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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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Three Turbo-Charged Sales Incentive Techniques
Fast start bonuses
OA* incentives
SPIFFs**
*OA = Overachievement**SPIFF = Special Performance Incentive for Field)
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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Rationale
Why needed?
What are expectations?
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Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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.
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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Applicable Business Situations
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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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 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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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Applicable Business Situations
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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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
Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 2011
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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