Belt Tightening

By Christine Neuberger

When the economy slows to a snail’s pace, companies like to engage in a game called belt tightening. And one of the first places to feel the pinch of the cinch may just be a sales manager’s pet incentive program. Ouch, you say? Well, hear this. You can provide meaningful incentives to rev up your sales reps, even when the belt is threatening to put a stranglehold on sales incentives. American Express Incentive Services in Fenton, MO., offers the following guidelines for planners trying to build an incentive budget in tight times.

Pays its way.
A good incentive campaign should pay for itself with the profits created when sales increase. Typically, businesses spend roughly 10 percent of incremental profits on sales-incentive programs. If your goals are based on such hard-to-quantify improvements as better customer satisfaction, then view the program as a long-term investment in your organization’s growth.

What’s your perspective?
Management must view the campaign’s budget as reasonable or it won’t gain support, and participants must find the incentive appealing or it won’t succeed. Review the objectives of the company and the program. Know where the funding will come from. Get acquainted with the audience – their number, who they are, their average annual income and what would motivate them.

The numbers, please.
Follow these budget-building rules of thumb: either make your budget equivalent to .5 to 3.5 percent of your company’s total sales or fund your budget with 5 to 10 percent of incremental sales. Consider the components of a program budget: awards (70 to 90 percent of budget), promotion and communication (10 to 20 percent), and administration (as much as 10 percent). Finally, follow these guidelines for participant awards: long-term, 6-to-12-month programs should deliver rewards worth 3 to 5 percent of a participant’s income during the period. Shorter, 60-to-90-day programs should offer awards equivalent to 6 to 8 percent of their income in the period.

Open and Close.
Budgets based on incremental sales typically work best with open-ended budgets. The downside of an open-ended structure? It complicates efforts to project an ultimate price tag. The upside? An open-ended program dangles the heftiest carrot. A closed-ended awards budget provides the certainty of knowing the final expenditure at the outset, but the structure generally motivates fewer people.

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