Driving Sales Growth UsingSales Performance Metrics The Hidden Treasure of Sales Performance Software

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Overview — Achieving Breakthrough Sales PerformanceAchieving greater sales performance is foremost on the minds of both sales leaders and finance executives. In today’s business environment, organizations that rely on poor data to make key sales performance decisions, risk being overtaken by the competition. Indeed, managing sales performance is evolving from an art to a science. One leading industry analyst estimates that companies may experience as much as 10% in lost revenue from misaligned territories, quotas and sales plans.

Sales Performance Management (SPM) software solutions enable forward thinking companies to make great strides in managing sales performance by helping them with territory planning, quota setting, sales plan administration, reporting and dispute management.

While the Incentive Compensation Management (ICM) aspect of Sales Performance Management (SPM) software is initially attractive because of the accuracy and cost-savings it brings to sales incentive plan administration, it quickly becomes even more valuable as a tool which provides indispensable data for analysis of sales plans and producer/channel performance. Today’s sales organizations often face increasing volumes of data from sales force automation and order management technology without the ability to translate that into useable measurements.

Sales Performance Management (SPM) data can fix that, generating actionable information that can help answer questions like: What products are we selling?…To what customers?…What regions are underperforming and why…How’s our product mix?…and, Are there better ways to spend our incentive budget? It is this wealth of sales performance data that can drive key metrics which provide meaningful information to both sale and finance leaders. Without such data, and without robust tools to analyze it, companies can’t identify issues and opportunities, and cannot make quick mid-course corrections.

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CONTENT Overview 2

Driving Profitable Sales Growth 4

Revenue and Cost: Always the Starting Point 4

Total Sales Spend to Total Revenue 5

Total Incentive Spend to Total Quota Achieved 5

Individual Incentive Earnings to Individual Quota Achieved (By Rep) 6

Percent of Quota Achieved by Region 6

Percent of Quota Achieved by Market Segment 6

Sales Rep Expenses to Territory Revenue 6

Profit and Product Mix: Key Indicators for Finance, Sales and Product Management 7

Profit as Percent of Revenue by Product 7

Percent of List Price Achieved by Product 7

Percent of List Price Achieved by Sales Rep 7

Product Mix compared to Sales Plan 8

Product Mix Sold by Sales Rep 8

The Key to Sales Performance Management (SPM) Metrics: Managed Processes & Quality Data 8

Summary 10

About CallidusCloud 11

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Driving Profitable Sales Growth Achieving profitable sales growth is accomplished by selling more of the right products as cost effectivelyas possible. The goals, then, are to 1) grow revenue through more sales, 2) control sales related expenses(including sales incentive spend), and 3) ensure that product mix and product profit margins are maximized.In order to manage and maximize these key sales performance variables, organizations must make frequentstrategic and tactical decisions. This requires them to track metrics regarding these variables and be prepared to make quick mid-course corrections. Best-of-breed Sales Performance Management (SPM) software supplies the wealth of data necessary to track metrics and drive decisions. While the possible sales performance metrics to analyze are almost endless and are dependent on theindustry, business model and sales strategy of a given company, there are some high level metrics that areuniversal. This paper will identify several such metrics, why they are important, and how SPM data can helpensure that the organization is driving profitable sales growth.

Driving Profitable Revenue Growth

Revenue and Cost: Always the Starting Point Driving new sales revenue and controlling sales division expenses are two of the key legs on which profitable sales growth is built. A sales division’s success is usually evaluated on its own profit and loss statement. Increasing revenue and decreasing expenses are key to that P&L. One major expense factor for

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sales performance is the amount and effectiveness of sales incentive payments. The most senior sales, finance and product management executives will focus first on the highest level metrics that reflect revenue and cost. Probably the single most important metric for the sales division is shown below.

Total Sales Spend to Total Revenue This metric is critical because it reflects the overall efficiency of the sales division, taking into account both the total revenue produced and all the expenses generated by the sales division. Expenses include all producer compensation, all sales territory expense, and all sales overhead. The key audience is both sales and finance leadership.

Further analysis of this first metric will offer great insight into the factors driving the metric’s results. Analysis can shed light on such issues as incentive spend, territory expense management, revenue by territory or sales rep and product mix. The following are key secondary metrics that impact Total Sales Spend and Total Revenue.

This measure is key to understanding how incentive spend relates to total success against quota. If incentive spend is higher than the achievement of quota would indicate, then a problem with either quota setting or the incentive plan design is indicated. This can be extremely useful information for sales leaders and compensation design professionals as they consider mid-year corrections in plan designs or quotas. For companies that do not use quotas, Total Quota Achieved can be replaced by Total Incentive Budget, since total incentive budget should reflect target level sales performance.

Total Incentive Spend to Total Quota Achieved

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This measure sheds light on how well the incentive plan design is paying for sales success. Plotting all results will show if there is a logical relationship between higher levels of quota achievement and incentive earnings. Poor incentive plan design can be identified if the ramp up of earnings is too high or too low, as higher levels of quota achievement are reached. Sales and compensation design leaders can use this information to adjust plans.

Regional differences of sales plan success can be important. This measure identifies how different regions are succeeding against quota attainment. Marked differences can indicate problems with quota setting by regionor regional differences in the effectiveness in marketing/promotional strategy. This metric can also indicate how well expense dollars are being spent by region. Sales leaders and marketing executives have strong interest in this metric.

Most sales organizations segment markets by customer size, other key characteristic or channel partner. Sales performance success by market segment provides great insight into how segments are responding to product design, pricing, promotion and the like. This measure can also highlight the misappropriation of quota by market segment. Sales leaders, marketing managers and product management executives all have keeninterest in this metric.

This measure indicates how cost effectively a sales rep is producing revenue. High expenses per unit of revenue can indicate poor territory design, or poor decisions by the sales rep on discretionary spend. Sales leaders and financial analysts are key users of this information.

Individual Incentive Earnings to Individual Quota Achieved (By Rep)

Percent of Quota Achieved by Region

Percent of Quota Achieved by Market Segment

Sales Rep Expenses to Territory Revenue

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Profit and Product Mix: Key Indicators for Finance, Sales and Product Management Revenue and sales division expense are only two-thirds of the profitable revenue growth story. In order toensure the profit part of the equation is maximized, proper product mix and product profit margins must beachieved. As a result, the next most watched measures related to Sales Performance are product margin and product mix. Sales, finance and product management executives all watch these measures closely.

Profit as Percent of Revenue by Product The most important high level metric tying together profit and product is Profit as Percent of Revenue byProduct. This key metric measures overall profit margins by product. It can give considerable insight intoproduct pricing decisions, discounting and price realization in the market place. Often, profit margins are intentionally different for products, depending on the life cycle stage of the product or on the level of competition. This metric can monitor how profit per product varies from plan, and is critical to productmanagement and sales executives. Finance leaders, of course, also have great interest.

Since profit margin by product can be influenced by a variety of factors, several other key metrics shedadditional light on the profit and product mix issues:

This measure will help identify if profit shortfalls are due to inherent problems with product pricing or if they result from excessive discounting by the sales force. Product management and sales leaders need to strike the right balance of pricing the product competitively while holding the line on discounting for the sake of achieving quota.

If discounting is found to be the culprit in profit realization, then finding where the excessive discounting is occurring is critical. This metric will identify those sales reps who achieve the least percent of list price. Salesleaders can then manage performance to a more acceptable level of price realization.

Percent of List Price Achieved by Product

Percent of List Price Achieved by Sales Rep

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As already noted, profit margins may intentionally differ from product to product. The product mix actually sold then becomes critical in achieving overall profit for the organization. Therefore, monitoring the product mix sold is key to ensuring that sales results drive expected profit. This metric continually monitors the product mix sold by the sales force. Sales, finance and product leaders, plus sales compensation professionals, all have keen interest in this metric. Product mix problems may be caused by a flawedcompensation plan design, product pricing issues or marketing/promotion issues.

If overall product mix is deemed the profit problem, then this metric can indicate which sales reps are selling the proper mix vs. those that are not. Sales managers can then work with the sales force to identify the reasons that product mix is inconsistent. In some cases, territory differences may affect product mix sold, but often times poorly assigned quotas are the culprit.

Product Mix Compared to Sales Plan

Product Mix Sold by Sales Rep

The Key to Sales Performance Management (SPM) Metrics: Managed Processes & Quality DataAs already noted, every company will have its own unique metrics that will be meaningful to that businessmodel. The metrics noted in this paper are a good starting point to monitor revenue, expenses and productprofitability. Sales and Finance leaders must evaluate carefully what metrics will be most critical for their own strategic decision making.

Whatever metrics are chosen, the critical need is for accurate, timely and complete data. This is where robust Sales Performance Management (SPM) technology is key.

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In most organizations, the availability of good data for analysis and strategy decisions is simply not available.Consolidating data from spreadsheets or diverse compensation systems is at best time-consuming, and isvery diffi cult to organize in any meaningful way. Simply put, sound information is required to make sounddecisions. According to Gartner, through 2007, 80 percent of sales organizations will face data quality issues(0.7 probability)1.

Most of the metrics that interest sales and finance require comprehensive sales incentive plan data. Incentive plan data is also the most accurate sales data available to an organization because it reflects what has really happened, and thus paid for. Unlike CRM data, which is largely speculation or opinion, and subject to the data entry whims of the sales force, sales compensation data is a true reflection of what has taken place.

A robust sales incentive system is the only way to capture such comprehensive sales data in one place, including bookings, attainment, plan effectiveness and spend. In addition, closely linked analytics, which drive sales behavior change, also ensures that the metrics are actionable.

But accurate and comprehensive data is just thestart. A powerful analytical tool is needed to gather compensation data, plus data from other key financial systems. Such a tool uses this data to give sales and finance executives instant access to metrics and reports. Properly configured, analytics software can provide dailyreports and dashboards that summarize results to give leaders instant insight into opportunities and risks.

Robust analytics provide value to many audiences, including sales, finance and product executives, financial analysts, sales compensation professionals and front line sales managers. Frequent delivery of reports, metrics and dashboards puts strategic data in leaders’ hands when it is needed for decisions. Time is money…and current data and metrics drive immediate decisions, which drive improved sales performance.

“The inability to quickly access insightful data prevents us from making mid-course corrections…-by the time we have the data out and analyzed it is three months old”…Global High Tech Manufacturer

Data Challenges For SalesPerformance Metrics

Good data for Sales Performance metrics isnotoriously unavailable in most organizationsthat do not use a robust Sales PerformanceManagement (SPM) solution. Typical data challenges include:

• Lack of consolidated quota data for reps,regions or market segments. Quotas aregenerally distributed on spreadsheets, andcentralized data is not available, or difficultto use.

• Consolidated data on producer, product, price and incentives paid is sketchy or diffi cult to bring together. Often spreadsheets need to be built from information gathered from sales, finance and product management.

• Limited information on product mix sold by reps. Spreadsheets and databases keep limited information on product mix categories and how incentives are earned from selling various products.

• Lack of information on price realization. Compensation data from non-ICM sources generally will not include the percent of list price achieved, either by rep or by product, and how that affects incentives paid the rep.

• Difficulty integrating revenue and expense data from other corporate systems. Without an SPM based analytics tool, the solution becomes building more spreadsheets.

1 Sales Analytics Help Sales Organizations Migrate to Fact-Based Decisions, Robert P. Desisto, Joe Galvin, Dale Hagemeyer, 16 June 2005

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Summary Optimizing sales performance and profitability is foremost on the minds of sales, finance and productmanagement leaders. The key metrics around profitable revenue growth are focused on 1) increasingsales revenue, 2) controlling sales related expenses, including incentive spend, and 3) maximizing productprofitability.

Executives across sales and finance must demand fact based answers based on timely and trusted information in order to make sound decisions on how to improve sales performance and develop effective business strategy. Too often decisions are made based on multiple versions of the truth and out-of-date information.

Strategic sales performance decisions demand current and accurate data that drive metrics that can bemonitored continuously. State-of-the-art Sales Performance Management (SPM) software systems are thebest source of timely, quality data for such analysis. Combined with a powerful anlaytics tool, metrics anddashboards can be instantly available for leaders to identify opportunities and risks. Organizations in all industries have found that prudent use of such information will:

• Uncover revenue opportunities by identifying ways to optimize sales behavior and product mix• Assist in the analysis of compensation plan design and quota setting, thereby reducing sales incentive overspend• Identify issues with product pricing, discounting and price realization• Help executives, analysts and sales managers be more nimble with mid-course corrections

At the end of the day, a quality sales performance management system can meet the complex informationdemands of a fast-paced sales organization enabling companies to grow revenue and profitability.

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This document is provided for information purposes only, and the contents hereof are subject to change without notice. © 2017 Callidus Software Inc. All rights reserved.

About CallidusCloudCallidus Software Inc. (NASDAQ: CALD), doing business as CallidusCloud®, is the global leader in cloud-based sales, marketing, learning, and customer experience solutions. CallidusCloud enables organizations to accelerate and maximize their lead to money process with a complete suite of solutions that identify the right leads, ensure proper territory and quota distribution, enable sales forces, automate configure price quote, and streamline sales compensation — driving bigger deals, faster. More than 5,400 leading organizations, across all industries, rely on CallidusCloud to optimize the lead to money process to close more deals for more money in record time.