Do your sales incentives drive results?
Sales incentive plans (SIPs) are key to motivating sales forces and driving the top line. But how do you know your current plans are effective?
Sales incentive plans (SIPs) are key to motivating sales forces
Is it time to review your SIPs?
There are certain key triggers for reviewing an organisation’s SIPs:
- A significant change to the business strategy could mean several different things: e.g. new products/services or moving into a new market. SIPs may need to adapt or completely change to meet the needs of the business;
- Specific issues with the existing SIPs are causing noise: e.g. payouts aren’t aligned to company performance, the SIP doesn’t drive desired behaviours, or drives poor behaviours (companies have come to us when they ended up on consumer rights TV shows or when they have been concerned with the regulator) or the sales force isn’t motivated;
- A merger’s taken place and there’s a need to harmonise, this may not be immediately necessary if the sales forces in the merged organisation sell different products or services, or into different markets, but if teams will sit side by side in the same role selling the same things, not addressing this will quickly become problematic; and
- Plans are overcomplicated or no longer fit for purpose: this can happen where they’ve been tweaked every year for several years, or been in place for a while without being reviewed.
What we see in the market
The impact of COVID-19 has been very different across different industries, but most have seen a general downturn in economic activity
There’s been an incredible change to working practices over the last year, e.g. the huge increase in the percentage of people working from home to virtually all employees in some organisations.
This has opened executives’ eyes to what’s possible, so expect an acceleration of digital transformation in 2021 and beyond.
With such unprecedented change and business strategies also changing, companies need to ensure that their go-to-market approach, sales roles – and ultimately their sales incentives – keep pace as the global economy picks up.
As an example of how strategy can change - we recently worked with several organizations where future success means selling newer digital products/services.
But these newer products/services compete with traditional – often higher-margin – ones that the sales force is more comfortable selling.
Newer products/services are better sold as bundles or total solutions, rather than single product sales.
This had a couple of main implications:
- Existing plans which focused on margin generation alone wouldn’t drive the organization’s new strategy, as salespeople continued to focus on more familiar, higher-margin, older products that could earn them more in the short-term. Plan design needs to change to meet the new strategy and focus on driving sales of newer products while maintaining margin.
- Selling the newer products/services requires solution selling, while the existing sales force were traditionally product salespeople, who may be unsuited to this type of selling. The organisation may need to assess the sales force to identify incumbents who are suitable for solution selling and how much of a talent gap they need to fill.
- These issues are likely to become more common post-COVID as organizations adapt to the new environment.
Assessing your SIPs
Effective SIPs have 7 key characteristics:
- Alignment with the business strategy as discussed above;
- Alignment with roles, plans should look different for a Global Account Manager with 2-3 key global accounts than for a Regional Sales Rep selling a new product direct to hundreds of potential customers;
- They’re motivational: they should encourage the sales force to push to achieve and over-achieve their quotas;
- Risks are controlled: on the other side, plans shouldn’t include elements that drive poor behaviour (such as a large on/off payments triggered by a single sale);
- Fairness: The sales force should see they have an opportunity to earn equal to others in the same role achieving the same level of performance;
- Simplicity: complex plans, with too many metrics or complex methods of calculation, confuse the sales force and drive unexpected behaviours; and
- Effective goals (or quotas), goals that are too easy or too hard make the best-designed incentive ineffective. Quota setting can be tricky in turbulent times. Where this is the case, it may also indicate the need to change plan mechanics (e.g. a lower threshold and/or higher excellence point).
How do your plans line up?
This could be a good time to kick the tires on your SIPs as the economy emerges from lockdown.