Building your sales incentive - The fundamental principles for success

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Craig Thomas
Director

Building your sales incentive - The fundamental principles for success

17th July 2017

When it comes to sales incentives there's no 'one size fits all' solution. The best incentives are those which are well thought out and targeted to the individual company's requirements. A poorly designed incentive is destined to fail, so it's well worth spending time getting the fundamentals right.

 

During the planning stages, you need to keep some key questions in mind to ensure your incentive is fit for purpose. Are you rewarding against units sold, revenue achieved, the number of appointments made or stretch targets? Perhaps it's a combination of these? How will you structure the targets, track performance and reward success?

  

We've broken down the initial considerations to address when planning your sales incentive. Get the basics right and you'll be rewarded with a thriving incentive programme.

 

Underlying mechanic

Most sales incentive programmes are designed with an open, closed or plateau format. Which of these would be most appropriate for your incentive?

 

1. Open-ended programmes

 

These enable participants to earn based on their own actions and have been shown to have the most effect on middle performers.

 

Open-ended programmes can be viewed negatively if they result in rewarding normal or average performance. This pitfall can be avoided by adding minimum qualification levels.

 

You can also ensure you get ROI by only paying out if you reach your revenue targets.

 

2. Closed (or tournament) programmes

 

These have a pre-determined number of winners, enabling you to fix your budget. A qualifying performance level can ensure you only pay out if you reach your revenue targets.

 

Closed programmes are sometimes viewed as discouraging to the bulk of participants. While top performers 'win again and again', others quickly opt out of the running. This can be avoided by basing the programme on percentage improvement targets. A middle performer achieving 150% growth may have secured less revenue than a top performer also achieving 150% growth but would be equally ranked.

 

3. Plateau programmes

 

These reward participants at specific intervals of performance. Plateau programmes can be based on either hitting a set revenue target or achieving percentage growth. For example, increasing levels of rewards are given when achieving 110%, 120%, 130% growth and so on.

 

4. Hybrid programmes

 

Many sales incentives combine both open and closed elements. This ensures top performers are recognised, at the same time as ensuring middle performers remain engaged.

 

How many winners?

A sales incentive programme should be structured to enable between 25% and 50% of participants to earn rewards. Making the proportion of eligible participants too general, or too restrictive, reduces motivation.1

 

How much to reward?

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

 

  • 1-5% of total sales revenue, or
  • 5-10% of incremental sales revenue, or
  • 12-24% of incremental profit, or
  • 3-7% of the average participant's annual income.

These guide figures are pro-rata to the fraction of the year that the programme is running over.

 

Four things to avoid
  1. Avoid rewarding for sales that would have happened anyway.
  2. Avoid schemes that award just the top performers.
  3. Avoid targets which are unrealistic and unobtainable.
  4. Avoid targets which are viewed as unfair.
    e.g. If there is a clear distinction between what can be achieved by teams in different geographic regions, make sure your programme takes this into account.

 

Choose a successful structure

The structure of your incentive is a deciding factor in its overall success. Will it be a league table format with rewards for highest performers? Will it be based on percentage improvement? Will a 'points for performance' programme work best for you? Take a look at our 12 successful sales incentive formats for ideas on incentive structures which could work for you.

 

Keep sight of your objectives

Whichever way you choose to build your sales incentive don't lose sight of your goals. It's all about growing your sales and maximising the performance of your team. Assess progress, make sure this focus remains and celebrate success when it's achieved.

 

Active create and manage sales incentives designed to help companies drive sales performance. Our online incentive platform provides an easy way to build your sales initiatives. To find out more about how this can work for you please drop us a line.

 

Tell me more

 

 

1Source: W. H. Murphy's 'Sales Contest effectiveness'

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