Sunday, February 23, 2014

Sales Incentive Scheme Practices

Devising Incentive Schemes for Salesforce

Business to Business companies rely heavily on salesperson performance for commercial success and therefore motivation of salesperson is essential for success.

The KISS Theory: Salespeople by nature are like electricity. They naturally take the path of least resistance. That's not to say they are lazy or untoward. In fact, it's just the opposite.

A poor motivated Salesforce and highly motivated Salesforce can make a huge difference to overall sales performance. The most common perspective among Salesperson is that they want to earn what they deserve and they respond favourably to incentive schemes.

Incentive Schemes can also drive the overall strategy of company however devising a incentive scheme is a complex process. It involves investment, product segments, geographies, legal environments, market potential, no. of salesperson, culture considerations.

A.   Common Flaws in Sales Incentive Schemes

1.   Incentive Schemes are not communicated in a right manner to sales team especially Pay out pattern.

2.   Determining Sales incentives only on Market Potential & Historical Data and ignoring seasonal challenges, operational and commercial capabilities of organisation.

3.   Incentives are not in aligned with overall strategy of company. For instance to drive a specific product or service.

4.   Setting threshold for incentive scheme at a certain level( High or Low), which doesn’t drive Salesforce motivation

5.   Failure to include all the sales metrics to calculate incentives. E.g.

Ø  Number of sales calls

Ø  Number of new Customer on-boarded

Ø  Number of contractual wins

Ø  Customer Lifetime Value

Ø  Retention Rate of Customers

Ø  Health of Sales Pipeline

Ø  Percentage of Large Customers, Small Customers

Ø  Product Portfolio Balance

Ø  Review of average profit margins in sales deals. Review discounts in deals

Ø  Pay-out Patterns shouldn’t be disclosed to Customers. Customers can employ delay tactics to grab maximum discounts.

B.   Hygiene Factors of a Good Incentive Scheme

1.   Define Corporate Objectives- There should be no disconnect between management intentions and sales outcomes

2.   A successful Incentive Scheme should include following:-

Ø  Sales Volume

Ø  Sales Volume Growth

Ø  Revenue Growth

Ø  Market Share Growth

Ø  Contribution Margin


Ø  Discounting Levels

Ø  Price Performance

Ø  Specific Customer Segmentation

3.   Incentives should be attractive enough to achieve sales force behaviour

4.   Variable component, when implemented should be on higher side say a minimum of 20%

5.   Sales team should be involved in setting incentive schemes. The decision should be intrinsic decision

6.       Marketing departments too will have a view on what is realistic and should be invited to participate.

7.   Sales Incentives Scheme should be communicated to Sales team effectively. Buy-in of Sales force is as important as sales force incentive schemes to ensure right commitment

8.   Visibility of sales incentives and monitoring of the same is very important to keep momentum going

9.   Evaluate and assessment the impact of Sales incentives on corporate performance is very important. Here Cost-benefit analysis is essential tool to make right adjustment to schemes.
Sales Incentives Matrix

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