Creating Effective Sales Incentive Systems

While a variety of factors influence the effectiveness of a company’s sales incentive programs, here are 5 tips that will help your system be more effective.

1. Structure Design Choices For the Team

Getting sales incentive plans rights means balancing multiple design choices. Here’s why plans work in some settings and not in others:

• Strong vs. weak incentives – weaker sales incentives offer small rewards as part of potential earnings and tend to discourage high performance. Stronger incentives, that offer larger rewards, make up a larger chunk of pay and work best when the desired outcomes are simple and well-defined.
• Group, relative or individual incentives – this kind of pay works well when your sales reps are interdependent. However, if they operate independently, team-based pay causes weaker reps to piggyback on your start performers.

2. Know Your Employees

Did you know that companies tend to succeed in parallel to how they incentivise their staff? But exactly what motivates staff can vary. To be highly effective, sales compensation plans ought to:

• Customise pay methods and metrics based on staff roles
• Clearly define those roles
• Reward the desired behaviour
• Provide consistent feedback

3. Setting Fair, Accurate Quotas

One of the first things staff tend to ask about a new incentive system is “what’s the quota?”

A good quota system will account for:

• An understanding of each territory’s potential – sales reps should be rewarded for their results, not the quality of the area they sell in. So their targets should take into account potential of the territory.
• Achievable sales forecast – without one, no one stands a chance at winning.
• Manager control – sales managers need to be able to adjust targets once they’re set in order to respond to changes in a territory.

4. Optimise Compensation Effectiveness; Choose The Right Metrics

With the right sales performance metrics in place, leaders can make their incentive system more effective. But the key is quality, not quantity. Here are a couple of points to consider when identifying which metrics work best for your company:

• Be mindful of the bottom line – know what matters: the final balance sheet, cash in, units out.
• Pick and choose – use a couple of performance metrics so reps realise each one is important.
• Bring everyone to the decision table – make sure everyone’s working towards the same goals.
• Control and visibility – use metric to measure the results that sales reps can control. Offer real-time insight into progression using commission software.

5. Model Plan Changes to Test Impact and Effectiveness

Not many companies will take products to the market before thoroughly testing them. It’s just too risky. The same should hold true for sales compensation plans that need to address three main questions:

• What? Try to model off components of the incentive system. Don’t simply focus on just one aspect of the system, like moving a certain product. Try to understand the entire picture.
• When? Try to model the system as you create it, prior to deploying it, and throughout its life cycle as any changes are made.
• How? Try to model outside of the system’s production environment, where you can plan everything you have to without disturbing operations. 

1. Conclusion

When you look at the right elements to designing your sales incentive programs, you’re a lot more likely to reward the right kind of sales behaviours, and more importantly, your sales staff are a lot more likely to achieve the performances you really want.