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Compensating salespeople can be one of the most significant challenges management face when determining an effective selling strategy.  From experience, you know an effective incentive plan will encourage sales and win new business whilst protecting and nurturing existing customers.

Incentives programmes can be difficult for many Australian companies as in some industries they are not regular practice. There may be a bonus scheme at the end of the year although its effectiveness, is often muted as it is shared with others outside of sales.

Sales incentive schemes define the performance of the team and largely determine the success of your strategy. Pay scales and incentive plans have a significant impact on how salespeople operate within their role and their effect can offset or enhance the profile of the person you hire.

This simple table provides insight into the behaviours associated with Incentive plans and the associated response you can expect from salespeople.

 

Salary Component

Commission Component

Focus from Sales Person

100%

0%

Maintenance of customer and operative within your guidelines to retain employment. A customer service approach rather than a sales approach

90%

10%

Maintenance of customers with some incentive for customer protection and growing their account

80%

20%

Maintenance with increased customer retention and some new business from company generated leads

70%

30%

Maintenance with increased customer retention and a focus on new business

60%

40%

Lower level maintenance of existing accounts with new business focus

50%

50%

New Business and slower protection of existing accounts. Focus in existing business of new opportunities more than account management

0%

100%

New business acquisition focus

As observed, sales incentive plans can have a significant impact on the resulting behaviour of sales people affecting bottom line and future growth of the company.  Executing well-designed sales incentive plans can assist companies create a culture of high performance where individual goals are aligned with your strategy.

Furthermore, when a company becomes known for rewarding high performance, this has a positive impact on attracting and retaining top sales talent, becoming a fundamental key to success.

Your go-to-market strategy is an essential part when planning, and the sales incentive plan is the core to how you operationalise the sales force, align them with the company goals, and motivate and drive results. Once you establish the sales incentive plan, it must become a regular part of the sales conversation, further, the reporting must be accurate and above all you must adhere to the scheme.

The most common error we see in sales incentive plans is when insufficient ‘what-if’ analysis is applied. Companies often overemphasise the value of percentage against revenue, which optimally should focus on gross margin. These figures can look quite innocent on paper until you start doing the what-if analysis. What will it look like for each salesperson based on the past performance? What will it look like if they focus on more new business? What if they increased their performance by 20%, or 30%? Sales incentives can achieve these gains if developed and implemented correctly.

The questions to consider when developing a sales incentive plan.

  1. How much potentially can the person earn?
  2. Is the company able to accurately measure those revenue figures?
  3. Have you made the plan overly complex and potentially hard to manage?
  4. Can you report weekly on the results through you current operating systems?
  5. Is the plan aligned to your sales cycle?
  6. Do the rules and regulations of the plan serve the company?
  7. Moreover, importantly, is the company able to cope with a salesperson earning that level of commission?

The last question may seem mute, but we have seen more sales incentive plans fail due to this point more than any other, particularly where companies are not acquainted with the payment of sales incentives.

Recently we observed the influence of a sales incentive plan on the performance of a sales team. The team were previously engaged in a sales incentive plan but were not receiving funds, and there was a background to non-payment. A new plan was implemented, and it was expected that the salespeople and company would benefit.

As a result of the new sales incentive plan, sales escalated to all-time highs and the expected rewards to the salespeople were outstanding. The company and the individuals were all winning.

This success brought to light, that the company was now required to pay more than expected commissions. In response, they decided to modify the operation of the scheme, with changes to the payout criteria and percentages. Furthermore, the changes were difficult to track and report on, and they did not conduct a thorough ‘what-if’ analysis.

The result of this change provides an explicit example of “is the company able to cope with a salesperson earning that level of commission?” The answer was no, and the change had an immediate downturn on sales force effectiveness.

Sales incentive plans require careful consideration including the use of a what-if analysis and ongoing management. Importantly the company must be able to live with the results. When managed effectively they become a valuable tool for growth.

If you are looking to create or align your sales incentive plan to your sales strategy, please reach out and contact our office.

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