Commonly overlooked by sales organizations and packaged solutions designed to manage commission payments is the valuable information contained within the sales transactions themselves. This information can affect profitability in a variety of ways.
In one case, a company elected to sacrifice short-term profits in order to expand market share. The strategy involved paying significantly higher commissions for sales that resulted from securing competitors’ client bases. A key consideration contained in the strategy was that only sales within an assigned territory would qualify for the increased incentives. This was intended to eliminate sales reps from cherry picking easy sales from other reps’ territories.
After creating an entire department to support this new strategy, the campaign was launched. This occurred at the same time that Glocent was being installed for the customer. During the first parallel run, designed to reconcile the results of Glocent with the current in-house system, an 80% discrepancy rate between the two systems was revealed.
After some heated conversations, and a great deal of frustration had been voiced, it was eventually determined that the new group tasked to manage the new campaign did not have the resources to evaluate every sales transaction. The decision was made by the manager that it was better to give the sale reps the benefit of the doubt if a sale had not be properly evaluated. In her mind, it would reflect a more positive outcome from the campaign and the sales people would be more motivated to support the new strategy.
Obviously, she was wrong on both counts. Based on her decision, the company ended up paying higher commissions for many sales that did not meet the necessary criteria. The reporting of those sales led to the company believing that its strategy was working, when, in fact, nothing much had changed.
While most organizations view compensation management from basic commission calculation requirements, or sales performance management perspectives, the greatest value a true SCM solution brings to the user is its capability to leverage information that was previously overlooked, or simply unavailable. The solution should be able to merge a wide variety of sales and non-sales business information, analyze that information in order to gain a critical view into each transaction, and then allow a value to be associated to that transaction for incentive purposes. Following that approach, commissions become much more meaningful; and you can now directly couple the value of a sale to your company’s profitability.