Individual Incentive Plan
As the name suggests, an individual incentive plan rewards the individual for overachieving goals. Oftentimes business owners assume that the only incentive plan that works for individual sales reps is the individual plan, without giving it a second thought. While that is true in many cases, not all businesses stand to benefit from such blanket implementation of compensation plans. An important factor that helps you zero in on the right plan for your business, is what is called in HR circles, the influence principle. The influence principle, although not specifically and clearly defined, encourages business leaders to look at the measurable performance of a sales rep.
As one useful blog on Forrester rightly states- “Use sales compensation splits when sellers’ individual contributions are identifiable and measurable”. If 80 percent or more of the individual sales rep’s performance translates to business profitability, then without any doubt, such a role should be incentivized using the individual incentive plan. Young and fresh top talent in sales, early in their career tend to opt for such roles. As they progress through their career, they will, more often than not, shift their focus and work towards building successful teams. If your business relies on such young top talent, who are focused on individual brilliance, an individual plan should be your pick.
Team incentive Plan
Team incentive plan again is a no brainer here. Instead of rewarding individuals for sales brilliance, you reward the teams that do better relative to each other or relative to a given team target. If you are building a sales team that does not depend on individual brilliance but depends on individuals working together as a team to achieve sales quotas, this is the plan to go with. Here you need not necessarily have to hire top talent. You might want to have at least one brilliant sales rep in each team who is focused on building a team as well.
These typically will be sales reps who are past their early years in sales. Teams will have to be engaged in healthy competition to achieve a common business goal, which in almost all cases will turn out to be sales revenue. Even if teams are targeting different territories and verticals, teams will have to outdo their competition in their respective verticals to gain incentives. There are advantages and disadvantages on either side and you might have to adopt a hybrid approach. Let's take a look at the benefits and drawbacks of each.
Benefits of Individual incentive plan
- An individual plan is designed to attract and retain fresh and young top talent.
- An individual plan tends to have a quicker and greater impact on your sales revenue.
- Individual plans encourage strong sales culture within the org.
Drawbacks of Individual incentive plan
- Individual plans tend to encourage an “everyone for themselves” culture within the org.
- Managers might have to spend time resolving conflicts among competing sales reps.
- Individual plans might lead to rival groups within your sales force.
Benefits of Team incentive plan
- You do not heavily depend on individual brilliance or exceptional talent to get results.
- You can nurture future business leaders by entrusting a few top talents with their own teams.
- Average teams can be made to perform at optimum levels. You do not have to invest heavily in hiring top talent.
- Team plans tend to create an environment of camaraderie and promote team spirit.
- With a Team plan, business leaders can avoid friction among competing sales reps.
Drawbacks of Team incentive plan
- One of the most glaring drawbacks of a team plan is the possibility of mediocrity sets in.
- Individuals within teams might not be as motivated to perform to their potential.
- It may also drive some top talent away to greener pastures.
- If individual performance metrics are not clearly defined, it becomes virtually impossible to pinpoint root causes for underperformance.
Which plan is best for your business?
Clearly, no one plan can be a good fit for anyone business. You will see more and more businesses tending towards a hybrid incentive plan which looks to build on benefits offered by both approaches. You want to build teams that engage in healthy competition and individuals within those teams focused on individual performance while also helping the team overachieve targets. If you can measure individual performance as well as their contribution towards pushing the team to meet its goals, you can very well have a hybrid setup.
A hybrid setup not only drives individual performance and holds them accountable, but also measures their contribution to team success. You are more likely to hire and retain top sales talent while also building competitive teams with a healthy team spirit. One caveat with hybrid plans is what is called a Waterdown of sales compensation. If you bring an overwhelming number of variables into incentive calculation, you will more often than not water down or dilute all the benefits that such a setup offers.
We hope you get to take away some points from the discussion above and get to build successful sales teams. No matter what your compensation model, we at Kennect have two incredible sales incentive and performance tools that integrate seamlessly to let you take advantage of any kind of incentive plan you implement. Our Incentive Compensation Management tool helps you build over your kind of plan easily while also integrating with Sales Performance Management to give you visibility and control of both individuals and sales teams.