The backbone of a sales incentive scheme

One of the most effective ways to motivate a team is with the possibility of monetary benefits. That’s where an incentive scheme comes in – a formal process that encourages staff to perform at a particular level, by offering monetary rewards. The most popular incentive schemes are commission based – for example, sales people are encouraged to generate more sales by offering them a percentage of the amount of gross sales they achieve. But incentive schemes can be planned in many different settings, depending on the nature of the business and the teams involved. 

Whatever the situation is, a proper sales incentive scheme should include the following essential elements. 

Sales Quotas

This defines the target that each sales person carries in a given period of time. It helps sales management to control and motivate the sales effort.

  • Can be hard targets like new sales, profitability, etc. or soft targets eg. customer satisfaction improvement
  • Can be assigned on monthly or yearly basis
  • Various roles can have different type of targets
  • Performance is assessed against quota

Territory Allocation

This outlines the geographical regions, vertical or horizontal industries a salesperson covers. It helps sales managers to divide the markets into specific geographical zones or areas to concentrate the effort and manage competition.

  • Shall be equally and fairly distributed
  • They should produce opportunities to each sales person
  • Consider competition and new market potential when allocating territories
  • Saturation level for regions to be considered

Sales Roles and Target Cash Pay

This defines the different sales roles (eg. New Business, Account Manager, Strategic Account Manager, etc.) and the total cash compensation per role.

  • The total cash is per sales role not per person
  • It determines which role is eligible for incentives
  • Target Pay according to market, culture and business objectives
  • Eligibility based on customer relation, interaction and persuasion power

Incentives Payout Formula

Although there is constant debate on whether incentives should be determined by a formula or discretion to increase effort in specific areas, there should be some kind of an incentive payout formula to guide the sales person’s efforts. This shows the formula the company usage to pay incentives to sales people

  • A plethora of formulas to choose from: bonus, pool, commission, profit driven formula, etc.
  • A company may choose a combination of available formulas 
  • Decision on discrete or cumulative type of incentives and payment periods
  • The formula will determine the final payment

Always align your sales incentives program with your company goals and organizational structure. You can use it to empower your sales reps to perform at their peak levels and have fun while reaching both individual and team goals, which drive business success and promote team pride.

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