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Inspire the Salesforce: Improving Incentive Compensation Using Revenue Multiplier


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Attainment-based compensation is calculated by dividing revenue by the assigned quota. In a typical business-to-business sales organization, plans are setup in such a way that 40% to 50% of the salesforce reaches the target and 50% to 60% exceed targets.

 

It is not uncommon to have upside set at three times the target incentive. A payout factor is calculated by using the revenue attainment and the factor is applied to the target incentive to calculate compensation payout. Any increase in revenue is going to increase the payout factor, thereby putting the salesperson into accelerators (usually beyond 100%) and thus increasing payout. The increase in payout factor will be achieved by a revenue multiplier, which as the name implies, is multiplying the revenue amount with pre-configured factors based on the role and by products or offers.



 

In this article, we are going to see the revenue multiplier implementation at a high level. It is understood that many organizations pay on bookings rather than revenues, but they also consider certain events like invoicing or contract start date for commission payouts. As such, revenue here may also refer to bookings that met invoicing or contract start date criteria.

 

Eligibility Definition

It is important to define which products are eligible for revenue multipliers. This can be done by using attributes like usage type (SaaS) or product category (software) or included offers. One other easier method is to define by product families.

 

If the organization has a finite list of product IDs, then the configuration can be done using individual product IDs also, but care should be taken if this list runs into the thousands, since maintenance will become hard.

 

Further, we can also specify which type of transactions are eligible for a revenue multiplier. For example, manual transactions can be made as not eligible for a revenue multiplier.

 

Role Eligibility

In addition to product eligibility, it also is a good idea to control who gets the benefit of revenue multipliers. For example, account managers can be made eligible to receive multipliers, whereas product sales specialists, who assist in the sale, need not receive it, or may get a lower degree of benefit. The eligibility can be defined by compensation level as well.


The following diagram illustrates the various options for eligibility definition, which is key to drive the expected behavior.





Timing
This change should be implemented at the start of a fiscal year so that consistent processing can be done for all transactions eligible for revenue multipliers. If this needs to be done in the middle of the year, that should be planned as part of the monthly planning cycle. It can be implemented as either retroactive or a prospective basis.

Mechanics

1. Configuration:  The first step is to enable the configuration using one of the three methods below:



2. Transaction Processing:  After configuration, transactions are processed based on multiplier values defined for the product and role. In the example given below, uniform multiplier values are applied for all roles (only for revenue):


3. Goal Assignment:  Goal numbers for the Sales Rep are as given below: 


 4. Calculation & Payout:  Attainment and payout information are shown below for John Smith:


As we can see, with the revenue multiplier applied, John has reached accelerators and received increased payout. This increases seller motivation and increases sales for the product family on which the organization is focused.

 

Governance

It is important that the sales operations team monitors the administration of revenue multipliers. This should include validating transactions received for the product family, any adjustments to sales credits or claims/reversals matched to the correct transaction amounts and ensuring the correct multiplier factors are applied based on configuration.

 

Just like monitoring new compensation plans, evaluation should be done in three- to six-month periods to ensure that objectives are served by this capability. Sales reporting is also another critical factor in the success of this program. The salesforce should be able to view their transactions with the revenue multiplier applied to see the impact it had on their payout.

 

Important Points to Consider

The sales planning and operations team should ensure that multiplier designs are not resulting in exorbitant payments without significant revenue benefit. This can be done by properly evaluating plan component design and the underlying construct. Care should be taken to ensure that product mix in the plan component is maintained without causing too much emphasis on one side or the other (i.e., products eligible for revenue multipliers versus those not eligible).

 

It is very evident from the above examples that increased product focus can be initiated for a sales force without making major changes to compensation plan design or enabling a SPIFF program. Implementing revenue multipliers as an add-on to existing plans is simple to implement but returns desired benefits and provides significant flexibility.


About the Author

  Porchezhiyan Madhavan is a CSCP certified Sales Compensation Business Systems Architect in Cisco Systems, Inc.


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