Turbo charged sales incentive techniques to accelerate performance

Using Turbo-Charged Sales Incentive Techniques toAccelerate Performance

Presented by:Jerome A. Colletti, Managing Partner

Mary S. Fiss, Partnerwww.collettifiss.com

(480) 483-1480

This material was used by Colletti-Fiss, LLC during an oral presentation at WorldatWork’s 2011 Total Rewards Conference; it is not a complete record of the discussion nor was it designed to be so.

© Colletti-Fiss, LLC, 1999-2013

Introduction

Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011

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Session Topics

Three “turbo-charged” sales incentive techniques

“Basics” associated with each technique

Business situations where best used

Incentive designs that illustrate each technique

CF's perspectives on common post-implementation questions asked about these techniques


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Three Turbo-Charged Sales Incentive Techniques

Fast start bonuses

OA* incentives

SPIFFs**

*OA = Overachievement**SPIFF = Special Performance Incentive for Field)


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Rationale

Why needed?

What are expectations?

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Why Needed?

49% of executives surveyed by Booz & Company say their companies have no list of strategic priorities….*…in CF’s opinion, these techniques are often needed to align sales force effort and behavior with high priority sales objectives

Many companies lack list of strategic priorities

*The Essential Advantage: How to Win with a Capabilities Driven Strategy, Cesare Mainardi & Paul Leinwand, Harvard Business Press, 2011


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What Are Common Expectations?

IncentiveTechnique

Expectations(Select Examples)

Fast start bonus Counter seasonality or cyclicality in buyer purchases

Realize more revenue sooner, e.g., subscription based businesses

OA incentive Encourage quota attainment sooner Improve number of sales reps that

overachieveSPIFFs Achieve priority, short term sales goals, e.g.,

new product launch; new market entry


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Overview – Outcomes Assessment

Topic CF’s PerspectivesROI measurement Common question – “what would sales have

been without this incentive technique…” Challenge – how to control for confounding

variables, both internal and externalOutcome based

measures Expand view of ROI to focus on overall

impact of incentive technique rather than just financial return from incentive investment

Identify outcome based measures to track before, during and after the plan

Supplement outcomes measurement with other relevant data – interviews with sales managers; collection of data from other functions affected


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Deeper Dive into Each

Applicable business situations

Design principles associated with technique

Examples of specific incentive designs

Effectiveness assessment

Fast Start Bonuses


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Applicable Business Situations

Business Situation Industry/Market ExamplesSeasonality in buying Pool & Spa

Office and school supplies and equipment

Outdoor furniture and patio accessories

Cyclicality Enterprise software Electrical manufacturers and

distributorsUsage Subscription based businesses,

e.g., software as a service; digital and print media


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Design Principles Associated with Fast Start Bonuses

Feature Principle/PracticeEligibility All “sellers” and their direct managers

Incentive opportunity 15% to 30% of target

Performance measure One – typically the “production” measurement (the one with majority incentive weight)

Funding Carve out from overachievement pay

Payout frequency Typically, end of Q1


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Illustrative Design: Fast Start Bonus

Performance Range Fast Start Incentive AwardIf actual performance is… Bonus defined by formula in current

sales incentive compensation plan(X) times multiplier indicated below:

Below threshold 1Greater than threshold but less

than 100% of quota1

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.


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Effectiveness Assessment: Fast Start Bonus

Timing Suggested ActionsBefore Clarify objective – why use Fast Start bonus; what results

are expected; how measured; where funds will come from/what is budget

Determine timing – this year only; “evergreen”During Performance distribution – favorably impacted?

Number of reps participating vs. expectation Earnings per reps during period– overall; proportion due to

Fast Start bonus Managers’ views about its 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 (OA) Incentive


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Business Situation Industry/Market Examples 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

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


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Design Principles Associated with OA

Feature Principle/PracticeEligibility All “sellers” and their direct managers

Leverage opportunity Ranges from 2x to 4x depending on competitive practice and financial affordability

Measure(s) OA is assigned to

Typically, only sales financial measures (MBOs, non-financial measures excluded)

Number of OA points Typically, one; two points if performance excellencerange is narrow and second overachievement 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


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Illustrative Design: Overachievement Incentive

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

Element PerformanceMetric(s)

% of Target (Schedule)

Rates Payout Frequency

Bonus YTD sales (bookings) vs. sales quota

0 – 50%> 50% to 100%

$600.00$1,200.00

Quarterly

OA Commission

Total sales booking vs.annual sales quota

100% +

> 120%

10% of totalsales

+5% (for total of 15%)

Annual

Notes: OA commission rewards for growth in larger territories Because OA is paid annually (after close of year), motivates retention


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Effectiveness Assessment: OA Incentive

Timing Suggested ActionsBefore Confirm mix and leverage competitively appropriate for the

sales job(s) Confirm leverage ratio is financially affordable at proposed

OA level(s) Estimate # 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

SPIFFs


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Business Situation Industry/Market Examples Introduce new products Acquire new accounts in new

market Sell aging/discontinued

products or products under competitive attack

B2B companies (notable exception: long cycle sales)

B2C companies – particularly consumer goods sold through multi-channels


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Design Principles Associated with SPIFFs

Feature Principle/PracticeEligibility Typically, all sales reps and first line sales managers –

employees in jobs that directly impact sales resultsFrequency When used, typically quarterly (more frequent use

dilutes impact)Average length Quarter, i.e., 90 days (should reflect length of sales

cycle)Performance criteria Defined goal; metric(s) should neither compete with

sales incentive comp plan nor reward a result that it pays for (i.e., double comp’ing)

Average % winners 20% to 30% of eligible participants

Type of award Cash

Average value of SPIFF awards

Within range of 5% to 10% of variable pay (commission, sales bonus) budget; and, within 3% to 6% of base salary


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Illustrative Design: New Product/New Order SPIFF

Plan Features DefinitionsEligible personnel

All sales personnel, both Field and Inside staff; excludes managers

Eligible products Only products specifically listed in SPIFF program sheet qualify for reward provisions

Definition of a sale

For purpose of the SPIFF program, a sale is defined as a “booked order”

“New” order If an eligible product has not been purchased by a current customer either “stand-alone” or part of a “bundled” order during the 12 month period prior to the start of this Program, then order shall be considered a “new order”

Program period This SPIFF program will be in effect from February through July; new orders must be submitted and accepted into the CRM system during that period to qualify for SPIFF bonus


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Illustrative Design: AlternativesNew Product/New Order SPIFF

Alternative 1:Defined Bonus $s

Alternative 2:Defined Commission Rate

Product Sales Bonus Payout Product Sales Commission Rate

$x to y $1,000 $x to y 3%y+1 to z $2,000 y+1 to z 3.5%

> z $3,000 > z 4%Etc. Etc. Etc. Etc.

Note: Regardless of the Alternative selected, the sum of all “new order” sales, as defined in the Program terms will quality for SPIFF payout providing that the sales person’s year to date sales results at or greater than zz% of his/her assigned quota


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Effectiveness Assessment: SPIFFs

Timing Suggested ActionsBefore Clarify objective – why SPIFF is used; what results are

expected; how measured; where funds will come from Confirm SPIFF is appropriate for proposed use

During Percent employee participation – consistent with expectation; representative by job or job level

Performance distribution – favorably impacted

After Final percent employee participation Range of awards; size of average award ROI assessment – results vs. cost; met/exceeded

expectation Managers’ and sales reps view about SPIFF

Summing Up


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Commonly Asked Questions about Turbo-ChargedIncentive Techniques

Questions Factors to ConsiderWouldn’t we get these desired sales results without these incentives?

Historical results Current economic realities Need for sustainability

Because sales reps come to expect these incentives (e.g., SPIFFs) don’t’ they do more harm than good?

Frequency Strategic vs. “make-up” pay use Size of individual reward; totals

How do companies back away from these turbo incentive techniques when it comes time to do so?

Redefinition of sales success “Replacement” with strategy Gradual/phased implementation

How do these techniques impact customers – are there potentially negative consequences to watch for?

“Product push” or other aggressive selling behaviors

Order entry timing Customer satisfaction level, if

tracked


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Closing Comments

Confirm that the sales incentive technique addresses the business need

Insure that objective(s) for a particular incentive technique is/are explicitly stated prior to design

Define/itemize expected outcomes and related incentive cost; confirm where funds will come from

Set an assessment blue print (including timetable) prior to moving forward

Turbo charged sales incentive techniques to accelerate performance

Business

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