The current challenges in the South African economy see businesses cutting costs at every corner in order to survive. An alternative solution to improving profitability in a turbulent market is to focus more on increasing revenue. What would it mean to your business if your sales team could increase their sales by 10% or increase market share by 5%? Do you drive revenue, or do you drive margin?
Are your sales incentive schemes supporting your sales objectives? Traditionally, sales teams are incentivised on commission type sales schemes, which tend to encourage sales employees to operate in a comfort zone that sustains their lifestyle, never pushing past the minimum required effort. They go through a habitual, routine sales process in order to sustain historical figures rather than driving additional values. This is deadly to any business in a tough market.
- Incentive starts at the threshold below which there is no incentive.
- The target incentive is set as a percentage of the guaranteed package or as a percentage of the value
- The sum of the guaranteed pay and the target incentive equal the targeted earnings
- ‘Commission’ kicks in far beyond target performance
- Target or quota and threshold are cascaded from company budgets
Sales incentive schemes must not become performance management systems. A maximum of four measures should be included. The most common primary performance measures used are
- revenue
- margin
- volume
- units
These should be combined with secondary strategic measures such as
- new product sales
- new region or client sales
- forecast accuracy
- CRM system inputs
- customer service
Are your sales one-offs requiring little or no customer relationships or do they require excellent relationships? Do they have long lead times or are they quick regular sales? These are aspects that affect the pay mix for your sales team.
The diagram shows the factors that affect the pay mix. Getting the right mix is important as it will impact on the person attracted to your company.
If a sales incentive scheme does not change behaviour, then it is wasting the company’s money. A crucial component of the design is to understand the desired behaviour from the sales employees. How much interaction and support are required within the team and between the teams? The diagram illustrates how team behaviour must be considered. Do you want to encourage some teams to assist each other and to what extent? Do you want individual sales employees to work together or just go out and sell on their own? How much support is needed from other personnel?
Sales incentive schemes should be designed through a participative approach, thus ensuring sales employees buy-in to the scheme. Buy-in by the most senior and influential sales employees will ensure the scheme is sold to the rest of the sales employees. They will be able to explain the design of the scheme and the reasons for the trade-offs between various options. They will become the ambassadors of the scheme because this is their scheme. Communication before implementation to ensure a full and complete understanding, preferably using spreadsheet modes, is essential. The participants must know exactly how to make the most money for themselves.
An effective sales incentive scheme will also ensure your sales employees are at the forefront of their industry and your products/ services are being sold in the most influential manner, despite the tough market conditions.
A well-designed sales incentive scheme can lead to achieving that extra 5% or 10% of sales, which makes all the difference to the bottom line.