Aren’t all rules meant to be broken? Throughout 2020, we learned not just to break the rules but to throw all the employee rulebook and incentive compensation plans out the window and start from scratch. Your overall wellness, your team’s success, and your business profits depended on you being agile and adaptable. You have a lot to celebrate. How do you keep your team celebrating right along with you? The secret lies in establishing a successful sales incentive program and compensation structure.
The purpose of a sales incentive program is to engage, motivate and increase sales for your employees and partners. You want a sales incentive program that is easy to operate and maintain, user friendly for your team, and gives you the measurement tools you need to show ROI. It sounds simple, but it’s harder to do. When designed well, your sales incentive program should build a high-performing team that positively impacts your bottom line. If designed poorly, you run the risk of alienating your team and wasting valuable time, money, and resources.
There’s no better time than now to start designing your sales incentive or variable compensation program. The world of work is changing fast, and as we emerge from the pandemic, our employees want more – more work/life harmony, more flexibility, more recognition from their leaders. Rewarding your team is easy with a sales incentive program.
So how do you design a sales incentive program? It starts by designing with the end in mind. It’s easy to jump to the fun parts of the program, like what rewards you will give your top performers. But first, you need to start with rules.
To develop your rules, consider the following questions:
- What are your objectives?
- Who can impact success?
- What are the budget parameters?
- How will success be measured?
Let’s dig into each of these questions.
1. What are your objectives?
And no, “depends on who you ask” does not work. All stakeholders need to be involved in the objectives to make sure they are met. What objectives and goals do we want to impact? What specific behaviors do we need to modify?
Objectives can include increases in units, revenues, net bottom line, steps to the sale, or other factors. To build a strong foundation for a successful incentive program, objectives should be:
- Measurable; performance can be tracked via existing systems/processes
- Realistic and attainable; challenging yet achievable for at least 70% of the target audience
- Based on activities participants can control
- In alignment with corporate objectives and vision
Effective sales team incentives limit the number of objectives featured in a program. One to three objectives fall within the sweet spot. Too many may cause participants to lose focus and decrease the impact of the program.
A focus on sales incentive design translates company objectives into individual goals. Participants want to make a personal commitment to these goals and are, thereby, more likely to achieve them. This leads to increased employee motivation.
2. Who can impact success?
This should be obvious, but hear us out. While everyone can impact your sales incentive program’s success, you should identify the specific members of your sales team, or those of your channel partners or their employees, who can help achieve your high-level goals. They need to be your champions. Ideally, everyone who can influence objective achievement should be included in your sales incentive program’s design. From managers to sales support and service teams, all roles should be represented. In many organizations, service teams can provide valuable leads that could result in a new sale or an upgrade in services.
Members of the sales support team often have direct customer contact and can affect sales. Channel partners and their sales teams also play a role in goal achievement for organizations with an indirect sales process. One key to successful channel incentives is to drive the program beyond the dealer/distributorship principle down to the actual sales reps.
Another key consideration in identifying the participant audience is determining whether the program is based on individual or team performance. Featured objectives typically determine this. Some goals cannot be traced to an individual level and, therefore, require a team reward. An example might be increasing customer service. This is an objective that is typically tracked and measured at the team level. These goals can and should be included in the program but ideally would be partnered with objectives that can be measured at the individual level.
3. What are the budget parameters?
If you don’t have a budget, I am sure we could figure out what to do with that extra money burning a hole in your pocket. All jokes aside, the following elements need to be considered:
- Type of budget
- Projected results
- Participants’ earnings potential
- Length of program
Program structures can be based on either open or closed budgets. Closed budget structures are designed not to exceed a specified amount, such as a “Scratch & Win” or another gamification element where a pre-determined number of winners and reward spend is known upfront.
In comparison, open budget structures are variable. The program spend is based on the performance delivered. These structures are typically known as “pay for performance” programs in that they generally are designed so that clients pay only for incremental sales and/or over-objective performance. If designed correctly, these types of programs can pay for themselves.
Once you have determined your budget strategy (open vs. closed), the next step is to determine the budget’s value. The two elements to consider are projected results and potential earnings. Determining the projected results for the program will help you uncover the overall value of your total budget spends. Understanding the value of the reward that will motivate your program audience will help you determine the potential earnings value.
The last piece of the budget puzzle is program duration. Studies show that longer-term programs tend to drive higher levels of motivation and performance. However, in this fast-paced world, organizations need to have the flexibility to address and adapt to marketplace changes. Ideally, a program would feature both long-term and short-term objectives. Longer-term components should address critical business objectives that are key to organizational success. Shorter-term programs could be used to address seasonal or immediate market needs.
4. How will success be measured?
Rinse, test, and repeat. Measurement is ongoing for incentive and recognition program management. Successful programs embrace the program and member-level analytics to understand performance drivers and influence behavior. The way you measure success should be established from the very beginning.
This program will be a success if…
- We reach __% of our overall sales goal
- We sell __incremental units/market share
- _% of our channel partners participate
- _% of eligible participants actively participate and earn
- Understand what behaviors drive success
- Impact on customer service or loyalty
- Strengthen relationships with your best performers
Establishing the success parameters upfront will guide you to identify the tracking mechanisms needed to measure the program’s greatness. In some cases, where reports and systems information are not available, additional tracking tools may be required. For example, if channel partners are involved, a claims process is often a part of the tracking/measurement tool.
It is also important to develop a measurement approach that captures data on KPIs throughout the program and make recommendations to improve campaign effectiveness. Any necessary changes—to the rules, communications, technology, or rewards—can be made to drive an even greater return on investment.
There you have it. Strategic sales incentive design begins with the end in mind. There’s no better time than now to start designing your sales incentive program. Don’t take the do-it-yourself approach to sales team incentives. Instead, turn to those with years of experience designing a sales incentive program. One10 has decades of experience working with companies on their program design. Contact us for more info.