Sales Incentives Schemes: How to Calculate Sales Incentive

Sales Incentives Schemes
Sales Incentives Schemes

About 80% of sales can be attributed to 20% of a sales team. The majority that is underperforming need not necessarily be unqualified, though. Poor sales performance is usually brought on by a lack of motivation. Sales incentives schemes could be the solution to that problem.

Sales incentive plans have been used since time immemorial to motivate and reward sales teams’ good performance. Successful strategies typically take into account the individual strengths and weaknesses of a sales professional, foster teamwork within the sales team, and enhance the particulars of a deal.

We’ll look at ways to encourage sales representatives, recognize top performers, and mistakes to avoid when putting a sales incentive program into place in this post. Let’s get going!

What Is A Sales Incentive Plan?

A system that compensates salespeople who achieve particular objectives is known as a sales incentive scheme. Rewards can be monetary (like bonuses) or intangible (like gifts). In addition to the regular compensation plan, sales incentive plans aim to encourage salespeople to outperform expected performance standards.

5 Types of Sales Incentives

Based on company goals, the makeup of a sales team, and other criteria, sales incentives should be customized. Here are five suggestions for motivating representatives:

  1. Role-specific

Sales incentives should be designed so that they fit particular responsibilities. A salesperson who specializes in closing deals, for instance, might have different objectives than a salesperson who concentrates on prospecting. Running concurrent sales incentive programs for several sales rep types for a team like this may be the best course of action.

  1. Territory-based

A territory-based sales incentive scheme may occasionally be a successful strategy for inspiring sales teams. Reps working in the same territory receive an equal share of the overall commissions in this situation. This kind of scheme can provide just the right amount of social pressure on underachievers to meet new sales targets.

  1. Presales

Sales incentives may need to be designed on incremental goals rather than closed deals for items with a long sales cycle, like enterprise-level software. For instance, incentives could be linked to setting up product demonstrations for prospective customers, keeping sales representatives motivated as customers consider whether to buy the product or not.

  1. Omnichannel

In some industries, the sales process can start with a sales representative and end with an online transaction made by a lead. This is taken into consideration by omnichannel incentives, which may trace a closed sale back to the rep or reps who brought the prospect into the sales funnel in the first place.

  1. Analytics-based

Businesses can use analytics to examine sales rep behavior and more precisely define their sales targets. Therefore, analytics in the context of field service representatives may show that some reps close sales more quickly than others.

How to Calculate the Value of Sales Incentives?

There is a link between sales incentives and a profitable return on investment (ROI), but there are often other factors at play. Many times, there are intangible benefits that are difficult to measure, but just as valuable.

First and foremost, there is an easy-to-use equation you may apply to determine your ROI. Overall, it goes like this:

The magic formula for incentive calculation is Profit less Cost of Investment equals ROI.

For instance, if a sales incentive system generates a profit of $5 million and the investment in the incentive costs $1.5 million (in cash, goods, or travel vouchers), the ROI is $3.5 million. That’s the simple equation, and simple is often best.

Sort Out Your Incentives

Once you have decided that sales incentives will bring a profit, you’ll have to decide what form those incentives will take. Although gift cards and other merchandise rewards are certainly a nice idea, many employees prefer monetary awards, usually in the form of bonuses. These “concrete” numbers make it simple to determine the ROI, but travel vouchers are another effective incentive that is more difficult to measure. And sometimes recognition is rewarding enough.

Determine Your Goals and Targets

Aim your reward program at the mid-level performers since the top 20% of your employees are already well motivated. You will be able to be more precise with your goals and the incentives that will motivate these salesmen as a result. Talk to your salespeople as well, and find out from them what rewards would inspire them to work more.

In relation to goals, it is essential to have a specific target that your salesmen may work toward. It not only helps your employees understand the incentive program but also makes calculating the ROI much simpler.

Final Thoughts

Modern sales processes have become more multifaceted than ever before, and sales incentive schemes must adapt along with them. Motivating the sales team primarily entails making them feel valued and adequately compensated. Additionally, it increases staff retention.

When making a sales incentive plan, remember to align the sales incentives scheme with the company goals and organizational structure. Sales incentives must encourage discipline and self-drive as well as collaboration and teamwork.