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July 24, 2007

Sales Compensation Management: Xactly

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From time to time I'll receive information from a company and really not understand what the subject is about. I will know, however, something about the topic and guess that it's important for you to know about.

One of these subjects is sales force compensation. You have a sales force and of course compensate your sales force for sales they've done.

I'm sure many of you use spreadsheets to manage this process, but it's not the best way to do things.

I asked Karen Steele, Vice President of Marketing, Xactly a few questions, to better understand the sales compensation "market". She answers them in the interview below (scroll down a few paragraphs) Xactly has a solution that enables smaller businesses to better manage their sales compensation management. Xactly tells me that historically, the business processes to automate sales compensation have been non-existent, broken, or loosely comprised of islands of disconnected point solutions. This represents a minefield, as sales compensation can represent up to 8 - 10 percent of a company's budget.

Many companies labor under the burden of spreadsheets to manage incentive sales compensation and sales performance. This approach, fraught with errors and risk, is no longer acceptable as companies are finding themselves at a significant competitive disadvantage and risk of non-compliance with Sarbanes-Oxley and other regulatory standards (For example, spreadsheet-based sales compensation plans have been proven to include a 7 - 10% error rate).

Why is sales compensation management so important?

Sales compensation which includes incentives such as commissions, bonuses, draw and SPIFs (special incentive performance funds) help companies to motivate and drive behavior to sell the right mix of products. If the sales compensation process is automated and centralized, companies can streamline what is often a multi-million dollar cost center to drive more profits for businesses. By aligning payments to performance, companies can align sales to corporate goals and comply with regulations such as Sarbanes-Oxley.

How do many companies, that are not using some software solution manage sales compensation?

Typically companies are managing sales compensation using spreadsheets which are notoriously error-prone and provide no real-time visibility to drive behavior and are not auditable.

Beyond technology - what are some key tips for managing a sales compensation plan?

Design and model the right compensation plans. Model compensation plan changes and see the upside and downside risk before taking action.

Pay differently on higher margin products and services.

Incent on discount percent

Create SPIF's to motivate sales behavior

Vary commission rates by product

Use cash and non-cash rewards

Provide robust analytics and dashboards to drive sales performance efficiency and visibility

Is sales compensation management different from payroll and/or what salesforce.com and other services have?

Incentive sales compensation is complementary to payroll services like ADP and Ceridian or sales force automation services like Salesforce.com. Sales compensation management automates the process of incentive compensation by aggregating post sales data to calculate and pay variably paid employees or third party dealer channels accurately. With Xactly, sales compensation is integrated with Salesforce.com so as reps are reviewing opportunities in Salesforce, they can immediately see 'what if' scenarios of how much commission they will earn if they close specific deals in their pipeline. Similarly, sales compensation management processes the calculations for paying incentive compensation accurately, and with Xactly, the results can be pushed to ADP or any other payroll services provider for the processing of payroll via a set of open APIs to ensure seamless connectivity.

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