged, while also making sure you’re moving the business forward for Q2 and H2 sales? Here are some recommendations:

  1. Invest in Sales Operations Infrastructure – Business is like riding a bicycle – if you are not moving forward, you’ll eventually fall down. With our normal business day operating at the speed of light, we don’t usually have time to fix anything thing that is not broken, howsoever inefficient it may be. Use this slowdown to review and overhaul business processes. Scan your entire process from lead generation to invoice submission. Identify manual steps that can be automated. Everyone has some sort of Excel hell full of manual tasks. Maybe some of these can be automated by writing a simple Excel macro. If nothing, at least get a BSA (business systems analyst) to interview all stakeholders and document the entire process.
  2. Sales Training – Put your sales staff through extensive training on your products so that they are capable of handling product demos on their own and don’t need a Sales Engineer (SE) to accompany them. If a salesperson can demo the product and handle not just commercial, but also techno-functional questions, imagine how effective your sales organization can be. Your cost of sales could go down by almost half. You can also cross-train some your ISRs (Inside Sales Reps) and SEs to do Sales so that you have a more nimble and scalable sales organization.
  3. Clean up your CRM database – When was the last time someone found time to remove obsolete contacts from your CRM system? Now is the time to clean it and enhance it. Make it more efficient for when sales ramp back up.
  4. Stock up on Leads – It’s time to do market research or buy contact lists to stock up on your contacts database.
  5. Do more for existing customers – If new sales have come to a grinding halt and you have spare delivery capacity on hand, reach out to your existing customers. Offer them additional products and services that they have never bought. With spare capacity on hand you should explore giving deep discounts. Your customer, already dealing with the crisis would appreciate and remember your positive gesture.

Have you come up with other strategies to keep your sales team engaged and encouraged? We’d love to hear about them!

Should you Change your Sales Compensation Plans Because of COVID-19?

Should you Change your Sales Compensation Plans Because of COVID-19?

In this time of uncertainty around the health, societal, personal, and business impact of COVID-19, one would think worrying about sales commissions falls very far down on the list. But from a business perspective, the social distancing, shelter-in-place orders and work-from-home mandates could not have come at a worse time for sales – the last two weeks of the quarter. We can assume that almost every salesperson is going to miss the Q1 quota by a mile.

It’s safe to assume that most companies will not go belly up for one bad quarter. But your sales team certainly will not be happy about missing their quotas due to circumstances beyond their control. Now is the time to consider what temporary changes you might want to make.

Several of our customers have reached out to us looking for guidance on how to handle Q1 sales compensation in the light of this unprecedented situation. Here’s what we are telling them.

When the economic impact of this outbreak become clear, business leaders may have to adjust the sales capacity as per the new landscape. But in the short term, broadly speaking, CFOs and Sales Leaders have four options to choose for Q1 Payout:

  1. Reduce the Quota for the quarter
  2. Pay Recoverable Draws
  3. Pay Non-Recoverable Draws / Bonus
  4. Do Nothing i.e. pay as per actual Q1 attainment

Several factors should be considered in determining what is right for your organization:

Corporate Branding

This is a shared crisis. Most companies in retail, airlines, and hospitality industry are facing massive shutdowns. As of now, more than 70 retailers have announced they will be closed for the next two weeks. Retail typically does not pay for sick days, yet, according to Business Insider, “most of these companies – which range from mall brands like Urban Outfitters to major athletic retailers like Nike – have confirmed they will pay employees for lost shifts during this period.”

Put it in this context: When the word spreads that the local retailer is making the financial sacrifice to help its employees, but your company is not willing to help its sales staff – how does it impact your brand? Think about it not just from the perspective of current and future sales team, but also how would your customers and prospects perceive your company?

Risks from High Turnover in Sales

You’ve invested in your sales team. What you decide could very well impact their choice to stay with you or leave once we’ve come through the end of this turmoil. According to HR Digest, “the total cost of employee turnover can range from tens of thousands of dollars to 1.5-2x of their annual salary.” Consider that in your decision – or more bluntly – do you want to keep your sales team, or risk losing them.

It all comes down to how quickly you can hire and train new sales personnel. If it requires months of training before the salesperson can be effective, you can’t afford to do nothing as it would risk dissatisfaction and high turnover in your sales team.

Corporate Values

We’ve recently been in a very tight hiring market where many companies – especially B2B companies – promote their perks and values. We don’t know what we’re looking at. The New York Times reports that “Layoffs Are Just Starting, and the Forecasts Are Bleak.” It might be hard to take the financial risk to change your sales compensation plan – even temporarily – in a chaotic economy. The decision you make should also reflect the company values you highlight in the hiring process.

What percentage of On Target Earnings is Variable?

If the salesperson relies heavily on the variable sales compensation to make the ends meet, this situation is going to cause them lot of financial pain. Employers should feel the tremendous humanitarian pressure to provide some assistance.

Deals are Lost or Delayed?

It is possible that the economy comes back on track within Q2. The question is – the prospects who were ready to buy from you in Q1, but didn’t buy, will they come back to you in Q2 or are those deals lost forever? Would Q1 situation lead to higher demand for the rest of the year? If so, your sales team still has a shot at meeting the annual quota, and all you need to provide is a recoverable draw in Q1.

The decision your company makes is unique to your situation – both today and what you have forecasted. It’s not an easy decision – but it’s one many of us have to face.