Incentive programs are designed with the sole purpose of motivating participants to perform desired behaviors. Unfortunately, not all incentive programs do this. It’s important to consider the advantages and disadvantages that different programs provide in order to determine the sales incentive plan that will maximize sale performance in your department. While many companies realize the benefits of sales incentive programs as major drivers of their success, many still use traditional methods like lump sum bonuses as their method of motivation. But how do they compare? Let’s take a look.
How do lump sum bonuses work? They’re earned and given at the end of a specific timeframe (i.e. monthly, quarterly, or annually) for meeting sales goals or quota, or to incent to the sales team to sell more. Currently, 72% of firms use bonuses in their sales incentive contracts. While lump-sum bonuses do encourage salespeople to achieve higher sales, they also have their disadvantages.
The main disadvantage of a lump sum bonus is that any motivational effects the bonus produces disappear once the salesperson’s quotas are met. We all know the stereotype about sales people who hit the golf course the minute they’ve reached their quota. The second disadvantage is that these types of bonuses have a nasty habit of tempting salespeople to hold contracts until the bonus period. This happens when salespeople either push out new orders to the next period when they have already achieved quota, or, by pulling in orders from the future period when they are falling short of their quota.
Sales incentive programs, on the other hand are designed to motivate employees to perform at high levels of productivity on a much more consistent basis. If you run a program year-round you don’t have to worry about your sales people tucking their acorns away until winter, because the potential is always there for them to earn rewards. They’ll work at a consistently high rate in order to close sales as fast as possible in order to get their hands on more and more rewards. When the possibility of a reward is always present, drive to earn that reward is always there as well.
Because there can be numerous variations to incentive plans, it is vital to evaluate the advantages and disadvantages of possible incentive program types before implementation. Determining the best incentive program design will help advance performance and promote ethical behavior which is in the best interest of the company and shareholders.
Figuring out how to motivate your sales team doesn’t have to be an ongoing challenge. A well planned and executed sales incentive program can help you drive in results all year long.
We hope you find the material we’ve shared with you valuable.
By: Steve Damerow
CEO, The ISI Group of Companies
We’d love to show you how our sales incentive programs work and how they’ve earned us a 95% rating from our clients.