Get Your Just Returns

By Malcolm Fleschner

Not that long ago the measure of a sales incentive program’s success came down to little more than a sales manager checking the forecasts against actual sales figures and saying: Well that seemed to work out OK. Not anymore. Today ROI is one of the hottest buzzwords in the incentive field, and more upper-level sales executives are demanding that program managers provide hard evidence that incentives are delivering their promised results.

When asked for the most common ROI-related incentive mistakes he sees, Bob Dawson, managing director for Business Group Inc., a Rocklin, California-based organization that focuses on delivering incentive program solutions with measurable returns, offered the following five foul-ups:

  1. sales objectives based on last year’s sales
  2. sales objectives based on an across-the-board increase in sales without regard for market conditions, experience of the salespeople and so on
  3. unrealistic sales objectives that usually are set because it is felt they are what the CEO would want to see happen
  4. sales objectives that front load distributors with no sell through to end users
  5. sales objectives that create short-term expenses that far exceed short-term gains by adding volume to the company’s operations

Dawson says a big problem nowadays is that sales organizations often are more interested in talking about incentive ROI than genuinely determining a program’s bottom line results. “The reason given is always the same,” he says. “It’s too much work to determine the true impact of a sales incentive. So the results often are measured by the top-line sales or revenue standard against the cost of the incentive program. There are several flaws with this type of ROI measurement, however. The first is the definition of cost. With added pressure to demonstrate ROI and knowing the need for an incentive program is there – the fear of cancellation of incentive programs that have been in place is real – the first step is to see how much budgets can be squeezed. This leads to organizations cutting deals that reduce program value by eliminating events, limiting the number of days for a travel program or lowering the value of awards.”

The second issue Dawson notes relates to pursuing short-term gains that wind up producing a long-term loss. “Most sales organizations realize salespeople can be motivated – they wouldn’t be in sales without that characteristic,” he notes. “So they motivate the sales team to sell more because more revenue is always a good thing. Problems that can crop up typically 14 to 18 months later due to these short-term gains include new customers that turn out to be collection problems, added costs to operations that were not factored into the capital budget and direct monthly expenses that become long term. You often also see a lower return per customer as buyers who were once valued customers lose their connection with the organization because it’s too busy trying to right the ship with the collection customers and those who demand additional attention.”

As with so many other challenges facing sales organizations, Dawson points out that your sales incentive program won’t produce good ROI if you neglect the fundamentals. “Typical sales incentive programs are not planned well,” he acknowledges. “The planning often includes a forecast of revenues or sales and may even consider additional profits, though usually only top-line, gross profit and not true net. The affect on cash is critical, however, for the long-term viability of an organization. I have yet to see a company that can pay people and overhead expenses with just profits! Contest rules are yet another area where I see so many good intentions go bad. Rules play an important role in the design of a sales incentive program, yet they usually reflect the poor thought and effort that goes into creating the contests. As with the budget forecast, rules often are created to solve the short-term need such as an increase in sales. In fact, rules can and should be used to change behaviors throughout the sales organization, not just as a way of telling sales professionals how high they have to jump to earn the award.”