How to make effective sales incentive programs?

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Basic principles to make effective sales incentive programs for sales managers

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How to make effective sales incentive programs? By M. Nino Mayvi Dian

Sales incentive is one of the motivation drivers for every sales person Ive known. Most people

said that salesman is a job that can have unlimited income and that income is gained from

sales incentives. The word unlimited doesnt literally mean no limit at all, because every

businesses must earn profits and these incentive programs must not reduce it. But, it has to be

seen unlimited for your sales persons, but in the same time it will cause no harm to the

business profits.

Ive wrote this article to share simple ways of creating efficient, effective, and attractive sales

incentives programs. Ive been worked in sales field for more than 13 years, and mostly in big

companies that created multi millions dollar revenues, but Ive felt that their sales incentive

programs werent so attractive to me.

Once Ive asked to my superior about the incentive programs, why the programs werent made

so incredibly attractive to boost sales persons motivation. And, he said that there were

limitations caused by the companys rules, which I concluded that the programs were made just

as it is, regardless it is effective or not.

If youre a top level sales person in the company, and you have all the freedom and authorities

to make sales incentive programs, you should make incredibly attractive programs. Great and

attractive sales incentive programs dont mean that it will cost more to business profits, if youre

using the correct principles when you create it.

So, lets not forget the 3 basic principles when youre making sales incentive programs:

1. It should be unlimited and easy to get,

Sales incentive programs should create unlimited income and easy to get perception

for your sales persons. Most sales persons perceive the word unlimited related to the

amount of money or benefits that theyll receive. And, easy to get means that it doesnt

have too many boundaries, constraints, and restrictions to receive incentives. And how

much is perceived to be unlimited? Also, what is easy to get perceived by your sales

person? Every sales person has their own perception about unlimited and easy to get.

Then how will you know the appropriate answers about those questions that it will

represent most of your sales person perceptions? Conduct a simple research by group

discussions, sharing moments, and any other ways to seek information about your sales

person perception. Do not use only your point of view when you create the programs,

because in the end youre not the person whos going to receive the incentives.

Make good questions in your questionnaires. Good questions will result good answers,

which it will reflect most of your sales people perception about unlimited and easy to

get.

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If your company has multiple sales areas or locations and possibly involve different

cultures and habits, I strongly suggest that you give the authority to make the research

and incentive programs by your local sales leaders. I wont recommend generalization of

sales incentive programs for multiple sales areas, otherwise your programs will be

possibly ineffective and the program goals wont be achieved. All you have to do is

giving the guidance and monitoring the implementations.

After you have and analyze the research results, all your sales incentive programs must

be based on it and accommodate your sales persons needs.

2. It should not cost on companys profits,

This second principle is strongly related to the first principle. Because, incentives are

expenses and expenses are reducing profits. Therefore, the second principle is always

give ultimate priority for companys profits. Whats the point to have an incredibly

effective and attractive sales incentive programs, but the programs reduce the

companys profits at overall.

The question is how to make an incredibly effective and attractive program, but in the

same time, companys profits arent jeopardizing at all.

Terms and conditions are the ways to maintain it. Create terms and conditions for sales

and incentive programs with business goals as the point of views.

Some of you will ask how to elaborate these terms and conditions with business goals?

Will it be still perceived unlimited and easy to get?

According to my opinion, terms and conditions must support the achievement of

business goals, especially on profit achievement. Programs should be made in such

ways, that when a sales person is going to receive certain amount of incentives, it

should have carefully considered and calculated that it wont have unwanted effects to

companys profits.

For example, your incentive programs must have direct correlation with companys

account receivables. After all, company pays the incentives from customer payments,

doesnt it? I think its still perceived unlimited, because you dont limit the incentives

amount. You just limit on how your sales persons will receive the incentives, which theyll

receive the incentives after customer make payments of their orders.

If your companys business is mostly on project basis and progress payments are

applied, then all you have to do is just make adjustments on incentive payments, make it

as progress incentive payments. I believe that your sales persons will not have objection

about it. If your sales person is refused about it, because they think collections arent

their responsibilities, then you can apply additional incentive for assisting customer to

make on time payments, which it will directly encourage your sales person to help

collection team for following up delayed payments. I believe that its still applicable.

Because your company must has daily sales outstanding (DSO) target, and your board

of management wont be pleased if sales targets are achieved, but in the same time the

DSO target isnt achieved.

There are many ways to make terms and conditions for sales incentive programs, and it

depends on the business models of your company.

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3. It should be understandable and motivate,

This last principle is essential for supporting successfulness of sales incentive programs.

It doesnt care how good and attractive of your programs, but your sales persons dont

understand about it, which it could make your sales persons dont get motivated by it.

This last principle is mostly forgotten by most companies (according to my experiences).

According to my opinion, your sales incentive programs could be one of the attractant to

get best sales talents. Share it briefly to the candidates in the interview process. Let

them know what the companys rewards for the best performers. Brief introduction

doesnt mean that you only say, We have incredibly attractive sales incentives for best

performers, or Yes, we do have sales incentives for you if youre achieving your sales

targets.

You must make it as one of the SOP when company conducts recruitment process for

sales persons. The explanations or introductions must be standardized, written and

verbally. So, every HR people who conduct the recruitment process must know about

the programs, even not in details.

Dont you ever underestimate about the importance of sales incentive programs

introduction for potential sales person candidates. It could be one of your companys

weapons to get the best talents. Best talents will be received many attractive offerings

from many companies, and if your company, probably not have high popularity in the

employment market, these sales incentive programs could be made as your companys

competitive advantage, and gain significant leverages for your companys popularity.

Ive been experienced many job interviews, and rarely the recruiters mentioned about

the sales incentive programs. Often, I had to ask first about it. But, their answers were

just so ordinary, such as, Yes, we have sales incentive programs, or even worse if the

interviewer was an HR person, he/she answered Ooh, let me check first with the user.

Prevent those things happen in your sales person recruitment process. Otherwise, the

candidates will assume that your company isnt the best place for them.

Thats my opinion about the effect of sales incentive programs toward sales person

recruitment process. Then for our existing sales persons, how do we ensure that our

sales persons understand and motivate by our sales incentive programs? The answers

are doing the socialization and periodic evaluation of the programs effectiveness.

Socialization, this process could be done by annual sales kick off meeting, regular sales

meeting, morning sales briefing, etc. The important thing is about spending the

managers time to share about the incentive programs. If you share more, I believe tha t

your sales team will understand it. You should use these sharing moments for motivating

your sales people. Make them know that these programs are made for them, and

intentionally to increase their employee benefits. Drive them to make these incentive

programs as one of their career goals that must be achieved.

Periodic evaluation of the programs effectiveness is must be conducted to know how

well the impact of the programs toward actual sales achievement. It might not the only

factor that cause unachieved sales targets, but it could be one of it.

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How do we know that our incentive programs arent effective? First, your sales

achievement is far below from the target. Yes, it might not cause by incentive programs,

but you should evaluate and discuss it with your sales people. Ask them, is it caused by

unattractive incentives? Or the target tends to be unrealistic to achieve? If most of your

sales people said that your incentives were not attractive enough, then you should

review whether you have used the first principle properly. But, if your sales people said

that the target tends to be unrealistic to achieve, then you should read my previous

article about how to set companys sales targets (6 Steps to Set Companys Sales

Targets).

Sales incentive programs should be flexible and adjustable as along as the sales targets will be

achieved with support from these programs. You can modify it at anytime when youve found

that the programs arent effective. You might say that how can we modify it any time while it is

directly related to the budget? Yes, you can do it. Budget only mentioned about numbers, nor

the methods, terms and conditions, etc. Therefore, you can still modify it at anytime as long as

you dont modify the numbers.

Ensure that youre using sales incentive programs as one of your people management tools.

The best incentive programs should be able to drive sales people motivation significantly, and it

has direct effect on the sales achievement.

Achieving companys goals is the ultimate objective, and we, as managers, must use all the

tools and resources that we have to achieve the goals. Sales incentive program is one the tools

to achieve companys goals, so theres no excuse why your company isnt able to make

attractive incentive programs.