Business growth is great, but it also forces change. If your organization is growing quickly, it can force a lot of change all at the same time, which can be bewildering not just for the workers who need to adjust how they work but for the company decision makers who must schedule and champion those changes.
The tendency is for both sides of the change equation to cling to some outdated practices even as other parts of the business evolve around them. These days, as companies try to redefine themselves as “customer-centric,” it’s impossible to cling to outdated processes and technology if it impacts the customer experience. That ground has been ceded to change, which means the areas people cling to are largely internal and somewhat hidden from the customer.
Commissions management is a great example of one such system. It’s complex, and it involves money, which causes managers to shy away from changing, and it doesn’t face the customer, which provides a little cover for lingering with an outdated process.
But managing commissions manually ultimately has an impact on results – and the customer experience. It may seem like it’s hidden away in your organization, but in reality it has an impact that is immediately visible to your customers.
Let’s start with the obvious: using a manual process or spreadsheets is not efficient in terms of manpower, and it’s problematic in terms of accuracy. Not only do you end up wasting time your compensation managers could be devoting to more productive tasks but you’re encouraging a process that sets them up for a conflict with sales. We all make mistakes, but when your comp administrator makes them it affects what sales reps get paid. This results in the phenomena of “shadow accounting,” where salespeople keep parallel accounts of what they should be paid because they don’t trust the organization’s system to pay them fairly. This wastes time sales could be spent selling. And mistakes go in both directions – do you think many salespeople will report overpayments? Manual approaches cost the company cash and hurts by cutting into sales time.
Those are the straightforward business repercussions. But the drawbacks of a manual compensation management system cut much deeper.
First off, a sales force that questions the accuracy of its payouts is not a force inclined toward a long tenure. And sales churn is very expensive. A study by DePaul University found that the acquisition cost of a new sales employee was $29,159 and the training costs were $36,290. Even without including the opportunity loss of having an undermanned territory as a business hires a new salesperson to cover it, that’s a total of $65,449 to replace a lost sales rep.
An Aberdeen Group study found that the sales turnover rate was 20.6 percent per year. That means, in a sales organization with 100 reps with an average churn rate and a hiring/training expense that are average, losing 21 sales reps results in an annual cost of $1,374,429. So combatting churn adds directly to the bottom line.
Beyond that, however, is the impact on customer experience. You don’t want to send an unhappy workforce into the field, especially in an era where salespeople must become subject matter experts. An unmotivated “expert” is not going to do the work needed to bring an exemplary level of knowledge to the customer engagement. It’s also damaging to the customer relationship to have the subject matter expert disappear during the relationship. In this indirect way, manual commissions management damages results.
It goes deeper. With an automated commissions management platform, all the data about sales performance is collected in one place and is available for analysis, allowing managers to coach properly, make strategic decisions around territories and quotas based on data, and identify changes to selling strategies. With a manual process, all that valuable data is locked away in a spreadsheet and can only be teased out through a lot of manual searching and analysis.
This becomes a major barrier for organizational change. When the data says change is necessary, organizations are more likely to change. But keeping data trapped in a manual system hides it and eliminates the impetus needed to drive change. It’s a Catch-22 – by not changing the compensation management system, you eliminate visibility into the data that should drive other changes.
For example, if you use commissions to drive sales behaviors, you want to introduce those drivers quickly, iterate rapidly, and work toward a system that provides the most rewarding outcomes for both the business and its sales force. Doing this manually adds layers of complexity that need to be digested by the admins and built into spreadsheets, increasing the chances of errors and slowing the deployment of new compensation strategies. Iterating rapidly is out of the question. Faced with a slow deployment and the possibility of an uncertain outcome that could take a long time to un-do, many managers simply opt to stick with what they’re doing today. Commissions’ power to alter sales behaviors is taken away.
Manual processes also slow the adoption of other sales technology that can help transform the business. For example, CPQ allows businesses to provide guided selling and to maximize up-selling opportunities. But these opportunities must be factored into the compensation system. When they’re built in through a CPQ/commissions integration, the compensation benefits of upselling are immediately calculated and visible to the salesperson. With a manual process, the salesperson might wonder if the upsell was credited to him – and whether doing the work to upsell the customer was worth it.
There’s no reason your business – and especially your sales organization – should be stuck doing what it’s always done just to accommodate manual compensation management. Automating the commissions process should be an early step in your growth, because it allows you to maximize salespeople’s selling time, reduce sales churn, allow management to move with greater agility, and allow salespeople to be present with customers with a more happy, thoroughly knowledgeable and customer-centric mindset.
To learn more about CallidusCloud Commissions, visit our commissions page.