Basics of Sales Incentive Compensation

Motivation is an internal process where each individual strives to attain something with a set objective in mind. It lays a condition inside an individual that wants to take action when they are motivated. However, motivating your sales team is not that simple. So, for the sales reps to stay motivated and to keep operating revenue at peak levels there has to be a driving force or a simple nudge to keep them performing at their best.

A simple well designed performance-based sales incentive compensation plan acts as a perfect tool to drive better business outcomes. Stats show us that the sales team that implements the incentive program sees a hike of 79% in reaching their goals by offering the correct reward. The only catch while designing the incentive plan is that it is not that easy. This is why let’s have a look at some of the best plans and designs that should be implemented while structuring an incentive compensation plan.

Sales Incentive compensation: What is it? When the sales reps earn anything above their fixed base salary then we term that as Incentive compensation. Normally, this operates as a key decision of your sales compensation plan, which demarcates the variable pay that a sales rep is eligible to earn. The studies show that there is an increase of 44% in sales rep performance, leveraged retention rate and brand recognition if sales compensation programs are designed well. The surest way to get the sales reps to work with the highest level of enthusiasm towards the organizational objective is to come up with incentives that keep them hungry and motivated. This is so apparent that you might think it hardly deserves mention. But it does.

Generating a successful incentive plan is more often like tapping into the employees’ psychology and once you do that you will win at all levels.

Sales Incentive compensation: Why do you need it?

A well-structured sales incentive plan can help your team in many ways:
  1. It helps in keeping your sales reps fired up to work towards their sales goals
  2. Improves sales performance
  3. Hit the targets and close more deals by motivating the reps by providing incentives.
  4. When the employees earn incentives they start putting in their best which improves team loyalty. Employees working hard to earn incentives end up putting more into the business, which makes them loyal to the team.

Sales Incentive Compensation: Best Schemes

Designing the best Sales Incentive plan starts with a clear understanding of the Incentive schemes. So, have a look at the best 5 sales incentive schemes:

Role-specific incentives: This should be used when you specifically want to motivate individual reps to outperform their previous targets.

Split incentives: This should be used when you want reps to come together and close a certain deal. This will motivate reps to work together as a team so consider using the split incentives whenever you want team collaboration

Presales incentives: During the selling process the sales rep has to go through different stages and during the process, the reps might lose their motivation to close the deal with the same efforts. Therefore, if you set a reward in the different stages then their focus and efforts will remain intact throughout the selling process. So, this is a very impactful sales incentive scheme.

Omnichannel incentives: When more and more sales are achieved partially or even exclusively on the internet, a large number of salespeople are struggling with the development of the digital sales channel, perceived as an additional competitor. However omnichannel incentives prevent this by rewarding sales reps in all cases even if the internet attracts the customer first.

Advanced-analytics-based target setting: Sometimes it can be challenging enough to set reasonable targets and quotas for complex sales scenarios. In such a situation we have, an advanced-analytics-based target setting can beat this issue. Based on this classification, the McKinsey experts offer novel sales incentive schemes, summarized in a compact visual chart below:

Types of Sales Incentive: Monetary and Non- Monetary

Monetary incentives: Nobody can deny the fact that monetary incentives are the best and effective motivator. Also, the Aberdeen Group states that nearly 50% of the best companies use cash-based incentives to increase their profits by motivating the reps.

Consider setting the following monetary incentives:

Bonuses: Bonuses are one unique sale variable incentive compensation that works as a motivation factor for both sellers and non-sales employees. These are used when there is a specific task that needs to be completed during a specific period. So, the amount that will be awarded for the achieved goal is known as bonuses.

Sales Performance Incentive Fund (SPIFs): SPIFFs or SPIFs are an exceptionally effective short-term incentive. It’s sensible enough to use SPPIFs in addition to a sales commission structure. In the given specified period of time when we use these, the seller shifts his focus on the most important product releases or to address increasing competition.

Sales Commission Structures: This is one of the most liked and accepted ways to build out incentive compensation. Commission structures go into great detail on how reps earn money. They can be structured in a simplified way which calculates the straight percentage of revenue from every single deal a rep close (know as a “straight commission”) or more intricate, by taking into consideration the percentage of quota completion.

Non-Monetary Incentives: Non-monetary incentives are budget-friendly so if your finance team does not give you a green signal then you can go for this one. They’ve proven to be more effective and about 50% of sales reps say they prefer reward experiences.

Harness the power of sales incentives

With the right data, tools, and strategy, you can motivate your sellers to close deals more quickly and prioritize the most profitable deals. So, if you want to discover more ways you can improve your sales incentive compensation planning and management in the “Sales Compensation best practices to Improve your Sales Incentives.”

So, are you ready to create a sales incentives program that helps take your business to the next level? If yes, Let’s talk!​

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