More specifically, they hate the spreadsheets that compensation managers create to determine sales commissions. Companies have used Excel spreadsheets as their No. 1 tool for determining sales commissions for about as long as the program has been around. But the practice is rife with miscalculations and other problems.
Salespeople have a special name for it: “Excel hell.” Come payday, it’s not uncommon for them to spend hours doing a shadow accounting of their commission checks to make sure they got what they deserved, according to compensation managers and others.
The alternative to those dreaded spreadsheets is sales incentive management software, a specialized program that manages a reward system for meeting sales quotas and goals. The software typically includes tools to create, document and allocate incentive plans, as well as a Web-based portal that administrators can use to access the information, generate reports and integrate data with other HR systems.
The software has been around for about six years, and until recently has had a loyal, if small, fan base.
However, it’s starting to take off now that startup companies and other vendors have begun to offer “software as a service” and hosted solutions that are priced lower than the original high-end, on-site version.
Executives at companies that use sales incentive software claim to have reduced or eliminated common mistakes on spreadsheet-based commissions. They also say it has dramatically decreased the time they spend on the process, and the time reps spend second-guessing commission payouts, leaving more time for making sales calls. “We’re extremely pleased and excited,” says Gary Lawrence, Waste Management’s senior manager of sales compensation, who is supervising a sales incentive software rollout at the major garbage hauler.
In addition to Waste Management, other Fortune 1,000 fans include Aetna, Liberty Mutual, Wachovia, Verizon, Novell and Johnson & Johnson. Thousands of small and midsize businesses also have become converts.
Interest in sales incentive software pushed sales up 15 percent in 2007 to $250 million, according to technology researcher Gartner, which predicts a similar increase in 2008.
That’s a relatively small amount of money compared with the number of companies using spreadsheets, says Michael Dunne, the Gartner analyst who tracks the subject. But companies that have switched have discovered they were overpaying commissions anywhere from 3 percent to 10 percent, “so it’s real money,” Dunne says. Once a company gets to more than 100 salespeople, or if it starts selling product bundles with complicated commission structures, it’s too hard to track all the possible variables in spreadsheets. “It becomes a nightmare,” Dunne says.
The first generation of sales incentive software from vendors such as Callidus, Synygy and Oracle were installed on-site with a client, and cost $200 to $300 per person, making them attractive mainly to major enterprises, according to analysts and experts. “Between the software and implementation, it was hard to get anything under $2 million,” says Bob Conlin, Centive’s chief marketing officer and an industry veteran.
Software-as-a-service vendors such as Centive and Xactly entered the business offering solutions for a fraction of that, $20 to $50 a month per user, according to several analysts’ calculations. But many such vendors still are small companies with limited financial backing and marketing muscle, which has made it difficult for them to make major headway with customers, analysts say.
To change that, vendors are taking steps to broaden their appeal. Callidus, for example, retooled its technology so it’s available both as an on-premises or on-demand solution. Centive recently signed a deal with ADP, which will market the software and host it for its small and midsize business customers. Centive, Callidus and Xactly have partnerships with Salesforce.com. Other vendors, such as Varicent, are looking to gain market share by offering sales incentive management as a subset of a comprehensive sales performance management software package.
Large and small applications
Waste Management is a sales incentive software convert.The nation’s largest trash collector has 1,200 inside and outside salespeople who sell the Houston-based company’s collection services to new businesses and construction sites, and are compensated in one of a dozen different incentive plans. Tracking all those reps and plans in Excel spreadsheets was time-consuming, prone to error and didn’t give management enough feedback about whether commission structures were enticing salespeople to sell the most profitable products, says Lawrence, the compensation manager.
In late 2006, Waste Management struck a $3 million deal to license sales incentive software from Varicent. The software was installed in one test market in July 2007, expanded to four in February and should be in place in all 48 sales territories by early 2009.
So far, the only glitch was one that Waste Management brought on itself. The company had to delay a beta test after managers realized they needed to standardize some processes that individual territories did differently, and fix problems with the existing billing system and pricing tools so data fed into the new software was error-free, Lawrence says.
Despite the snags, Lawrence and the Waste Management senior leadership that approved the project are pleased with the results. Lawrence estimates that when commissions are completely automated, it will save administrative staff the equivalent of 15,000 workdays a year, which is the time it once took to enter commission data into Excel spreadsheets and then re-enter it into payroll software.
Also, by cutting the time that sales reps were spending on bookkeeping, it has given the sales force extra hours “without adding people,” Lawrence says. Since the weak economy has cut into Waste Management’s construction-related business, Lawrence is using the software to tailor commission plans to motivate sales reps to go after new business. Reports that the software generates give instant feedback on how well reps are meeting those goals. “We don’t want all the business we can get; we want profitable business, so we’re looking at every customer and every order to see if it fits that,” Lawrence says.
Executives have already expanded their Varicent contract to cover incentive plans for trash haulers, who earn commissions when they exceed daily quotas, drive safely and bring in new business, among other things. Waste Management initially will put commission plans for 5,000 to 7,000 garbage haulers on the software, but eventually could use it for all of its 25,000 drivers. The company is also using the software for its 110 national accounts and special waste salespeople, and in the future, could use it for customer service representatives.
Large enterprises such as Waste Management were among the first to use sales incentive software, but software-as-a-service solutions have brought it to small and midmarket companies that don’t have the budget or IT staff for on-premises software.
One of them is Speakeasy, a 330-person Seattle company owned by Best Buy. It provides “voice over Internet protocol” voice and data services to 50,000 small business customers across the country. Speakeasy uses a software-as-a-service incentive software program from Xactly to calculate commissions for about 35 sales reps. That’s not a lot of people, but between a direct sales team, in-house salespeople and sales reps who work with solution partners, Speakeasy runs four or five different incentive plans and they’re all complicated, Speakeasy CFO Andrew Hyde says. A Speakeasy employee who previously worked at Microsoft built Excel spreadsheets to manage the plans. But after he left in January, chaos ensued. Hyde calculated commissions the next month, and was up until midnight one evening figuring things out.
“It’s not something I ever want to do again,” he says.
Before joining Speakeasy, Hyde worked at Salesforce.com, the software-as-a-service pioneer, so he didn’t need convincing that it was the way to go. He tapped Xactly because the company’s software is integrated into Salesforce.com and Speakeasy was already a Salesforce.com customer. Implementation was fast—just 30 days. The fee Speakeasy pays falls within the industry average of $20 to $50 per user per month, Hyde says.
Figuring commissions has been easy, and sales reps use the software to see how close they are to trigger points that would bump up their commissions, “and if they care, they get back on the phones,” Hyde says.
Selling systems in a downturn
Corporate concerns about a recession are curbing corporate HR and IT spending, which could result in fewer software purchases of any kind, including sales incentive programs, according to industry experts, analysts and company managers.
“This will be a challenging year for any back-office technology that doesn’t have a direct effect on the bottom line,” says Jacqueline Kuhn, chair of the International Association for Human Resources Information Management (IHRIM) and senior director of corporate and administrative services at OfficeMax.
But some sales incentive software users believe their best defense against an economic downturn is a well-motivated, well-compensated sales force, and they’re willing to pay for the software that makes that happen.
Also, companies are enthusiastic about anything that’s branded as employee self-service, pay for performance or software as a service. Sales incentive software is all of those, says Christa Degnan Manning, research director at AMR Research, a Boston HR technology research firm.
For now, providers of on-premises software remain the market leaders. Callidus, for example, handles a total of 1.8 million payees from 150 companies, including a who’s who of Fortune 1,000 customers, according to Steve Apfelberg, the company’s vice president of marketing and business development. To stay competitive, Callidus started offering a hosted version of its software, and recently partnered with IMS Health to resell Callidus’ software to IMS’ pharmaceutical and health industry customers.
Experts believe software as a service will take off once vendors come up with a technology platform that companies can configure to their particular needs, without having to do a lot of software customization, IHRIM’s Kuhn predicts.
Pure software-as-a-service vendors are the best-positioned to do well in the future “because they don’t have a lot of boring old technology around their necks” that they have to transition to a new delivery model, Manning says.
However, don’t count out Oracle, analysts say. It could be a big contender if it chooses to put its substantial investment dollars into the sales incentive software market.