Maximizing your incentive spend

Author: 
TIM HOULIHAN

This month, Lift takes a Q&A approach to reflect some recent, real-world conversations about incentive budgets.

The foremost budget issue is this: incentives are self-funding. Incentives are not an expense. If they look like an expense, sharpen your pencil, measure them properly, and build a compelling ROI.

Common questions

Q:  Should the incentive budget (and rules) focus on rewarding top performers only?

A:  No. Your middle performers contribute more to growth and are ready to win. If you want to increase sales overall, engage the middle. Recognizing the top performers is good, but it’s not an incentive.

Q:  Is it better to run the incentive when sales are traditionally (seasonally) low?

A:  No. Organic seasonality is something you don’t want to fight, unless you have a new product to counteract the seasonality of other products. Better to run incentives when there is more opportunity.

Q:  Should I focus on one or two winners with something highly promotional like a big trip or a car?

A1: No. More winners will get you a better overall lift from your program, plus more engagement and more motivation from your team. A single winner reduces competition to a small number of reps at the top.

A2: Yes. You can use a big reward for the top performer if you already have rewards for the masses.

Q:  I’ve got some poor-performing products — is it a good idea to focus an incentive on the products that aren’t moving?

A1: No. There are probably good reasons the market isn’t responding to those products. Don’t try to push the boulder up the hill.

A2: Yes, if all you want to do is move those poor-performing products...but why reward people for moving bad stuff?

Q:  My boss requires a fixed budget for all contests —  is it OK to use a fixed budget?

A1: No, in general. If you cap the number of winners, you reduce the number of people in the sales organization who see themselves as potential winners. That reduces motivation and, hence, reduces results.

A2: Yes. If you’re kick-starting a program by adding an extra layer (and extra budget) and everyone has a shot at earning. Break the Bank (defined with other rules online) is effective for short-term, fixed budget situations.

Q:  Should I use incentives when launching new products?

A:  Yes. Get the reps familiar with the new product first and don’t base the rewards on meeting minimum sales requirements. It’s best with new products to use the “Do This Get That” model (defined online).

Q:  My boss won’t let me increase my budget. How thinly can I spread it to maximize my winners?

A:  Rewards should be at least 2 percent of income for the program period. For example, a contest running for three months for sales reps earning about $70,000 per year ($5,833/month gross income), the minimum payout should be $350 ($5,833 x 2% x 3 months). If the task is particularly difficult, rewards should be 5 to 10 percent of income. Note: Not everyone will earn.

Q:  How do I determine what percentage will win?

A:  The answer is complex because it involves rules, culture, market trends, training, tenure, communication and history with incentives. It’s best to seek the advice of a professional incentive designer for critical initiatives.

The most important takeaway is to build your budget based on investment, not expense.

Tim Houlihan is Chief Behavioral Strategist at BehaviorAlchemy, which blends the best of experience, research and the challenges of the real world to make investments in behavior more effective.

Online Bonus: The power of incentives lies, in great part, on the structure of your program. For a closer look at options with open and closed budgets, visit here.