John Stuart: SPM expert.

I recently read a story about a customer who went into a shop to buy a pair of shoes. After deciding which pair he wanted, he went to the till. Half way there, one of the sales assistants handed him shoe polish, saying that it was free that day.

At home, the proud new shoe owner checked his receipt, only to discover that he had in fact paid for the shoe polish but received a discount on the shoes in turn.

Margins

So why had the sales assistant said the shoe polish was free? What had probably happened was that the shoe polish offered the highest profit margins, so the retailer incentivised its sales staff to drive the shoe polish sales.

Losing out

However, most consumers are aware that shoe polish is more expensive in-store compared with a supermarket. The sales assistants, therefore, knew it would be a challenge to increase sales of this particular product. They discounted the shoes, offered the shoe polish for ‘free’, and pocketed their commission. Losing out in this was the retailer, which made no gain whatsoever on the bottom line.

The story draws a great picture of the importance of transparent sales performance management.

Wrong behaviour

First, sales people shouldn’t be incentivised to ‘force’ products on their customers anymore – because customers tend to see through that. Secondly, incentivising the right product with the wrong incentives triggers the wrong sales representative behaviour and negates the purpose of a sales strategy.

Motivating sales professionals has always been a key goal of the successful enterprise. Ensuring incentive plans drive the right behaviour in sales staff is critical. A growing number of companies are now turning to making more informed decisions on how to drive sales using technology to help them. Sales performance management (SPM) software packages can become an important part of improving sales performance.

Retailers: wrong incentives damage profits.

Over-paying

Estimates show that companies over-pay 5-12% on annual compensation budgets which presents a huge opportunity for savings. Other reasons to focus attention on incentive plans is to ensure they align with corporate goals (for instance, new product launches or shifting sales strategies). Too often, corporate strategy defined at the executive level is not effectively communicated to the people on the front line, for example the shoe store mentioned earlier.

Organisations know that there is no better way to change people’s behaviour than via their pay packet.

Transparency

SPM systems can provide more transparency and integrate with existing organisational solutions such as payroll and customer relationship management (CRM) systems. A system takes data feeds from front-end sales systems, applies compensation rules and feeds the relevant payments for agents or employees into the payroll system.

Implementing a sales performance management solution will not deliver a silver bullet to sales success, but it can do its part in helping organisations gain a better picture of their incentive plans. SPM implemented in the right way can overcome sales performance and transparency challenges by allowing both front-line sales people and decision-makers to have visibility into sales performance to plan sales strategies better and ensure sales initiatives are helping the company to grow.

Choosing the right vendor

It is important that companies which are looking to implement an SPM solution choose both the right vendor and the right implementation partner; this will make a huge difference to returns. Some of the smaller SPM software vendors will provide adequate functionality for the requirements of smaller companies or those with simple compensation strategies, whereas those companies with larger and more complex compensation requirements will need all of the tools and computational power provided by the bigger vendors. Selecting the correct products to fit needs is critical to success, as is selecting an implementation team that knows how to guide to success.

Full analysis

Many organisations use the implementation of a new SPM system to perform a full analysis of their existing compensation practices prior to attempting to automate them. This frequently flushes out erroneous concepts and inconsistencies in the approach to compensation and can lead to wholesale improvements in fairness, accountability and widespread rejuvenated belief in the compensation system by the sales force.

Addressing all elements of compensation strategy requires focus, time and effort. But the rewards for the company that makes this a key part of its corporate mantra can certainly reap the benefits over a competitor with less focus. This becomes even more valid in a depressed economy and under difficult market conditions where any edge is welcome to achieve strategy and return shareholder benefit.

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