Compensating for Change

By Tara Seals

With increasing portfolio complexity and a wide range of customer targets, resellers, master agents and service providers are wrestling with how to realign their indirect and direct sales channels to overcome a stagnate reality: Too many salespeople are unfocused, chasing the opportune sales instead of pursuing more difficult, highmargin prospects.

Fortunately, theres hope. Companies can make use of a new set of on-demand, Web-delivered software tools to help re-engineer the sales channel to focus on high-value sales, move obsolete or failing products, and allocate sales efforts to match company goals while becoming more efficient in the process. Sales incentive management is now a competitive weapon.

Distribution is a fundamental driver of revenue, profit and market share, says Shanker Trivedi, senior vice president and CMO at Callidus Software, maker of the TrueComp Enterprise sales incentive platform. Take wireless, for example. In the major metros, there really isnt that much of a difference between plans, phones and coverage, so what matters is how you drive your distribution channels. If they work hard and gain the business, that goes straight to profitability and market share.

He adds, Thus, the fundamental business challenge to solve is, how does a company reassign resources to meet the opportunities in the market?

Enter the on-demand software platform. Hosted by the provider and delivered over the Web in a software-as-a-service (SaaS) model for a monthly fee (the platforms mentioned here are all available at $50 per user per month, on average), these tools aggregate and audit data from a variety of sources, apply business rules to calculate the appropriate compensation, present salespeople with a portal to track sales and commission totals in real time, and give dashboard tools to managers to identify and change where the sales efforts are being targeted.

AUTOMATIC FOR THE SALESPEOPLE

This process of optimizing the sales resource begins first and foremost with automation.

Most companies manage the entire compensation cost center within an Excel spreadsheet, says Karen Steele, vice president of marketing at Xactly Corp., which lists Polycom Inc. and Covad Corp. among its clients for the Xactly Incent platform. Anyone whos managing comp in a spreadsheet will even be unable to tell you what the commission expense is going to be for the quarter. When you consider that even a medium-sized sales force of, say, 200 reps adds up to an average of $10 million per year in payments, thats unbelievable.

Manual tracking is complicated by an ever-evolving service portfolio and bundling strategies. Large product portfolios, often comprised of a combination of products and services, inevitably yield complex commission structures as enterprises encourage the sales force to cross-sell and up-sell through special bundling and SPIF programs, says Callidus Trivedi. With often 20 to 50 different commission plans to simultaneously manage, it is difficult to manually track, manage and gauge the success of such a sales strategy.

Theres also the tangled web-like sales environment in telecom. The organization of reps is constantly changing, both geographically and by role, explains Bob Conlin, CMO at Centive Inc., which produces the Centive Compel platform. Also, theres a deep complexity of comp plans. A rep should be paid on three to five measures, because otherwise, the salespeople dont understand their jobs. But you often have a mix of direct credit (say a phone call costs a dollar and the rep gets 10 cents), splits, rollups, special bundle pricing, SPIFs and so on, and its confusing, and potentially leads to inaccuracy.

Inaccuracies can lead to a range of troubles, from complying with Sarbanes-Oxley on the one hand, to sales rep dissatisfaction on the other.

Most telecom companies pain in this regard is somewhere on the spectrum of chronic to acute, Conlin adds, and that trickles down to dissatisfaction within the sales force: Reps leave companies or dont put in the effort they should for the No. 1 reason of dissatisfaction with the comp plan, lack of transparency, inaccuracies, etc. And, often, salespeople keep their own shadow accounting sheets of what they think their commissions should be, which is time-consuming and takes away from overall productivity.

Sales compensation platforms manage the complexity behind the scenes. Xactly Incent, for instance, taps the ERP database for order information, human resource files for information for the hierarchy, role and geography of the salesperson, pricing data and SKUs for product information. It aggregates it all into an on-demand repository, then pushes appropriate files out to a payroll provider, and a portal gives salespeople a real-time look at whats happening with their sales.

A byproduct of this automation is improved time-to-market. New promotions and bundling ideas are one thing, but those fantastic ideas wont have an impact on the market unless you get it out to the salespeople, explains Trivedi. Callidus TrueComp Enterprise sales incentive platform provides a range of dashboards and analytical reports for direct and indirect channel partners. You have to be able to rapidly roll it out to your channels, deploy incentives, bonus plans and so on. Until recently, systems didnt allow for rapidly deploying a plan to a dealer, and it took three months to a year, typically. If you can get a product out in 72 hours, thats great, but it still takes a while to get it into the call plan and channels, and to incentivize the channel around it. We can make that happen in 24 to 72 hours.

BEYOND THE BASICS

While automation, reduction of complexity and improved transparency has its obvious benefits to a companys efficiency and productivity levels, sales compensation management platforms dont stop there. Ultimately, the goal is optimization.

Its not just about automating what was once done with spreadsheets, its about increasing revenues and maximizing profits, explains Steele. You want to motivate and, ultimately, change the behavior of salespeople.

The idea is to align sales efforts with revenue targets. Its amazing how many companies dont do that because they have a difficult time automating and managing their plans, says Centives Conlin. So often you have reps making money, but not profit for the company. Best practice companies never pay commission on revenue or volume commitments. If you do pay on revenue, salespeople will sell the services that are the easiest to sell, which is why its easy to get in trouble.

Instead, companies should pay on margin on the service, profitability of the transaction or customer satisfaction. Its also possible to strategically design compensation plans. For instance, a company may have one rate for old, popular, established products, and another, higher commission for the new products in order to gain market share for the new service. Or if theres a challenge to move obsolete products, a company can apply different payment schemes to different SKUs, for instance.

We allow you to weigh each corporate goal, whether thats to increase new customers by 25 percent, open up a new territory or bolster margins, says Conlin. With our reporting data you can easily allocate sales resources to those goals to make sure theyre balanced, and seamlessly roll out the plan to everyone involved.

Another best practice is matching salesperson expertise with the appropriate customer targets. A thorn in many peoples side is how do you organize and target your salespeople? says Trivedi. You need to know the best locations to place a sales force, by geography as well as demographic, product specialization (should they be selling x or y?), skill sets, training levels, market target. So, its a resource optimization problem. How do you match the resources to the revenue target?

The rule of thumb for sales is to incent the top 10 percent and fire the bottom 10 percent, Conlin notes. But how do you deal with the 80 percent in the middle? Now, you can use data and science to assign the right target to the individual, rather than take a broad brush all from within the sales managers dashboard.

For its part, Xactly offers a series of add-on modules to its core offering, such as Analytics for more robust reporting, Modeling to test plans before they go live, and Credit Assignment to issue credits for indirect channel sales. It also has something called Rewards,which is a non-cash rewards capability, built on the back end of Amazon.com. Companies can set up a contest or SPIF, and winning sales partners can go to a portal to browse and choose their prize. New modules will soon be added for quota and territory management.

One interesting functionality within the Callidus, Xactly and Centive platforms is integration to Salesforce.com, so salespeople can match their prospects with their quotas and goals. They can also use a commissions estimator to see how much they will make if they close a particular piece of business. From within Salesforce.com, a salesperson can manage opportunities and use a calculator to see what the commission would be to enable reps to make strategic, not just opportunistic, decisions as to where to focus their efforts.

Sales compensation platforms are more successful when theyre paired with other platforms, like CRM, so you can manage things from prospect to paycheck, says Conlin. That way, you can see potential earnings if you close a piece of business; thats what drives performance and keeps people motivated. Centive offers Web services for integration to other third-party platforms as well.

SALES COMP FOR ALL

While sales compensation management is partly a software function, its important to realize that theres more to it than that. Theres also a very important human element.

Any company that goes shopping for software is doomed to fail because of a lack of internal capabilities needed to effectively manage the plans, says Mark Stiffler, president and CEO at Synygy Inc., which consults and provides software solutions for compensation management. The software alone is not going to solve the problem. Stiffler says hes found that only about 20 percent of sales mismanagement is due to a lack of software, while 30 percent is inefficient processes and a full 50 percent is a lack of expertise, experience or time to implement and manage the plan.

So, you have to approach it holistically, he says. What are the problems? What are the symptoms of the problems? What are the costs of not solving these problems? Then [you need to] assess the internal ability to solve them. Most companies have around 20 percent of the capabilities they need. Good ones have 50 percent. So software cant solve everything.

Synygy provides supplementary expertise to implement software and redesign internal processes, and clients can then outsource the management of their plans to Synygy. While the SaaS model delivers software over the Web, Synygy also can provide a managed service that takes over compensation management. It does the processing, data collection, report designing and rules application. Outsourcing this minimizes risk and annoying the salespeople is a big risk, Stiffler says.

Similarly, Xactly just released a managed services version of its platform for smaller outfits. This functionality is equally compelling to the lower end of the market, says Steele. But what they dont typically have is the compensation analysts necessary. If they do have an operations person, he or she is probably wearing 10 different hats. They have as much demand to automate the process, but dont have the competency. So, our services team will build it out, manage it and run it for them.

A Snapshot of Services

Callidus Software

Model: Full, integrated on-premise solution or an on-demand SaaS model.
Pricing: For the SaaS model: $50 per user per month, plus an initial set-up fee. Licensed: Call for pricing.
Deployment time: Three to six months.

Centive Inc.

Model: SaaS.
Pricing: $50 per user per month, with volume discounts available.
Deployment time: Four to six weeks. There is a discovery and design phase, then temporary parallel testing where the new software is run with historical systems to ensure accuracy.

Synygy Inc.

Model: Saas. Managed service for software license.
Pricing: Call for pricing.
Deployment time: Three months for installations under 1,000 people.

Xactly Corp.

Model: Managed or SaaS.
Pricing: SaaS: $50 per user per month, with volume discounts and add-on modules available. Managed: An initial evaluation and implementation fee of $8,000. The monthly fee is between $1,500 and $2,500 per month depending on the number of users with three tiers of service available.
Deployment time: Varies according to customer size.