Sales Compensation as a Retailer Competitive Advantage

By Jeff Hilliard

Competitive advantage is defined as placing your organization in a superior position to your peers. It’s tightly coupled with growth.

There is little debate among energy retailers that having high-performing sales channels that drive customer acquisition and retention is a competitive advantage. Customers benefit from having trusted and well-informed parties help them navigate the complexity and variety of retail energy choices, while retailers gain market reach and customer awareness through their salespeople and partners.

Because of this, compensation, or commissions, is a driving factor in the effectiveness of any retailer’s customer acquisition, retention and overall profitability. The ability to manage incentives efficiently and systematically is critical to:

  • Establishing an exceptional experience for your sales channel, so they will do business with you repeatedly
  • Managing exposure of your second-largest SG&A (selling, general and administrative) expense
  • Generating and sustaining demand for new products and services

Current State and Opportunities

Today, the complexity of compensation management, the perception of relative return on investment and the lack of a complete industry technology solution has limited many retailers from gaining a competitive advantage. Many retailers are resigned to supporting error-prone processes, cycles of payment reconciliation (over, under and missing), manual data entry and routine issue remediation calls/emails with frustrated sales leaders who do not understand how their compensation was formulated.

Additionally, flexibility and responsiveness to changing compensation dynamics, such as new channels, products or sales goals, are constrained. A retailer’s ability to seize an opportunity quickly or shift its strategy in response to customer needs is impacted. For example, an aggressive retailer consummating a new channel relationship must develop a one-off manual process for offering up-front payments and quarterly consumption true-ups to limit margin exposure. It’s not ideal.

When technology has been applied to compensation management, it is generally departmental in nature (e.g. using Excel or an Access database), home-grown, costly to maintain or off-the-shelf and incomplete. Meanwhile, retailers’ talent pools have immense operational understanding that could (and should) be applied more effectively to other areas. For example, employees could be analyzing the most effective and profitable sales partners instead of just ensuring they get paid.

Path to Achieving Your Competitive Advantage

From our experience working with retailers globally, there are several key steps one can take toward developing a competitive advantage around sales compensation.

1. Start with data.

In the world of compensation management, the adage around data is “junk in, junk out.” Retailers seeking to differentiate and grow are missing an opportunity if they do not focus on a common quality data set and platform. Quality data sets help support better decision-making, integration of systems, process improvement and predictive analysis. Retailers should evaluate potential investments in billing system consolidation, CRM and deal capture systems alongside the relative effort and complexity of data platform creation leveraging cloud computing.

2. Consolidate your compensation management function across channels.

Optimization of business processes and organization structure frequently provides opportunities to concentrate knowledge and lower expenses. Among other benefits, consistent compensation methods and plans/terms will reduce one-off exceptions and offer better comparisons of channel or partner performance over time, segment and/or geography.

3. Leverage a fit-for-purpose energy compensation management system.

Energy and related contract and consumption-based products and services require unique systematic capabilities. Business users must be able to configure plans or incentives for all products, commodities, channels and geographies with no IT involvement. Workflows should offer a clear separation of duties, full auditability and adherence to financial controls. Commissions data should be easily integrated into other internal systems and channel-facing solutions (e.g. portals). In addition, technology investment should reduce operating costs. A predictable flat fee software-as-a-service model allows you to cost-effectively scale your compensation process as you grow.

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Jeff Hilliard is a Vice President at CRAFT and Pariveda Solutions.