Salespeople: Incentive Overview
A guide to developing effective incentive and recognition programs for salespeople.
Sales recognition and incentive programs can produce among the most measurable results of any marketing campaign. Various studies have shown that sales incentive programs can increase performance from 10 to 44 percent. And outcomes often can be measured precisely against the behaviors generated and sales results obtained. That said, many organizations take a rather cavalier approach to incentive and recognition programs for salespeople – with as few as 20 percent taking advantage of formal, return-on-investment analyses, according to various surveys of incentive users conducted over the past five years. Many programs often amount to simplistic “do this and get that” programs with relatively little strategic or scientific thought applied.
Sales incentive programs warrant the additional attention because they rank among the very few marketing programs whose costs can be directly related to outcomes. In a properly structured, “self-liquidating” program, costs will be based in part on results: If sales fail to go up as much as forecast, the costs go down.
When it comes to motivating and engaging salespeople, two basic motivation strategies come into play. If the primary aim is salesperson retention and morale, then the strategy probably calls for an honor and recognition approach. If the primary goal is to promote a specific selling activity or multiple activities that (ultimately) lead to increased sales, the approach probably calls for an incentive program. Of course, many programs attempt to accomplish both goals.
Whatever the primary goal, your organization should consider these key rules of thumb:
- The top 20 percent of the sales team is naturally motivated and engaged and will outperform their colleagues even without incentive programs.
- The performance of the middle 60 percent of the sales team can vary dramatically based on the level of motivation, engagement, and capability the organization manages to foster through training and experience.
- The bottom 20 percent of your performers are either new and on their way up or, in one way or another, on their way out.
While honor and recognition programs may surely target the top 20 percent for retention purposes, chances are an incentive program won’t have a significant impact on their performance. Top performers often possess a unique self-motivating capacity.
An incentive program stands the best chance of affecting performance if it takes into account both the top performers and the middle 60 percent, whose performance can vary considerably and make or break your effort.
Return on Investment
Sales incentive and recognition programs deliver results whey they help draw attention to organizational values and drive the behaviors that contribute to results. Sales incentive programs traditionally are used to:
- Increase or maintain sales
- Improve retention and image
- Recognize performance
- Build employee loyalty/trust
- Start or maintain relationships
- Build customer loyalty/trust
- Improve customer service
- Foster teamwork
- Create new markets.
Approximately $9 billion dollars is spent annually on non-cash awards for incentive programs targeting salespeople, according to estimates provided by the Incentive Federation in its last industry-wide study, while as much as $100 billion is spent on cash incentives.
Do incentive programs help organizations achieve their sales goals? Surprisingly little research has been conducted on sales incentive programs in comparison with the billions of dollars spent each year on them, but the available research clearly shows that properly structured incentive programs can have a significant, a long-lasting impact on results.
According the An Exploratory Study of Incentive Programs, conducted by Srinath Gopalakrishna (Forum for People Performance Management and Measurement, Department of Integrated Marketing Communications, Medill School, Northwestern University, 2005), incentive programs are shown to generate a 10 percent increase in sales in a controlled longitudinal study. However, the study found that while these programs can have a carry-over effect in that salespeople continue to generate incremental gains based on the skills developed in the program, programs can also lead to “sand-bagging” behavior, in which some salespeople steer clients to make purchases during a qualifying period.
Incentives, Rewards, and Workplace Motivation, by Harold D. Stolovitch, Richard E. Clark, and Steven J. Condly (Society of Incentive and Travel Executives Research Foundation, 2002), found that incentive programs can improve performance in teams by up to 44 percent, and in individuals by 25 percent. However, the study suggests the need to carefully address all of the factors that affect results, including buy-in, capability (ability for people to do the job), emotion, and feedback. The best programs address all of the factors that affect motivation, not simply awards and recognition.
The most common criteria for evaluating incentive programs include:
- Total units or dollars sold
- Profits on incremental sales
- Increased market share
- Cost as % of incremental sales
- Percent reaching goal or quota.
Over the last several years, sales and marketing departments increasingly have been subjected to the same sort of measurement criteria long prevalent in manufacturing and logistics. Management increasingly wants to see clearer return-on-investment measures for sales and marketing programs. In fact, 75% of all program sponsors reported placing a greater emphasis on ROI as an evaluation criterion, according to the most recent Incentive Federation study of “Motivation and Incentive Applications". This trend is likely to continue.
Despite the ability of sales incentive program to provide tangible results, surveys of planners over the years suggest that many companies use non-cash incentive programs for cultural reasons; i.e., to boost morale and teamwork. In other words, organizations that believe in these programs have faith that they work. In so doing, they may be missing one of the most valuable benefits of a properly structured campaign: The ability to target a specific audience to increase the frequency and quality of desired behaviors – and to measure the results.
When to Use Sales Incentive Programs
Under optimal conditions, motivation campaigns are implemented for their ability to:
- Identify and target the audience best able to deliver the sales or related performance goals.
- Link a campaign to measurable results for the business, such as increased sales.
- Structure costs so they vary based on outcome.
Sales incentive programs come to mind as a solution when any of these conditions occur:
- The organization has a new goal to hit or product to launch.
- The sales team is not consistently displaying the behaviors most consistent with greater sales; i.e., more calls, sufficient knowledge, adequate motivation, etc.
- The desired performance or types of behaviors can be quantified (how much, how often, how many, etc.).
- The goal is challenging yet achievable.
- The organization requires that all other performance goals continue to be achieved at or above current levels.
- The organization needs to retain its top performers.