Turbo charged sales incentive techniques to accelerate performance

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    18-Jan-2015

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In Colletti-Fiss' April 17, 2013 blog post (http://collettifiss.com) we provide perspective on fast start incentive in "Slow Start to Q1: Are Fast Start Incentives Right for Your Sales Force". This slide presentation provides a deeper dive into the topic.

Transcript

  • 1. Using Turbo-Charged SalesIncentive Techniques toAccelerate PerformancePresented by:Jerome A. Colletti, Managing PartnerMary S. Fiss, Partnerwww.collettifiss.com(480) 483-1480This material was used by Colletti-Fiss, LLC during an oral presentation at WorldatWorks 2011 Total RewardsConference; it is not a complete record of the discussion nor was it designed to be so. Colletti-Fiss, LLC, 1999-2013

2. Introduction 3. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20113Session Topics Three turbo-charged sales incentive techniques Basics associated with each technique Business situations where best used Incentive designs that illustrate each technique CFs perspectives on common post-implementation questionsasked about these techniques 4. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20114Three Turbo-Charged Sales Incentive Techniques Fast start bonuses OA* incentives SPIFFs***OA = Overachievement**SPIFF = Special Performance Incentive for Field) 5. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20115Rationale Why needed? What are expectations?4 6. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20116Why Needed?49% of executives surveyed byBooz & Company say theircompanies have no list ofstrategic priorities.*in CFs opinion, thesetechniques are often needed toalign sales force effort andbehavior with high priority salesobjectivesMany companies lack list ofstrategic priorities*The Essential Advantage: How to Win with a Capabilities Driven Strategy, Cesare Mainardi & Paul Leinwand, HarvardBusiness Press, 2011 7. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20117What Are Common Expectations?IncentiveTechniqueExpectations(Select Examples)Fast start bonus Counter seasonality or cyclicality in buyerpurchases Realize more revenue sooner, e.g.,subscription based businessesOA incentive Encourage quota attainment sooner Improve number of sales reps thatoverachieveSPIFFs Achieve priority, short term sales goals, e.g.,new product launch; new market entry 8. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20118Overview Outcomes AssessmentTopic CFs PerspectivesROI measurement Common question what would sales havebeen without this incentive technique Challenge how to control for confoundingvariables, both internal and externalOutcome basedmeasures Expand view of ROI to focus on overallimpact of incentive technique rather than justfinancial return from incentive investment Identify outcome based measures to trackbefore, during and after the plan Supplement outcomes measurement withother relevant data interviews with salesmanagers; collection of data from otherfunctions affected 9. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 20119Deeper Dive into Each Applicable business situations Design principles associated with technique Examples of specific incentive designs Effectiveness assessment 10. Fast Start Bonuses 11. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201111Applicable Business SituationsBusiness Situation Industry/Market ExamplesSeasonality in buying Pool & Spa Office and school supplies andequipment Outdoor furniture and patioaccessoriesCyclicality Enterprise software Electrical manufacturers anddistributorsUsage Subscription based businesses,e.g., software as a service; digitaland print media 12. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201112Design Principles Associated with Fast Start BonusesFeature Principle/PracticeEligibility All sellers and their direct managersIncentive opportunity 15% to 30% of targetPerformance measure One typically the productionmeasurement (the one with majorityincentive weight)Funding Carve out from overachievement payPayout frequency Typically, end of Q1 13. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201113Illustrative Design: Fast Start BonusPerformance Range Fast Start Incentive AwardIf actual performance is Bonus defined by formula in currentsales incentive compensation plan(X) times multiplier indicated below:Below threshold 1Greater than threshold but lessthan 100% of quota1100% of quota or greater, but lessthan excellence performance120% times XExcellence performance or greater 140% times XNote (provision specific to plan feature): Multiplier is applied to incentivecompensation earned in Q1 only. 14. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201114Effectiveness Assessment: Fast Start BonusTiming Suggested ActionsBefore Clarify objective why use Fast Start bonus; what resultsare expected; how measured; where funds will comefrom/what is budget Determine timing this year only; evergreenDuring Performance distribution favorably impacted? Number of reps participating vs. expectation Earnings per reps during period overall; proportion due toFast Start bonus Managers views about its impactAfter Comparative analysis this year with Fast Start bonus vs.last year without it ROI assessment results vs. cost; met/exceededexpectations Managers and sales reps views about plan Impact on customers pluses; minuses 15. Overachievement (OA) Incentive 16. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201116Applicable Business SituationsBusiness Situation Industry/Market Examples Attractive profitabilitymodel, i.e., relativelyhigh gross margin withno to low capacityconstraints Aggressive sellingbehavior desired withlimited negativecustomer satisfactionconsequences Most business segments within thehigh technology sector Software Industry Professional services (accounting,tax, investment advisors) Sales financing services (installmentcredit services) Businesses whose revenue model issubscription based, e.g., software asa service, and driving usage isessential to success 17. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201117Design Principles Associated with OAFeature Principle/PracticeEligibility All sellers and their direct managersLeverage opportunity Ranges from 2x to 4x depending on competitivepractice and financial affordabilityMeasure(s) OA isassigned toTypically, 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- achievementpoint can be set with confidenceLimitations, i.e., caps,visorUse to limit companys financial exposure whenconfidence in sales forecasting and quotaallocation is low 18. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201118Illustrative Design: Overachievement IncentiveMajor Account Sales RepTarget Incentive: $60,000; OA opportunity 3x ($180,000)Element PerformanceMetric(s)% of Target(Schedule)Rates PayoutFrequencyBonus YTD sales(bookings) vs.sales quota0 50%> 50% to 100%$600.00$1,200.00QuarterlyOACommissionTotal salesbooking vs.annual salesquota100% +> 120%10% of totalsales+5% (for totalof 15%)AnnualNotes: OA commission rewards for growth in larger territories Because OA is paid annually (after close of year), motivates retention 19. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201119Effectiveness Assessment: OA IncentiveTiming Suggested ActionsBefore Confirm mix and leverage competitively appropriate for thesales job(s) Confirm leverage ratio is financially affordable at proposedOA level(s) Estimate # of sales reps that will reach OA level(s) andrelated costDuring Performance distribution OA consistent with expectation? Managers views about performance to plan; OAs impact ondriving to year-end performanceAfter Comparative analysis results current year vs. prior years;results vs. plan ROI assessment results vs. cost; consistent with budgetset for OA Managers and sales reps views about this component ofplan 20. SPIFFs 21. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201121Applicable Business SituationsBusiness Situation Industry/Market Examples Introduce new products Acquire new accounts in newmarket Sell aging/discontinuedproducts or products undercompetitive attack B2B companies (notableexception: long cycle sales) B2C companies particularlyconsumer goods sold throughmulti-channels 22. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201122Design Principles Associated with SPIFFsFeature 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 usedilutes impact)Average length Quarter, i.e., 90 days (should reflect length of salescycle)Performance criteria Defined goal; metric(s) should neither compete withsales incentive comp plan nor reward a result that itpays for (i.e., double comping)Average % winners 20% to 30% of eligible participantsType of award CashAverage value of SPIFFawardsWithin range of 5% to 10% of variable pay (commission,sales bonus) budget; and, within 3% to 6% of basesalary 23. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201123Illustrative Design: New Product/New Order SPIFFPlan Features DefinitionsEligiblepersonnelAll sales personnel, both Field and Inside staff; excludesmanagersEligible products Only products specifically listed in SPIFF program sheetqualify for reward provisionsDefinition of asaleFor purpose of the SPIFF program, a sale is defined as abooked orderNew order If an eligible product has not been purchased by a currentcustomer either stand-alone or part of a bundled orderduring the 12 month period prior to the start of thisProgram, then order shall be considered a new orderProgram period This SPIFF program will be in effect from Februarythrough July; new orders must be submitted and acceptedinto the CRM system during that period to qualify for SPIFFbonus 24. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201124Illustrative Design: AlternativesNew Product/New Order SPIFFAlternative 1:Defined Bonus $sAlternative 2:Defined Commission RateProduct Sales Bonus Payout Product Sales CommissionRate$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 thesales persons year to date sales results at or greater than zz% of his/herassigned quota 25. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201125Effectiveness Assessment: SPIFFsTiming Suggested ActionsBefore Clarify objective why SPIFF is used; what results areexpected; how measured; where funds will come from Confirm SPIFF is appropriate for proposed useDuring Percent employee participation consistent withexpectation; representative by job or job level Performance distribution favorably impactedAfter Final percent employee participation Range of awards; size of average award ROI assessment results vs. cost; met/exceededexpectation Managers and sales reps view about SPIFF 26. Summing Up 27. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201127Commonly Asked Questions about Turbo-ChargedIncentive TechniquesQuestions Factors to ConsiderWouldnt we get these desired salesresults without these incentives? Historical results Current economic realities Need for sustainabilityBecause sales reps come to expectthese incentives (e.g., SPIFFs) dontthey do more harm than good? Frequency Strategic vs. make-up pay use Size of individual reward; totalsHow do companies back away fromthese turbo incentive techniqueswhen it comes time to do so? Redefinition of sales success Replacement with strategy Gradual/phased implementationHow do these techniques impactcustomers are there potentiallynegative consequences to watch for? Product push or other aggressiveselling behaviors Order entry timing Customer satisfaction level, iftracked 28. Using Turbo-Charged Sales Incentive Techniques to Accelerate PerformancePresented at WorldatWork Total Rewards Conference, May 24, 201128Closing Comments Confirm that the sales incentive technique addresses the businessneed Insure that objective(s) for a particular incentive technique is/areexplicitly 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 movingforward

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