Fortunetellers and crystal balls are great for Halloween fun but not for running your business. Much of what the sales compensation analyst deals with every month feels like guessing or at best looking into a crystal ball to see what will happen.
Each month the finance team is responsible for projecting the incentive expenses and associated revenue. So how do compensation analysts accomplish this?
Many years ago I was responsible for forecasting these numbers. The best tool I had at the time was to create a detailed spreadsheet. The problem was my sales reps all had different quotas and many of them had different rates. Oh and each plan had one commission formula with 2 – 3 rates depending on the individual’s level of quota attainment plus another commission formula that was a flat rate and a quarterly bonus thrown in for good measure! Every month I had to gather the current month actuals for each sales rep and project closed sales for each remaining month for the entire year. Then I would have to determine the correct amount of commissions and bonus for each rep. I had to provide my finance team revenue and commission expenses by month for the remainder of the year. This exercise took me 2 days to complete! Does this sound familiar? Or like a prudent use of time?
Due to these complexities, many companies opt for a simple flat rate commission structure for all their sales compensation plans. The problem is these companies usually don’t reach their goals because flat rate commission plans, well, fall flat in motivating the sales team. This type of plan will encourage your underperformers to stay and your top performers to move on to where their excellent sales talent is rewards with significant upside potential.