Starting a Sales Incentive Plan Research

  • Now, a ground-breaking study proves that incentive programs can boost performance by anywhere from 25 to 44 percent, but only if conducted in ways that address all issues related to performance and human motivation. The study found that most organizations lack the knowledge or will to create properly constructed programs that yield desired results.
  • The Incentive Federation determined in 2000 that North American organizations spent approximately $27 billion a year on merchandise and travel incentives. Cash incentives included, the total exceeds $115 billion. But surprisingly, few organizations apply formal return on investment processes or measures to their incentive program design.
  • The research found that incentive programs can increase interest in work. When programs are first offered for completing a task, a 15 percent increase in performance occurs. Asked to persist toward a goal, people increase their performance by 27 percent when motivated by incentive programs. When incentive programs are used to encourage “thinking smarter,” performance increases by 26 percent.
  • While it’s important to make sure the program is focused on your top performers, don’t forget about your mid level sales associates or channel partners. Oftentimes, the greatest percent of program success comes from mid lever performers.
  • It’s been proven time after time that merchandise rewards provide a higher “trophy value” compared to cash incentives. Gift cards from specific retailers are better than cash incentives but still don’t incent as well as merchandise. Make sure there are many merchandise choices that tie to the demographics of the winners and their families.
  • Make the incentive program simple and easy for any sales person to know what must be done to achieve program success and earn their incentive. If they suspect there are too many rules, stipulations, etc., they will become dis-engaged.
  • Time and rewards have a dysfunctional relationship. Awards in the future (and not the real far away kind of future) have considerably less value in people’s minds than awards in the very near future. You can award someone 1/10th of an annual award in 30 days and get a much bigger bang for your buck than the full (10 times) the award in 12 months.
  • Any program that pays based solely on results is basically a program that rewards those that have better luck. Over time – those programs get ignored by most participants.
  • Design your program to reward the activities you’ve identified as critical to success in the sales function for your company.
  • Alan Rigg, author of How to Beat the 80/20 Rule in Selling: Why Most Salespeople Don’t Perform and What to Do About It (Hats Off Books, 2004), says that underperforming sales incentives typically fail for one of three reasons:
    • The salespeople aren’t capable. If salespeople lack the key talents required for sales success, an incentive isn’t going to magically help them sell more effectively.
    • The contest is “stacked” in favor of certain team members. If certain people tend to win every prize that’s offered, it may be because these reps are more established and enjoy the benefit of servicing larger, more productive accounts.
    • The program is rewarding salespeople for sales they would be making anyway. A successful incentive will inspire salespeople to close sales above and beyond what they would have sold without the contest in place. Failed incentives often merely “double reward” salespeople who are glad to accept the additional money or prizes without putting forward extra effort.
  • However, there are six fatal sales compensation mistakes companies make:
  • Not realizing that sales compensation is part of a complex and interconnected system.
  • Thinking that sales compensation is only about money.
  • Not thinking about unintended consequences.
  • Paying transactionally, using absolute goals, and expecting to get growth.
  • Thinking that everything you do is legal.
  • Not taking it seriously and following through.
  • Your incentive plans must be aligned with and support your…
  • Business Objectives & Strategy
  • Organization Structure & Roles
  • Company Culture
  • Desired Position in the Labor Market
Check out our latest SlideShare on the 5 Things to Do Before Developing a Sales Incentive Plan
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