It is not easy to achieve growth in today’s changing and challenging selling environment. Sales representatives are interacting with informed customers, who are prepared with prior research, and asked to sell new types of complex, digital products. Organizations need to find new ways to motivate all employees to improve performance and increase business value.
Considering this, businesses are already spending a lot on their salesforces and making important changes like the creation of new digital channels and the adoption of team-based selling. But are they investing wisely? Do their new approaches to sales incentives bring out the best in a salesforce? And what role other associated factors like communications and analytics play in getting the best ROI in a sales incentive program?
Creating successful sales incentive compensation models is a challenging task; multiple factors affect the effectiveness of a sales incentive compensation plan. To stay ahead of others, companies need to develop new, thoughtful compensation models that provide clear motivation for how salespeople continue to sell effectively. They also need to look to revamp their entire sales organization.
The following 10 tips are needed to design successful sales incentive plans and achieve incredible ROI:
1. Involve people in the process
Companies often only engage sales leaders in creating incentive plans. But a sales compensation plan touches several departments in a company in addition to sales. Hence, a compensation planning team should be made up of key players from each department, including:
- Sales (Director, VP, senior representative)
- Finance & Accounting
- Human Resource
It is also important to inform the following members:
- Marketing (senior representative)
- Compensation analysts
- Legal advisors
When you include key players from each team in the compensation planning team, you get everyone on the same page and each representative can prioritize their department initiatives. It will bring all teams together to work towards a common organizational goal and foster a friendly atmosphere.
2. Communicate strategy
Your incentive plans should not be an organizational secret. Communicating your plan effectively is as important as design. Be transparent and clearly communicate what your strategy and business goals are at every level of the organization. This means your sales reps should understand what is expected from them and how they benefit from any changes.
It is very important to clearly explain business objectives and outline how employees will be rewarded when each goal, or percentage of the goal, is achieved. When everyone understands the strategy and is on the same page, they can work more effectively and efficiently to meet organizational goals.
3. Role-specific compensation to different sales reps
Today, the notion of a product is not limited to a physical object, but rather a service that entails a long-term relationship with the customer after the closing of a deal. Whether it is a cloud-based core banking software or a suite of rental construction and industrial equipment, frontline sales reps often need additional expertise to assist them in the sales process. Many companies need different types of sales representatives such as specialist sellers for complex sales, solution architects with technical knowledge for digital or other sophisticated products. Other roles in a sales team include aftersales customer care experts and advisory sales reps.
If all sales roles are not the same, then why should compensation be the same? The compensation planning team should think about the different responsibilities of their sales team. An incentive compensation plan should be designed based on individual sales roles to motivate employees. For example, frontline sales reps and specialist sellers are responsible for acquiring and retaining customers. A classic incentive system (quota-based compensation plan) should be in place to reward them when they achieve sales or revenue targets. While other members of salesforce who are not directly associated with revenue, such as aftersales customer care experts and solution architects, should be rewarded for assisting frontline sales reps and customers. The compensation could be salary plus a bonus plan for them.
4. Use predictive analytics to set the target
Without access to data, it is difficult for companies to forecast customer demand and use it to set goals and quotas for salesforce. Predictive analytics and big data are crucial for customer demand, sales projections, and sales quotas, which can then allow for the development of fairer goals and a more motivated salesforce. Companies can use predictive algorithms that leverage past behavior of data points to come up with the best estimates of customer demand. By monitoring how accurate such predictions turn out to be, the system can learn to become more precise over time.
The compensation planning team can use the data to figure out what to do next and improve their sales comp planning. The new plans should be designed to improve the performance, rather than maintain it. Companies should consider different compensation models.
5. Construct to drive the right sales behaviors
A strong sales compensation model must be aligned with company goals. Sales incentives must drive the desired sales behaviors to be most effective. When incentive plans don’t deliver the desired results, it may turn out to be a nightmare scenario – a large number of members of the salesforce hitting quota, but you are missing the mark on business and sales objectives. That means lower revenue and less growth.
By strategically aligning their business and sales objectives, companies can make sure incentives drive behaviors and actions that add towards success at the organizational level.
6. Create a plan that rewards everyone
It is not a wise step to create a plan that rewards only top performers. Businesses need to devise an effective strategy that will help make the entire team a productive sales unit. A good inclusive incentive plan helps drive enthusiasm among the average and below-average sales reps to work harder. If you reward the top sales performers every time, other team members may lose interest.
For example, to engage every team member, offer incentives for process compliance wherein the plan rewards even a poor performer for meeting some type of goal. You can design a plan with multiple parameters based on the priority of your organization, and attach a varying degree of importance to each parameter. This way, every team member will have something to achieve besides their sales quotas.
7. Create a simple incentive plan
While incentives themselves are important, your compensation planning should also focus on plan mechanics to effectively implement sales comp best practices. Avoid creating a complex incentive plan. You should keep your compensation plan as simple as possible. It is important to ensure everyone understands how the plan works.
The sales team needs to understand how it works in order to figure out what actions they need to perform to hit sales quotas. Compensation admins also need to understand how the plan works and how to pay commissions for sales reps. The best plans are simple to implement and easy to understand for reps.
8. Automate incentive compensation plans
Designing effective sales incentive plans is not an easy task. 80% of companies struggle with compensation payment inaccuracies. When designing plans, you have several factors to consider, multiple roles to assess and large numbers to crunch. The manual process is error-prone and costs an organization a lot. It takes up to 6 weeks for an average company to complete a manual payout process.
However, automation of compensation plans can make the process smoother. For example, implementing ACT21 Software iNCENTIVODisruptive Compensation Automation helps fix this. By using compensation automation solution, you will be able to:
- Reduce pay-out cycles by up to 87%
- Achieve smooth compensation adjustments
- Achieve up to 99% payout accuracy
- Complete 100% payout in 3 weeks or less
9. Evaluate the program
Regardless of the fact of how meticulously designed your sales incentive plan is, determining its level of success is of paramount importance. Measuring the effectiveness of your incentive plans should be an ongoing and regular process throughout the year. You should monitor the relationships between compensation and performance, accomplishment of objectives, and differentiation of high and low performers. In other words: how much ROI did the incentive program actually generate?
10. Consider non-financial incentives
Most successful organizations use multiple ways to reward their salesforce. For example, you can consider non-cash rewards like travel vouchers, club membership, tickets to sporting events or concerts, the latest gadgets, and a lot more. Non-financial incentives have proven to be effective at encouraging salesforce to perform and increasing sales.
According to the Incentive Research Foundation, 60% of all U.S. businesses are now using non-cash sales rewards, with conservative estimates at around $23 billion spent on rewards annually. And the majority of top-performing businesses, with the highest revenue growth and customer satisfaction, say their employees are satisfied with non-cash recognition and reward programs.
The bottom line
Sales incentive plans are vital for a company’s success. Well-designed plans take careful consideration and strategy and establish a clear line between expectations, performance, and ROI. Engage a team of key players to design a compensation plan that empowers your salesforce, rewards performance, helps you outperform the competition and boost financial results.