Tuesday, January 15, 2008

Return on Investment (ROI) of an Incentive Compensation Management System

It is no secret that a Compensation Management System is a significant investment. In the case of a SaaS solution, a fee per payee will become an on-going operating cost. In the case of an on-premise solution, license purchase, hardware and system integration fees will consist of the bulk of the initial cost, followed by related operating costs to keep the system running.

I collected a fact from a Gartner research for which I have lost the reference: “On average, companies that don't use information technology to track payments from customers overpay their employees by 3 to 8 percent of their bonuses and commissions.”

One of the difficulties encountered when calculating commissions in some manual form or with an archaic system is that it is often challenging to process returns. When returning items, the commission for these returns should be taken back from the sales person. The task is even more complex when dealing with partial returns, where several items where purchased and only a fraction is returned; in such a case, only a part of the commission should be removed from the original sales person. A good Sales Performance Management application should be able to perform this type of calculation without too many difficulties.

The actual return on investment depends on the implementation cost, the quality of the existing system, time savings with the new system, the amount of commissions paid incorrectly (and above what they should be) without an ICM solution, as well as other factors.

From what I have seen, the Return on Investment promise is real and not just a marketing trick... But remember that when considering a sales performance solution, the ROI should also take into acount the sales performance improvements due to more accurate and timely incentives.

Here are a few articles related to Return on Investment in the ICM space:
ROI Study Report: Sales Performance Management Solutions
Building a Business Case for EIM
Gartner Survey

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Ottawa, Ontario, Canada
Julien Dionne is a well-rounded consultant with global business management experience and outstanding technical, business and leadership skills. He earned a Bachelor of Applied Science in Software Engineering from the University of Ottawa, Canada, and he is a member of the Canadian Professional Sales Association. The views posted within this blog do not reflect the views of Julien’s current or previous employers and clients. Julien can be reached at julien.dionne@gmail.com