In this article, we focus on the SMB market. We assume that your organization has anywhere from 3 to 50 sales representatives. We also assume you know the importance of automating your sales commission program. We therefore try to answer 2 questions:
- As an SMB, can I afford an SPM solution?
- What will be my return on investment like?
As an SMB, can I afford an SPM solution?
In short, the answer is yes – there are SPM solutions which are affordable for SMBs. However, you’ll want to stay clear of enterprise SPM solutions. The expensive consulting fees, complex configurations, and lengthy deployments they require do not make sense for most SMBs. The initial investment cost is too high to provide any acceptable ROI.
This is not just a matter of initial deployment costs, but also of agility. With enterprise SPM solutions, any change to incentive programs require a full round-trip to a consulting company, resulting in additional costs and delays. And the reality is that SMBs change their sales commission plans and systems much more frequently than larger corporations. In short, avoid choosing an SPM solution which isn’t designed for SMBs.
As an SMB, you probably should be looking for a cloud-based SaaS solution, which someone in your organization can configure without having to hire an external consulting firm. Here is a good test to determine whether an SPM solution is cost-effective for SMBs:
- Is it cloud-based?
- Is there any setup fee?
- Is the pricing transparent?
- Can you sign up online?
- Is there a free trial?
- Is there a product tour / documentation?
- Is it easy to design an incentive plan?
- Is the solution comprehensive enough?
The downside of using a more agile solution is that you should not expect everything to be automated. In an enterprise-type SPM deployment, all systems are fully interconnected following months of expensive, complex integration work. For example, custom automation may listen for changes made to payroll systems, and automatically add the employee to the SPM system.
While this streamlines operations in environments with thousands of employees, this level of integration is just too costly for more agile SMBs, and simply doesn’t make sense. After all, the CEO may decide to switch to a cheaper cloud-based payroll system next month, and adding an employee to an agile SPM system takes about 30 seconds.
What will be the return on investment?
Correctly assessing your true return on investment won’t be easy. You’ll need to use some reasonable approximations to estimate the cost of NOT investing in an SPM solution. Here is an example over a 1 year period for an SMB with 20 sales representatives:
- Estimated cost of managing sales commissions without automation
- 1 HR manager
- Estimated salary $120K / year
- Estimated 4 hours / week spent managing commissions
- Total cost: $12K / year
- Estimated cost of incorrect commission calculations and payouts
- Total commission payout: $3M / year
- Estimated commission error rate: 0.5%
- Total cost: $15K / year
- Estimated time wasted in shadow accounting
- 20 reps
- Estimated salary $85K / year
- Estimated 1.5 hour / week spent reviewing crediting
- Total cost: $65K / year
- Estimate legal fees due to lack of formal enrollment or payout confusion
- Counsel fees: $7K / year
- Settlement: $5K / year
- Total cost: $12K / year
In our example, the total cost of not having an SPM solution is $104K (and we didn’t even consider other benefits such as streamlined dispute management, or designing more cost-effective incentive plans). Assuming the SPM system can only increase efficiency by 50%, total expected savings would be $52K / year. That’s about $2,600 per representative per year, which is considerably less than what SMB-friendly solutions cost. Even if efficiency is only increased by a very low 10%, you’d still end up with a positive ROI.
Choosing the right type of SPM solution is critical. Enterprise SPM solutions have many advanced capabilities, but those translates into significant complexity. The initial (and ongoing) implementation costs are prohibitive for most SMBs. In addition, custom integration with other systems, while attractive at scale, can compromise agility. The good news is that there are cloud-based, agile SPM solutions focusing on the SMB market. A basic ROI analysis will likely reveal significant potential savings.