The power of incentive programs lies in their structure

Tim Houlihan

The best incentives have open budgets, meaning anyone who qualifies can win. Rules with open budgets tend to be more effective as reps can challenge themselves – as their business grows, so do the rewards. Open budgets tend to lead to improved morale due to the general ability for reps to feel like they have a chance at winning and that will lead to more sales.

It’s time to let go of the myth that a contest with only one big winner of a huge grand prize will get everyone in the sales force engaged. Forget it. The best results come from engaging the largest number of reps. That comes from rules that allow the largest number of reps to feel like they have a chance to win.

It should be noted that these recommendations are not just intended for U.S.-based sales forces. These principles have been applied around the world with high rates of effectiveness. While culture and social norms may require finessing the application, all of these can be adapted to work in a variety of corporate sales situations.

Here are a few incentive structures to consider for open budgets:

Do This Get That – Rewarding reps on every increment of units, sales dollars or gross margin dollars they write up during the incentive period is a great way to increase sales. The down side is that DTGT is much like commission, and if you’re already paying a commission on one of those factors, doubling up with an incentive won’t help. If your compensation plan rewards on units, focus the incentive on revenue or margin as long as those measures contribute to the business objectives you’re trying to accomplish.

Year-Over-Year Challenge – In seasonal businesses, which most are, asking reps to improve their results over the previous year during the same period is a great way to accomplish two key things:

  • It gets everyone engaged. There’s no reason to disqualify any rep who isn’t in good standing. Any and all improvements should be recognized as incremental, as long as it’s above your estimated results without the incentive.
  • It’s easy to measure. Changes in territories or assignments notwithstanding, reps who have been in their territories for longer than a year would welcome the chance to compete against themselves.

Consistency Bonus – Regular achievement over time is particularly difficult. Researchers acknowledge that organic growth is hard to come by, so rewarding reps for consistent, month-over-month growth can be a tremendous challenge. When used properly, consistency bonuses can yield tremendous results over short periods of time. Your consistency bonus should last no longer than two times a regular measurement period. In a call center, the entire measurement period might be three weeks. For an outside route-sales-driver, that might be three to six weeks. For an outside sales rep, it might be three months.

Qualifying Minimums – The great news about a minimum is that sales managers can load bigger rewards on incremental sales. The (BIG) bad news about a minimum qualifier is that it may exclude certain territories or reps. The well-designed qualifier will be high enough to support generous payouts and low enough to engage a large portion of the field sales force.

And here are a few ideas for fixed budget solutions…

The general risk with fixed budget designs is they limit winners, which creates a calculative mindset on the part of the reps. (“What’s my chance of winning?”) This makes it easier for reps to identify – at the beginning of the program – whether or not they are likely to qualify. The massive numbers of reps who won’t qualify simply don’t engage and they don’t produce incremental sales. Be careful how you use fixed budgets.

Counter to fixed budgets are the open budgets that support rules that cause reps to ask themselves, “What do I need to do to win?” Those rules, noted earlier, engage more of the sales force and are more likely to help sales managers achieve their numbers. 

Competitive Tiers – A good way to maximize the spend with a fixed budget is to break your sales force into tiers. By writing the rules to allow for winners in each tier, the mid-level and lower-level reps feel like they have a chance. And, the more similar the performance in each tier the better. Give them all something to fight for rather than using rules that make it obvious to the field who will win and who won’t.

Bracketed Play – Pitting reps against each other head to head is a great way to stimulate competition. Bracketed Play – just like the way sports brackets work – can generate excitement and incremental effort when (a) there are enough reps in similar performance bands to make a difference and (b) short selling cycles to keep everyone engaged.

Break the Bank – The classic rule that fixes a budget with a simple rule: the first ones to achieve the performance required to claim prizes are the winners. Once all the rewards are claimed, the program is over. This is very powerful for launching programs when activity is a key part of success.

Recognition vs. Incentives

It’s worth noting that giving your top two sales reps a trip to Hawaii is not an incentive. That’s recognition. The key distinction between the two is this: an incentive is the stimulus for action and the recognition is the acknowledgement of the achievement. In other words, the incentive is working to generate the effort while the recognition happens after the effort has been expended. While motivation can come from both, the way to maximize results from your sales team is to offer them generous rewards that are contingent on incremental productivity. That’s an incentive.

While reps will tell you they’re motivated to earn the trip to Hawaii, the motivation will be limited to the top five or six reps – the rest will feel (and literally be) disenfranchised. The luxurious trip issued once a year to the top one or two reps is recognition, not an incentive.

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.

Sales & Marketing Management is the leading authority for executives in the sales and marketing field.

Sales & Marketing Management is owned by Mach1 Business Media, LLC Minneapolis, MN.

Connect With Us

Sales & Marketing Management invites YOU to take an active role by joining the SMMConnect community.

Take advantage of your complimentary membership at SMMConnect.