Sales Incentives: The Dos and Don'ts of Creating an Incentive Program

As Vice President of Sales Engagement Strategy and BI WORLDWIDE, Walter Ruckes has learned that there are some sales incentives “dos and don’ts” that apply to every type of organization. Let’s start with the “dos.”

Do consider behavioral economics when creating a sales incentive program. We humans are complex creatures and much research has been done on how psychological, social, cognitive and emotional factors impact us.

Do change your incentives frequently. Whether this means quarterly, monthly, weekly, or daily, incentives should be changed to meet objectives and drive focus on specific business objectives.

Do measure engagement and ROI. It’s the only way to be certain your incentive program is working. And be wary of anyone who suggests otherwise.

Do treat your incentives as a separate component of your overall strategy to engage and retain your sales reps. Incentives work in addition to employees’ compensation and any recognition programs you may currently have. Incentive programs give sales reps at all levels the opportunity to increase their performance.

Do budget appropriately. How much should you spend on incentives?

• 1-5% of total sales revenue
• 5-10% of incremental sales revenue
• 12-24% of incremental profit
• 2-5% of the average participant’s income (multiplied by the fraction of the year that the program period represents)
• 15-25% of cost savings in a cost-reduction program

Here are some key “don’ts”:

Don’t be afraid to deviate from these numbers. Like everything in life, there are exceptions. The percentages allocated for each component will vary based on the types of programs being designed. Non-reward percentages may be significantly higher for programs with small budgets or small audience sizes, like pilot programs.

Don't give cash as an incentive. Although sales reps often say they want cash, we’ve proven they will work harder and perform at a higher level for non-cash rewards like merchandise or travel. There are a few reasons for this:

• It’s hard to justify indulging with our own money—but we’ll gladly accept something high-end as a reward for achieving a goal.
• When we earn a non-cash reward like a watch or trip, we’re more likely to talk about it.
• Motivation is extended and reinforced when the reward goes above and beyond filling a basic need. We’ll always remember that amazing vacation we took or we’ll get to wear that luxury watch every day.

Don’t let just anyone lead your program. One thing every sales incentives program has in common is a great leader.

When you need to see a boost in your organization’s sales and are ready to launch an incentive program, talk with us. We have a wide variety of options, all with proven results.