Sales

How to Turbo-Charge Your Sales Incentives

Stephen Bruce, PhD, PHR

Three “turbo-charged” sales incentive techniques will accelerate your sales performance, say experts Jerome A. (“Jerry”) Colletti and Mary S. Fiss. They shared their tips at the WorldatWork’s Total Rewards Conference and Exhibition, held recently in San Diego.

The three turbocharged techniques Coletti and Fiss suggest are: Fast Start Bonuses, OA incentives, and SPIFFs. Colletti is Managing partner of consulting firm Colletti-Fiss, LLC; Fiss is a partner.

What Can You Expect from Turbo-Charging?

Fast start bonuses are helpful to counter seasonality or cyclicality in buyer purchases, and to help realize more revenue sooner, for example, in subscription-based businesses.

OA Incentives (OverAchiever Incentives) encourage quota attainment sooner, and improve the number of sales reps that overachieve.

SPIFFs help to achieve priority and short term sales goals, for example, a new product launch or a new market entry, say Coletti and Fiss. (What’s a SPIFF? See tomorrow’s Advisor.)

Fast-Start Bonuses

Colletti and Fiss’s suggest three business situations ripe for Fast Start Bonuses:

  • Seasonality in buying (e.g., pool & spa, office and school supplies and equipment, outdoor furniture and patio accessories)
  • Cyclicality (e.g., enterprise software, electrical manufacturers and distributors)
  • Usage (e.g., subscription based businesses such as software as a service; media)

Design Principles associated with Fast Start Bonuses

Colletti and Fiss offer the following design principles for developing Fast Start Bonuses for your organization:

  • Eligibility. All “sellers” and their direct managers.
  • Incentive opportunity. 15% to 30% of target.
  • Performance measure. One—typically the “production” measurement. (the one with the majority incentive weight).
  • Funding. Carve out from overachievement pay.
  • Payout frequency. Typically, end of Q1.

Illustrative Design: Fast Start Bonus

 

Here is Colletti and Fiss’s example of a Fast Start Bonus:

If actual performance is…

Bonus defined by formula in current sales incentive compensation plan (X) times multiplier indicated below:

Below threshold

1

Greater than threshold but less than 100% of quota

1

100% of quota or greater but less than excellence performance

120% times X

Excellence performance or greater

140% times X

Note (provision specific to plan feature): Multiplier is applied to incentive compensation earned in Q1 only.


Effectiveness Assessment: Fast Start Bonus

Colletti and Fiss suggest the following assessment activities for Fast Start Bonuses:

Before

  • Clarify objective – why you use Fast Start Bonuses, what results are expected; how measured; what is the budget
  • Determine timing – this year only; “evergreen”

During

  • Performance distribution – favorably impacted?
  • Number of reps participating vs. expectation
  • Earnings per rep during period—overall, and proportion due to Fast Start bonus
  • Managers’ views about Fast Start’s impact

After

  • Comparative analysis – this year with Fast Start bonus vs. last year without it
  • ROI assessment – results vs. cost; met/exceeded expectations
  • Managers and sales reps views about plan
  • Impact on customers – pluses; minuses

Overachievement Incentive

Again, Colletti and Fiss identify two business situations appropriate for Overachievement Incentives:

  • Attractive profitability model, i.e., relatively high gross margin with no to low capacity constraints
  • “Aggressive” selling behavior desired with limited negative customer satisfaction consequences

They find the approach suitable for:

  • Most business segments within the high technology sector
  • Software Industry
  • Professional services (accounting, tax, investment advisors)
  • Sales financing services (installment credit services)
  • Businesses whose revenue model is subscription based, e.g., software as a service, and driving usage is essential to success

Design Principles Associated with OA

Colletti and Fiss offer the following design principles for developing OA Incentives for your organization:

  • Eligibility. All “sellers” and their direct managers.
  • Leverage opportunity. Ranges from 2x to 4x depending on competitive practice and affordability.
  • Measure(s) OA is assigned to. Typically, only sales financial measures.
  • Number of OA points. Typically, one; two points if performance excellence range is narrow and second over-achievement point can be set with confidence.
  • Limitations, i.e., caps, “visor.” Use to limit company’s financial exposure when confidence in sales forecasting and quota allocation is low.

Illustrative Design: Overachievement Incentive

Here Colletti and Fiss show how payouts could be structured for a major account rep:

Major Account Sales Rep
Target Incentive: $60,000; OA opportunity 3x ($180,000)

Element

Performance Metric(s)

% of Target (Schedule)

Rates

Payout Frequency

Bonus

YTD sales (bookings) vs. quota.

0 – 50%
> 50% to 100%

$600 $1,200

Quarterly

OA Commission

Total sales booking vs. annual sales quota

>100%

> 120%

10% of total sales +5% (for total of 15%)

Annual

Note:
Because OA is paid annually (after close of year), it motivates retention.


Effectiveness Assessment: OA Incentive

 

Colletti and Fiss suggest the following assessment activities for OA Incentives:

Before

  • Confirm mix and leverage competitively appropriate for the sales job(s).
  • Confirm leverage ratio is financially affordable at proposed OA level(s).
  • Estimate number of sales reps that will reach OA level(s) and related cost.

During

  • Performance distribution – OA consistent with expectation?
  • Managers’ views about performance to plan; OA’s impact on driving to year-end performance.

After

  • Comparative analysis – results current year vs. prior years; results vs. plan.
  • ROI assessment – results vs. cost; consistent with budget set for OA.
  • Managers and sales reps views about this component of plan.