There is a lot that goes into a sales incentive scheme. They are often one of the larger costs in the P&L for businesses with a decent-sized sales team. Approaching introducing or changing one without approaching it in the right way could lead to disaster. Below are 7 tips that if followed could lead to better results.
Note: This article is written to provide you with general information, but should not be taken as advice and especially not financial or legal advice.
- Determine if you really need one
There are sales roles and then there are sales roles. Many roles are more like customer service roles, which happen to be attached to a revenue target. The less self-aware people who are in these roles celebrate success when they are up in sales, but blame the market when they are down in sales. When the revenue generated is due to several variables that are outside of the control of the sales person, when the role is largely qualitative in nature, or complex in that there are a number of different outcomes you’re wanting, it might not be suited to a commission scheme. The other thing is if you don’t currently have an incentive scheme, introducing one might not solve the problem you are facing that resulted in you considering one. I find that business leaders are often in love with sales incentive schemes because their job is governed by the ultimate incentive scheme that is measured by the profits the company generates. But if you don’t really need one, why have the headache?
- Be clear on your sales strategy
It is not uncommon for a sales incentive scheme to be misaligned with the company’s sales strategy. Why is that? Well, first of all, many companies don’t actually have a sales strategy (even though they think they do). Growing by 20% this financial year is not a strategy, it’s an objective or goal. Strategy is about choices and most importantly includes what you are not going to do and who you are not going to service.
Once you have a clear sales strategy, then your incentive scheme should align with this strategy, emphasising the direction you are wanting to head. For example, your sales strategy might be focused on selling to small-medium businesses that fit a particular profile. You might also then set up your operations to deliver exceptional value to this market. However, it is a temptation of sales people who are used to dealing in large corporations and/or have contacts in that space to try and snag that big fish to smash their target. The trouble is, this one-time deal is not supported by your operations, may not fit within your pricing strategy and will eat up the time of your sales person who is, therefore, not focused on your target market.
It’s important to note that the above situation shouldn’t necessitate that your incentive scheme deals with this problem. It may be that you don’t service these businesses at all and so there is no need to adjust your scheme. It could be that your hiring process, training, management practise and KPIs help to drive the right approach. So your incentive scheme may help support your strategy, but it should definitely not detract from it.
Whilst you might want to align your incentive scheme to your strategy, there is a danger that you become over-complicated and, therefore, the next tip is essential…
There are a number of components to decide on with an incentive scheme that instantly makes it more complicated:
- Do you need a threshold?
- Should it be uncapped?
- How many measures?
- Is it quarterly, monthly or a year-to-date scheme?
- Based on dollars or units?
- Profit or revenue?
- When is a sale, a sale?
- Are there KPI gate openers or purely financial?
- What impact do behaviours have if at all (e.g. bad behaviour)?
- Does new from new count differently to new from existing?
- What about product mix?
- Are you months/quarters cumulative or separate incentive periods?
These are all valid and important questions, yet can make things more complicated. Let alone all the specific things that go on in your business that might be relevant also.
Here’s a tip, let yourself get too complicated – because you will. Then work to scale it back and make the tough call to remove items that aren’t absolutely essential. Explain it on the back of an envelope to someone who is not part of the sales team and see if they get it.
- Engage your team early
You don’t want to create unrest too early, but it is a mistake to simply present the final version to the sales team. Get their views on the existing scheme, what works and what doesn’t. Telegraph the direction you want to head with the new scheme, including how this relates to your strategy.
Elicit the objections and concerns out early from your most vocal sales people. They will be the ones that others will look to as a gauge for what the new scheme is like. Involve the people who have more influence and/or are good with numbers. The others will look to them as a measuring stick and if they are advocates, the others have a better chance of being so as well.
You still need to meet with each individual though, as everyone’s own situation will be different. You also should review what may be written in their employment contract and what impact may exist in their financial situation overall. It doesn’t mean you can’t get to where you need to, but consultation is better than decreeing a change of this nature.
Avoid making promises too early such as that no one will be worse off if you are changing your incentive scheme. If you are changing it, it is possible that people will be worse off if they are not delivering to the new scheme as it is designed.
- Ensure you can get the data easily
There is nothing more frustrating for sales people than to not know their results, to not know what their incentive payments are and to be paid later than expected. A lot of this stems from the inability to get data from the ERP or whatever system you have. Get this data and reports before launching your new scheme.
Provide the data to the sales team in an easy to read format. Discuss the report with them and check in to see if they have looked at it and understand it. Many sales people don’t love looking at spreadsheets and so when you ask if they have looked at it, you might get a “yes” but it might simply mean “I know I am meant to”.
Give them the tools to be able to calculate what they will be paid. Many incentive schemes are not really understood by sales people and therefore dilute the impact they can have.
- Document the rules
People will most likely buy into rules that are fair and documented at the start of the scheme. However, if rules are not documented and then you try to determine what should happen when the event happens, people may not view the matter in their best interests (whether employer or employee). Most people don’t think too much about what happens when they leave for instance unless they are thinking about leaving. But once that even happens, if you don’t have it documented and communicated then each party's assumptions can make things messy.
There are a number of different scenarios and details you need to consider, including:
- What happens if people go on leave for a month?
- What happens when they resign?
- What happens if they are terminated due to misconduct?
- What happens if they commit misconduct but are not terminated?
- What happens if a sale goes through but gets cancelled after you have counted it?
- Do your numbers include or exclude superannuation?
- Don’t expect your incentive scheme to replace other important levers
When people start talking about the incentive scheme, they end up concluding it’s going to fix everything…
…we need to sell more of that product, let’s change the scheme!
…we need to move on underperformers, let’s change the scheme!
…we need to lift overall sales, let’s change the scheme!
The performance of sales people are driven mostly by the following:
- Your hiring practices
- Your training and assessment practices (training is not giving a presentation on what you want every year/quarter)
- How clear your sales strategy, how well it is communicated, how aligned people are
- How effective your leaders and managers are at coaching your sales team
- Your leading indicators and how well they are managed to
- Your overall offering to the market in terms of product/service, your reputation, your customer service etc.
Your sales incentive scheme, therefore, achieves only two aims if it is successful:
- If helps to retain (and sometimes attract) high performers
- It helps to drive a certain focus
The reason why I mention it sometimes attracts high performers is because no matter how good you think your incentive scheme is, there is an inherent risk for a new joiner when deciding to come on board. They have no idea what your incentive scheme is really like, unless they know someone who already works there or it is an industry norm. Even when it is an industry norm, there are still many other factors, such as the type and number of leads etc. that plays a big part.
Sales incentive schemes can be a great way to align reward to your sales strategy and to retain high performers. Many incentive schemes need to be changed, however, if you don't approach it in the right way you may cause more harm than good. By using some of the techniques listed above, hopefully, you have a better chance of achieving your desired outcomes.