Measuring ROI for sales incentive compensation

Incentive Compensation is one of the most important factors to drive sales behaviour and the overall performance of an organization. However, it’s not always an easy process to measure the ROI of incentive plans. It is often said that measuring the ROI is more like an art than science. A survey from FMI Net reported clearly that around 60% of the ones who have incentive plans find it difficult to measure the program’s achievements and results. But there is nothing to worry about because in this article we will uncover everything you need to know about Incentive program ROI measurement strategies and the magical equation. But firstly, let us look at important activities we need to carry out while designing incentive plans and schemes :Set clear Insights regarding the Incentive plansFirst and foremost is to set a clear understanding about who is accountable for the program. In most cases, the program fails because no one knows who is responsible whether it is from the sales team, leadership team, or operations. Therefore, it is important to distinctly figure out the person in charge of supervising and managing the program, gathering all the information, and following up with both incentive program and leadership.

Scrutinize the pre-incentives stage

To identify how far you have gone, you must first know from where you started, right? Therefore, it is very much necessary to figure out an accurate picture of the present situation before you start with your incentive plan. For an instance, If you want to see an escalation in revenue then make sure to figure out what the present revenue is. If you want to measure the impact on attrition, exactly know what is your current employee turnover rate.

Lay down Incentive strategies with smart objectives and goals

Lay down incentive strategies with smart objectives that are achievable, attainable, aligned, and agreed upon. From the very start keep your goals clear and also be aware of the specific ways to measure them. For an example:

  • Recognize all the members from your team who are low or average performers and target them during the promotions of the plans. After this, compare their average performance to their performance after sales incentives. This will enable you to be more specific with your goals and the incentives that will motivate these salespeople.
  • Besides, talk to your salespeople and ask them what incentives would motivate them to perform better.

Know your Incentive program ROI

You can try having an ROI projection before you get started with the program. This will help you to know how much to invest in incentives and what your ROI will likely be, along with a defined benchmark.

Stay updated with reports, analytics, and tracking

When you use these three metrics, you will understand and know a lot about the progress of the sales incentive program.

  • You can use an accurate tracking performance tool that will track all the sales and purchases involved in the program. This will help in making the process faster and more accurate.
  • Use a platform or a solution that will give you real-time visibility about how the sales reps are performing.
  • Try to keep a good level of engagement with the participants in the program. Keep a track of whether the sales reps are opening the emails that you send how they are communicating and how they are engaging with your real-time incentive application.

Conduct a regular meeting to review the program.

This will ensure you’re identifying pain points and growth opportunities early on.

Figure and sort out your Incentives

After everything is in place and you know sales incentives will bring you profit, you will now have to decide “on which form your sales incentive will take”. Often employees will always prefer cash rewards in the form of bonuses but there are other forms of rewards such as gift cards and also sometimes travel vouchers are also considered a better option. And sometimes recognition is rewarding enough.

Now, it is proved that your incentive program is doing its job, and also you’re on top of your game because you’re tracking your marketing endeavours and working on ways to make them even better. So, It’s time to calculate the ROI however, it's a bit complicated.

The costs involved are the cost to plan appropriate compensation plans, to introduce these plans to all the personnel in the hierarchy, the cost to roll out the plan and to implement the same. These costs concern various stakeholders such as the Sales compensation or operations team, Sales directors, and Sales managers.

  • Now comes the benefits/return part. The advantages you may look for could be all or some of the following
  • Reduction in attrition rate resulting in savings on hiring and retraining cost
  • Increase in Gross Margins directly attributable to incentive plans
  • Improvement in company’s employee-friendly image (difficult to measure, but important to account for, even if as subjective criteria)
Therefore the ROI is (Increase in Sales + Decrease in cost of (hiring + retraining + savings in sales avoided due to lesser attrition))-(Incentives paid + Cost of running the incentive program)

Importance

Lastly, some studies and analyses reveal how an innovative and data-driven incentive compensation program can strengthen your ROI and increase bottom-line performance by:

  • Eliminating errors through automation
  • Reducing costs through operational efficiencies
  • Optimizing programs through digital insights
  • Accelerating time to the information

Side Effects

There are always side effects attached to sales incentive programs -- expected and unexpected, positive and negative. However, some of these can be just as valuable as the incentive itself. For instance, a program might generate positive word of mouth, which is always valuable when it comes to company reputation. An increase in competitiveness among your salespeople can also increase motivation, output, and ultimately, revenue. Travel incentives can become excellent advertisements for your organization as recipients spread the word on their travels. Trips can also increase networking opportunities and the potential for further contacts and sales.

Ultimately, sales incentives are a win-win for businesses and employees. They are a valuable investment both in hard return and intangible outcomes for the business, and for the employee, they are a much-appreciated motivator and reward for meeting targets.

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