Help & advice: How incentives can drive sales in difficult times

The opinions presented in this paper are subjective and are offered as a basis for further discussion and research only.

Offering incentives to employees effectively and with total transparency across the business is the first and most vital step when tackling an economic downturn.

Why implement an incentive scheme?

When executed correctly, incentives become critical motivators and performance drivers for employees; therefore increasing profit margins and revenue. A business should produce a scheme that focuses sales forces on higher-margin products, rather than selling high-volume, low-margin products. This should help to align sales execution better with corporate objectives. High-margin sales with new customer relationships can also help sales of add-on services and aid with support as new products are launched.

Considerations for an effective incentive scheme

For a sales incentive scheme to be effective, a business must be aware of best practice. The incentives must suit the specific salespeople involved, their career objectives and the evolving product portfolio. A well-thought-out incentive scheme can help salespeople concentrate on their primary role of closing deals and serving customers.

Salespeople also need to think like their customers. It is not so much about getting customers as creating loyalty for the business or its products by delivering exactly what the customer wants. Channel salespeople must become more customer focused. In depth knowledge of customer businesses and the overall market will help them to align the customer’s objectives with their own products and consultancy services. This can create a long-term partnership across the customer base as opposed to the traditional adversarial sales-based relationship.

Pitfalls to avoid

There are a number of issues to be aware of when considering the introduction of an incentive scheme. Sales are a channel company’s lifeblood, however, in a downturn the effect is that margins will be squeezed further for vendors and channel partners. Offerings of incentives to sales staff by both vendors and channel companies is proven to drive performance.

Yet most companies lack a solid understanding of how to make incentives work and are far from having a rigorous management of incentive and sales schemes.

The combination of direct sales, distributors, partner sales, retailers and retail sales means it is difficult to obtain visibility of the overall sales process.  In a downturn it is easy for salespeople to sell low-margin but high volume products to make their numbers. More complex products and services that have higher margins but a longer sales lifecycle may be neglected. It is vital that company directives are clearly communicated and adhered to by the sales people to avoid this scenario.

It is also vital that vendors work closely with their channel to avoid short-term promotions that simply transfer inventory to partners. This kind of practice may deliver one great quarter but over-stocking can bring down margins and alienate the channel.

There may also be a lack of strategy. Many incentive schemes are poorly designed and thought out. If so, salespeople will be offered incentives to push the wrong products to the wrong audiences, leading to demotivation, falling sales and a loss of market share. Salespeople are then likely to take the 'path of least resistance' and sell only the products that promise faster and more accurate payments.

If an organisation guards against these pitfalls then the introduction of a robust, well thought out incentive scheme will protect and increase sales in difficult market conditions.