Planning your spend on sales incentives
Craig Thomas
Director

Planning your spend on sales incentives

1st March 2016

Incentive programmes are a key part of keeping your salesforce motivated and boosting productivity and sales. A well designed programme that recognises the efforts and lengths your sales team go to can have a real impact on overall performance and ultimately sales. So it's important to get it right, but how much do you spend? Here are a few things to consider when planning your sales incentives budget.

 

Monthly, quarterly or annual incentive?

Shorter incentives can often have more impact as people will generally work harder for a more immediate reward, than for a bigger, more distant reward. So use shorter, frequent incentives for driving sales and your annual scheme to recognise top performers.

 

Activity v results

While the natural inclination is to focus purely on sales results, design your programme to incorporate rewarding the activities you've identified as critical to success in the sales function of your company. Is it the number of calls? Or appointments? Every company and industry is different, but there are usually some established activities which, if done regularly, lead to more conversations, more contracts and more sales. Those are the activities that drive your business and those are things your incentive programme should drive.

 

Incentive schemes and compensation schemes are different

Some people question why to spend any money on incentives when you already pay commission. The answer is that incentive programs should be designed to drive specific behaviours, in a specific time frame, that will impact overall results. They are not extensions of compensation systems. If your incentive scheme has similar goals and time frames to your base compensation system you need to ask yourself why. If the base compensation scheme isn't driving sales performance that's a compensation issue. Fix that first. Make sure you have a great compensation programme and then worry about your incentive activities.

 

Do a realistic assessment of the costs

The primary cost in any incentive is obviously the rewards themselves, but in addition to this will be the cost of designing the incentive programme, promoting and communicating it to those you are aiming it at, managing the set up of the scheme, as well as the implementation and delivery. So make sure all these costs are factored into the balance sheet. As for the actual rewards, choose rewards you know your team members might want, but don't have. Are you going to reward people individually, with vouchers, gifts or experiences, or as a team, e.g. with an incentive trip?

 

Ensure you're getting return on investment

You need to compare the overall costs against the potential gains (increase in revenue and profits) to determine your break-even point and the potential ROI of the proposed incentive. Once you know your objectives, targets and potential results you can then consider how much you are prepared to spend to achieve the results and whether the ROI is worth it.

 

So how much should you actually spend?

The figures will obviously change based on your objectives, your expected sales and profits for the period, and the profit margins you work to, but as a rough guide you should be looking to spend:

 

  • 1-5% of total sales revenue
  • 5-10% of incremental sales revenue
  • 12-24% of incremental profit
  • 3-7% of the average participant's annual income
    (pro-rata to the fraction of the year that the programme is running over)

 

Consider working with a third party provider

If you're struggling to get any perspective on how much your incentives are likely to cost your business, how to set targets and whether you're going to see ROI, then working with an experienced third party provider will help. Another pair of experienced eyes that can design, set-up, implement, communicate and deliver a sales incentive programme which is specifically prepared for your individual business, can deliver great results and reduce costs. You'll also get guidance on what to spend to see a good return.

 

Active are experts in delivering sales incentives. For more information or to get a quote, please contact us.

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Director
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