Sales is an area where many companies still offer performance-based incentives – both monetary and non-monetary.
Why? It works. Multiple studies tell us that the right incentives motivate a higher performance than no incentive at all.
With sales, it is very easy to measure performance. Either you get the sale or you don’t. You know how much the sale is worth. And you can see if the value a salesperson is bringing in changes over time.
So setting incentives makes sense, if they improve performance. The company wins, the salesperson wins. Everyone is happy.
So how do you find the right incentive?
The truth is there is no one-size-fits-all incentive model. Each organization, each industry, and indeed, each salesperson is unique. What works for one won’t always work for another.
The key, as with anything else, is to test different models to find the one that works the best. Here are some possible incentive structures to get you started:
Make It a Competition
If you have a sales team that is all on equal footing, adding a competitive atmosphere can be an effective way to create incentives. Reward your highest performers relative to the rest of the group with monthly or quarterly prizes or bonuses.
- Pros: incentivizes above average performance, gamification can make for a spirited atmosphere
- Cons: may lead to distrust among salespeople, no incentive for mid-level performers who are not on top, poorer performances may hold a grudge, too much competition can be unhealthy
Flat Fee Commission
With a flat fee commission, each sale will lead to a financial reward. No matter how many sales a salesperson gets, they will get a financial award for each one. So the more they sell, the more they make.
- Pros: clear and fair incentive, no competition among salespeople, incentivizes more sales
- Cons: does not take value of sales into account, no incentive for personal growth, no limit to potential cost
Percent Based Commission
This is the same as a flat fee commission, but it solves for the problem of differing sale values. If each sale is worth a different amount of money to the company, there is no reason why the commission should be flat. A percent of each sale takes the size of the sale into account.
- Pros: clear and fair incentive, incentivizes higher revenue, no competition among salespeople
- Cons: no limit to potential cost, might sacrifice lower value sales to chase the higher commission
Whether flat fee or percent-based, a tiered commission structure incentivizes growth. Assign salespeople a monthly quota (or quotas) they must hit. Every sale above and beyond those quotas carries higher commission potential. They are still getting rewarded for every sale, but the higher their sales get, the more those sales are worth.
- Pros: incentivizes growth, no competition among salespeople
- Cons: no limit to potential cost
Mix and Match
The four models above are just a start to the possible sales incentive programs that companies can use. It’s possible to combine them, and alter them to meet your needs. For example, you might have a commission structure with a competition built in, so that everyone gets paid but the top performers get paid the most. Or you might have different incentives for each individual, based on whatever motivates them.
There are three keys to creating a sales incentive program that works:
- Make it clear and easy to understand
- Make sure it incentivizes the right behavior
- Make it flexible enough that you can tweak it over time to find the right balance between revenue and cost