Running an Effective Sales Incentive Program

Last Updated Jun 19, 2007 7:27 PM EDT

Incentive programs are a fundamental element of sales management and can serve many useful purposes. Incentive campaigns can provide general motivation of the sales force, or they can be employed to improve performance in specific areas. Incentives can also be used to achieve a new direction, or to encourage sales employees to acquire new skills. The appropriate type and structure of an incentive program is dictated by your objectives objectives and the timeline involved, as well as other factors.

What You Need to KnowDoes a sales force really need incentive programs?

General improvements in the performance of a sales force can be achieved through training, encouragement, and higher levels of support. However, incentive programs can be effectively leveraged to improve performance in specific areas. Targeted programs are therefore the most effective form of incentive.

Do incentive programs typically reward the entire sales force or just the top performers?

This depends on the objectives of the program. If the objective is to encourage the highest levels of achievement, prizes should be restricted to top performers. However, this format can sometimes act as a disincentive to some members of the sales force. It may also be problematic if some sales representatives appear to have unfair advantages, such as larger territories or more customers in growth-market sectors. Be attentive to these issues to avoid discouraging a significant portion of the sales force. Incentive programs designed to raise overall standards should reward all members of the sales force who meet their own personal targets, although top-performer prizes can be added to increase motivation.

Is it good practice to encourage sales representatives to increase business at any cost?

A poorly designed incentive program that focuses only on new business will cause problems. New customers who may not be creditworthy, or who present low long-term growth potential, can distract sales reps from their existing customers. A good incentive program must anticipate and discourage this potential side effect, valuing time spent improving existing customer relationships, as well as new business.

What to DoEnhance Sales Force Performance

Incentive programs are an integral part of the sales culture and an effective management tool for enhancing sales performance. They can be structured to motivate the sales force to improve overall sales, or they can be employed to boost performance in specific areas, such as repeat sales, new accounts, or the acquisition of new skills. Any company can benefit from enhanced sales performance—determine how an incentive program can best accomplish this for your organization.

Define Clear Program Objectives

As with any marketing or sales program, it is important to clearly define objectives at the outset. Why are you running the program and what measurable objectives do you hope to accomplish? A common objective is to effect an increase in overall volume or sales of specific products. Other possible objectives may include improved performance in sales-related areas such as customer service, or participation in training programs and other business programs. When designing an incentive program, define clear objectives and identify the metrics which will gauge the program's success.

Increase Customer Service Standards

Both sales and customer loyalty can be increased by providing high standards of customer care. When launching an incentive program to increase those standards, the program must be carefully structured to improve performance in all the areas critical to achieving that objective. In addition to company-specific service metrics, a program of this type might also encompass:

  • participation in a relevant training program;
  • number of new accounts opened;
  • percentage of repeat business achieved;
  • number of major contracts signed;
  • sales of products identified for special promotion.
Achieve Long-Term Goals

Traditionally, sales incentives have been geared to moving inventory quickly for tactical reasons. Used in this manner, incentive programs are a useful sales management technique. However, sales incentive programs can also be used very strategically to achieve more long-term benefit. Sales representatives should be assessed on a series of long- and short-term objectives that help them to build a specific type of business. This approach can also be used to increase sales of a particular product line. The key is to structure this type of incentive program to encourage continuous effort over a period of time, as opposed to focusing on short-term objectives. The following case study details how such an incentive program might be structured.

Case Study: Using Incentive Programs to Change Direction

A European vehicle paint manufacturer largely depended upon a few large customers. With the objective of building a broader customer base, the company developed a year-long incentive program for its sales team. The organization wanted to encourage the sales team to win and retain business from independent garages, as well as franchised car dealers. Under the program, points were awarded to sales reps for opening new accounts with the independents, and a structured bonus system was applied to percentage increases in business with these new accounts. In addition, the sales representatives earned points for increasing business with existing accounts, but these contributed less to the individuals' overall score.

The manufacturer also wanted to encourage the sales team to acquire new business development skills, to facilitate closer working relationships with customers at senior management level. To achieve this campaign objective, additional points were offered for participation in business skills training courses and for advancing to higher training levels. Finally, the incentive program awarded points for participation in a number of business development programs designed to improve the quality of service to customers. In this way, the incentive program succeeded in encouraging overall business development, which yielded many long-term pay offs, rather than merely motivating short-term increases in tactical sales.

Manage Programs Effectively

Sales incentive programs can be an effective form of motivation, but they must be managed carefully to provide long-term benefits. The wrong structure, inadequate prizes, confusing rules, or poor organization can offset all the effort and potential gains.

Structure the Program Effectively

Incentives can be awarded to the biggest earners, or to the best performers against target. The format depends upon the objectives of the campaign. Bear in mind that programs which reward only top sales representatives can sometimes function as a disincentive to others. Programs that reward performance against a specific target offer greater opportunity to win, and thus typically motivate a higher proportion of the sales force. Consider a multilevel program that offers many lower-value prizes, with a select number of higher-value prizes for top performers. This format can act as a strong motivator for all participants.

Choose Motivating Incentives

It is important to choose incentives, or prizes, which are appropriately motivating to the program participants. Achievable prizes can motivate large numbers. The prize structure should offer real variety, and meet many different tastes and interests. Quality prizes will reflect the high standards set by a program. Popular prizes may have wide appeal, but may lack sufficient motivational value.

Clearly Define Rules

Regardless of the chosen format, the scope of the promotion and the offer must be clearly defined. Unambiguously explain what is required to win, and how prizes are collected or rewarded. Clearly delineate the incentive program timeframe, naming both the starting and the closing dates. Specify the availability of the offer—for example, some programs may be restricted to sales reps in selected geographical regions or market sectors. Set the specific requirements for each participant, and clearly state the tax implications of any prize.

Maintain Interest and Momentum

To energize participants in an incentive campaign and to maintain interest throughout the program, offer different levels of competition and prizes. Consider a program with depth as well as breadth. For example, award regular monthly prizes for best sales performance, with quarterly regional awards for best overall performance. Advance regional winners to a national incentive program that rewards the highest achievers with even more attractive prizes.

If you are operating a long-term incentive program, or one that involves a number of stages, consider these techniques for establishing and maintaining momentum:

  • send out teaser incentives or gifts during the promotion to maintain interest;
  • keep participants informed of their progress;
  • encourage struggling participants with secondary offers;
  • publish results and distribute them to all participants.
Create a High-Profile Award Ceremony

A national conference or other high-profile event can be used to recognize high achievement; making individual presentations to incentive program winners at a national conference confers special status. Leveraging the national conference as the occasion for the award ceremony also raises the profile of the incentive program among the entire sales force, encouraging higher levels of participation and effort. Inviting executives to present the awards creates an even greater impact.

When organizing a high profile sales event, consider using a professional event management company or incentive specialist. Appoint an event team with specific responsibilities for the event itself. If possible, obtain feedback from participants on attitudes to the venue and the event.

What to AvoidYou Overemphasize Incentive Programs

While an incentive program may result in a short-term increase in sales, this success could disguise underlying problems in sales force performance. When problems exist, alternative sales management tactics—such as additional training, better regional management, different account allocation, or greater marketing support—may provide better results that persist over the long term. An incentive program should not be viewed as a universal fix; it should be integrated with other aspects of sales force management to maximize sales and profitability over the long term.

You Focus Too Much on Short-Term Objectives

Traditionally, sales incentives are employed to attain short-term gains in sales volume. However, with the right structure, incentive programs can also be used to achieve long-term business objectives as well. For example, if an organization wants to move into new markets, the sales force needs to acquire new product and market knowledge. Don't overlook the use of an incentive program to encourage and recognize achievement in those areas.

You Don't Manage the Program Properly

An incentive program has to be carefully managed. Clear objectives and program rules, attractive prizes, a progressive structure, and sound administration will contribute to high levels of motivation and achievement.

Where to Learn MoreBook:

Miller, William Skip. Proactive Sales Management: How to Lead, Motivate, and Stay Ahead of the Game. New York: AMACOM, 2001.

Web Sites:

American Marketing Association: www.marketingpower.com

Running an Effective Sales Incentive Program 4 of 4 Edited by Diana Mahaffey

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