Perhaps you’ve already deployed an SPM solution to automate your sales incentive program. But did you have the discipline (or time) to measure your actual return on investment (ROI)? Or maybe you wanted to estimate savings before deploying a solution?

Measuring the ROI of software solutions is often more art than science. However, it doesn’t mean it’s not worth applying some method to come up with a realistic estimate. This online calculator breaks down the ROI of automating sales commissions using 4 categories:

  • Savings related to managing commissions more efficiently
    • Ex: easily making changes to incentive plans
    • Ex: not having to distribute commission spreadsheets
  • Savings related to making commission calculations more accurate
    • Ex: properly handling draws, caps, etc.
    • Ex: correctly calculating tiered incentives
  • Savings related to reducing sales rep churn
    • Ex: paying reps on time & the right amount
    • Ex: transparently communicating terms & conditions
  • Savings related to reducing shadow accounting
    • Ex: enabling sales rep to review crediting using a dashboard
    • Ex: enabling sales rep to review rewards using a dashboard

To calculate savings, you can start by estimating the baseline cost of each component:

  • Sales commission administration
    • The baseline cost can be calculated based the number of hours spent by payroll to manage sales commissions, as well as payroll labor costs
    • Example: a payroll manager is paid $70K per year, and spends 14 hours per week managing sales commissions
  • Calculation errors
    • The baseline cost can be estimated using the % of revenue allocated to commissions, as well as a calculation error rate
    • Example: annual revenue is $5 million, 8% is allocated to commissions, and the calculation error rate is 0.5%
  • Sales rep churn
    • The baseline cost can be estimated based on attrition rates, and using the cost of recruiting and training a replacement
    • Example: each quarter, on average one rep leaves, with an average cost of $15K to hire and train a replacement
  • Shadow accounting
    • The baseline cost can be estimated based on the hours spent by each rep verifying credits / payouts, and based on their total compensation
    • Example: on average, 10 reps spend 1 hour every week to double-check their commissions, and their average salary is $80K

By recording those baseline costs – and then measuring how your SPM solution changed them, you can measure your true ROI. Of course, you also need to take into account the cost of your SPM solution!