How to Incentivize Sales Reps Beyond the Core Compensation Plan
Many beneficial ways exist to incentivize reps beyond your core sales compensation plan.
These incentives can help close sales gaps, achieve short-term goals, mitigate unforeseen circumstances, boost overall sales performance and rep engagement, create a great sales culture, and improve contract quality.
Why is it important to incentivize reps beyond the core comp plan?
After the initial release of your sales incentive program, it’s important to keep providing goals for reps to strive for to ensure they stay motivated and engaged throughout the year.
One study found that while an annual quota highly incentivized high performers, more-frequent goals helped keep lower performers on track. Quarterly bonuses were most effective for lower performers. Top-up incentives like SPIFs help motivate lower performers to go a bit further.
“Top students will do fine in a course in which a final exam determines the entire grade, but lower-performing students need frequent quizzes and tests during the semester to motivate them to keep up. Our study showed that the same general rule applies to sales compensation.”Marketing Science, 2014
Top-up incentives offer a chance for reps who aren’t earning a lot under the core comp plan to get the momentum and boost their performance by doing well in a SPIF. They can also be a way to recognize high achievers who have gone above and beyond and keep the pushing even further.
Ways to Incentivize Reps Outside the Core Plan
Besides the many non-financial incentives for sales reps, there are three financial ways we like to incentivize sales reps outside the core comp plan: Sales Performance Incentive Funds (SPIFs), President’s Clubs, and Kickers. You should be able to execute all of these add-ons without impacting the main commission structure (although that must be considered).
SPIFs are a great way to mitigate seasonality, push new SKUs, or course-correct throughout the year.
Most organizations can get it wrong by not making the SPIF enticing enough or reachable and only using them reactively.
The SPIF is rarely enticing enough because the organization cannot accurately predict the financial risk of the SPIF. It could be too easy to achieve or be so enticing that it creates a perverse incentive that negatively impacts sales of other products or areas.
Their inability to forecast the impact of SPIFs means most organizations play it safe, resulting in un-motivating SPIFs that have little measurable impact on revenue at the end of the year.
Organizations often use SPIFs to react to changing markets or course-correct mid-year, but this leaves much of their potential on the table. SPIFs can be incredibly useful for mitigating seasonal sales slumps. We cover how to use your historical data to create proactive SPIFs to fill in the ‘troughs’ in your revenue numbers over the year.
The key to creating effective SPIFs is thinking carefully about what behaviour the organization wants to drive and then using your data to determine what incentives will generate that behavior.
Depending on your goals and market volatility, a good SPIF strategy includes 2-3% of the total compensation budget ring-fenced for proactive SPIFs and around 2-3% for reactive SPIFs.The key to creating effective SPIFs is thinking carefully about what behaviour the organization wants to drive and then using your historical data to determine what incentives will generate that behavior. #sales #spifs Click To Tweet
President’s Club is an annual employee recognition program that rewards those who have exceeded their sales goals. They are a chance to recognize the high achievers who went above and beyond.
The peer recognition and unique prizes or experiences that come with a President’s Club are highly motivating for many people, adding healthy competition and another reason to push on throughout the year. These are often most appealing to your existing or upcoming top performers.
When designed and deployed effectively, President’s Clubs can increase sales performance, improve employee morale, increase top performer retention, and even help to attract other top-performing salespeople.
TIP: It might be tempting to open President's Club to any rep that achieves quota, but it's a mistake. If you designed your sales compensation plan well, around 50-65% of the team should be achieving or beating their plan, making it a much less exclusive (and so less motivating) club.
Depending on how exclusive you want your Club to be, around 5-20% of the sales team should make it into the President’s Club.
When designing your President’s Club, we suggest using a fixed-target quota to determine entry. For example, if you model sales performance for the year and expect 16% of reps to achieve 125% of quota, set the President’s Club criteria at 125%.
If more reps hit that target and 22% of representatives get into the President’s Club, that’s good for business and morale. The last thing you want is to explain to the rep who made 130% of their quota but didn’t get in that you limited it to 15% of the workforce — that can be demoralizing for them and the team.
When planning your President’s Club benefits, get the team involved. Find out what your sales reps value most: recognition in front of their peers, receiving a trophy or plaque, a high-end gift, or a luxury experience or off-site trip.If more sales reps hit their target and you have to let more into President's Club, that's a good thing — for morale and the business. Don't limit President's Club numbers based on headcount. Always attach it to performance. #sales… Click To Tweet
Our final incentive plan modifiers are accelerators focused on improving deal quality or business objectives other than sales.
While most accelerators increase commission payout after a rep reaches a higher quota level, kickers are used to getting reps to focus on the quality of the deal while negotiating.
We recommend the following sales incentive kickers:
1. Up-Front Cash Kickers
If your business has a cash-flow problem, consider offering reps a bonus for getting customers to pay upfront.
2. Contract Length Kicker
If your organization is experiencing customer churn issues or swamped come annual renewals, consider offering reps an incentive to get long-term contracts.
3. Inflation Kickers
One way to price-in inflation and lower the risk of churn from repeated annual renewals is to stipulate periodic price increases in contracts. Incentivize reps to secure this price increase by paying them more depending on how much of a “pricing escalator” they can negotiate into the contract
5. Clause Kickers
Some customers demand contract clauses that allow them to cancel without cost or set unobtainable goals. To reduce these, add an incentive for reps that keep potentially harmful clauses out of the contracts.
6. Reverse Kickers
For established organizations concerned with maintaining their margins: use a reverse kicker that reduces commission by a percentage if a discount is offered.
Going Above and Beyond the Comp Plan
It’s important to have other aspects outside the core sales comp plan to incentivize reps to perform. It allows for continued engagement from representatives (SPIFs), an opportunity to reward top performers (President’s Club), and a lever to drive better contractual outcomes (Kickers).
To learn more about how to motivate and incentivize your reps beyond the core comp plan, book a conversation with one of our sales compensation experts here.