There are two overarching rules for a sales incentive and reward plan—keep it simple and make sure you get it right from the start.
While there is potential complexity around program ownership, technology platforms and compensation formulas, over complicating a sales incentive plan reduces its chances of being embraced and achieving goals.
Concurrently, a well-designed plan will deliver three crucial business outcomes: healthier profits; a high-performance sales culture; and a stronger recruitment and retention record that satisfies all stakeholders. So pay attention to program anatomy:
1. Define Your Goals Before You Begin
Some fundamental issues need to be addressed before thinking about possible rewards for sales teams. First, you need to set clear business objectives with associates and senior management. Do you want higher unit sales, for example, or movement of high-margin products? This will be the basis from which you measure success later on.
Second, consider the levers at your disposal to lift sales such as cold calls to fresh contacts, follow-up calls to leads capture via inbound marketing initiatives, or the volume of upsell pitches to existing accounts.
Third, determine a strategy to measure results using either a metrics-based approach or through observation of behaviours, and make sure you create visible benchmarks and performance measures.
“About 70 per cent of your sales force should be consistently hitting targets that entitle them to bonuses or incentives over and above base salary.”
Fourth, determine who will take responsibility for the program internally, otherwise all your efforts create confusion and demotivate the very people you were trying to inspire.
With those four factors covered, you will have a compelling reason to proceed with, or rethink, a rewards plan.
2. Assign Responsibility for Rollout and Measurement
An incentive professional can ask questions to determine what you’re trying to accomplish and help establish a program structure and process. Primary responsibility for a sales incentive program should rest with the head of sales, with secondary (and highly collaborative) responsibility with the relevant senior HR executive. When engaging an external incentive program partner, the consulting professional can also provide options that will let the administrator be as involved or un-involved as they like.
Identifying what you want to measure on the front end is key to determining the success of a program. That sounds pretty elementary, but in many cases a company will decide that it wants to measure something mid-stream – if there is no mechanism in place to sort by that criteria or track it in some manner, they will not be able to quantify results.
The internal program owner should of course collaborate deeply with any external incentives provider around the commercial fundamentals of the program, as well as forward planning around integration with current procedures and processes. Once goals and rules are established, messaging and direction from management and sales directors must be consistent with program goals.
3. Select a Rewards Package
Be clear and understand before you begin that an incentive program — especially one that contains a large portion of non-cash rewards — is an entirely different thing to your team’s standard compensation. This fact should be top of mind for management, finance and HR, as well as for the sales team itself. A culture of recognition with gift rewards and experiences has the potential to motivate, keep interest levels high and foster a lasting sense of excitement and engagement. While a package combining gifts and experiences with surprise cash SPIFFs can be especially powerful because anticipated rewards plus unexpected recognition keep salespeople feeling regularly appreciated and acknowledged, as well as fairly compensated.
4. Set Achievable Targets But Inspire the Chase
Sales targets and KPIs should be effectively communicated to each team member and most of all they should actually be achievable, but tough enough to challenge and motivate sales teams, a sort of ‘Goldilocks plan’.
You don’t want to set the bar so high that everybody knows the target is unachievable, but you don’t want them to be too easy either. There’s something powerful in sales psychology that says when a rep has to be resourceful and on top of their game to win, they will be much better at intrinsically motivating themselves, and will lift everybody’s game in the pursuit of their target. That’s also the perfect environment for salespeople to extend themselves and innovate.
Up to about 70 per cent of your sales force should be consistently hitting targets that entitle them to bonuses or incentives over and above base salary. The other 30 per cent should still achieve target and get a reward, but they probably won’t do it as consistently.
5. Establish Crystal Clear Communication
A program or portal is all but meaningless without strong and frequent communication about the nature of the program and its goals. Three phases are required:
1) Pre-launch ‘teasers’ via email, Slack groups, or other internal communications, even on posters around the sales floor;
2) A well-timed launch that may involve a party, off-site event or even road show if you have sales teams in multiple locations, backed up by something physical such as a handbook to educate and remind your team about the rewards on offer; and
3) In-program updates via the portal, emails, Slack, SMS and crucially via face-to-face dialogue – this is an important part of any sales manager’s coaching conversation, and is especially critical in the lead up to performance reviews. Leveraging existing communication channels where possible is important to avoid communication saturation, for example if you already have a great Slack community in your sales organisation, then keep using it, just create a new channel specific to the incentives discussion.
6. Define and Agree Redemption Policies
Timely delivery of the reward is really important. After a salesperson has done a great job and exceeded all of her targets, the last thing she wants is to wait weeks for the reward to appear. You don’t need to deliver it the very next day, but you also shouldn’t let it linger and leave her wondering when it will arrive.
The more immediate, the better — rewarding desirable behaviour quickly is one of the best ways to inspire its repetition. For physical rewards, this means you should be entirely on top of any logistics, warehousing, delivery and postage constraints, and have a clear timeline for how the fulfilment process will be executed. This allows you to factor in complexity and time lags while you’re still planning your incentives program, so when it comes time to communicate redemption policies, you’ll be giving them an accurate timeline rather than wishful thinking.
The trend now is to use online program platforms and fulfilment which reduces the administrative costs traditionally incurred with print catalogues. Most name-brand merchandise can be drop-shipped directly to the recipient from either the manufacturer, or the fulfiller that is providing the program redemption. The award selection should be appropriate to your audience demographic and to the program budget.
7. Define Your Formula
Setting payout guidelines is vital. Most companies adopt a 70:30 ratio of base salary and incentive compensation, or thereabouts. You can then leverage the amount of upside for reps who beat their targets. A two-times or three-times target incentive is typical. The former means, for example, that the 30 per cent incentive is doubled for excellent performance for a total payout of 130 per cent. The latter triples the 30 per cent incentive for a total payout of 160 per cent.
And because you’ve already followed the rule of setting clear targets and communicating the nuts and bolts of the incentive structure, you won’t be ignoring governance policies. After all, a clearly communicated policy helps resolve questions and conflict over sales compensation, and it’s the most logical approach to avoiding confusion.
8. Use a Practical Portal
To make sure your incentive program is setup, coordinated, updated and communicated to your sales team and management, you need a central online environment accessible to all stakeholders. Most incentive program suppliers include portals in their service, but if you’re creating your own internal program you’ll need to build your own platform or subscribe to one off the shelf.
An online incentives portal creates a consistent and easily accessible place for salespeople to view details of an incentive program, regardless of geographic location. The portal typically includes elements such as the rules of engagement, rewards options, tracking to performance and revenue goals, a dashboard, and of course information on how and when salespeople can access their rewards.
A solution that lets you view progress 24/7 is optimal. In some cases, the participant can register themselves and even register their sales or other key performance indicator. Many online platforms now offer real-time inventory, automatic order acknowledgements and shipping notices, which drastically reduces time in administrating the program.
9. Connect to the Front Line
Once your program has been live for a few weeks, it’s time to start reviewing and analysing the data and preparing to feed back to your frontline sales managers and then to the sales team itself. The data will give you another lens on sales performance, beyond your CRM, and managers can start talking to their teams about what rewards are achievable on the horizon, which becomes a big part of the inspiration and encouragement discussion.
Don’t forget that while sales incentives plans should be simple, they all require constant attention. It’s not something you can just roll out and put on the shelf and come back to next year and say ‘how did we do?’. From a leadership and management perspective, keep the conversation alive and make sure program owners are championing the cause for the long haul.