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Sales Incentives, Compensation, and Evaluation

Chapter 16,17,19

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Sales Incentives

Sales incentive is defined as anything used to reward sales personnel for their accomplishment.

Non-financial incentives e.g. recognition or reward.

Financial incentives are direct monetary payments.

Fringe benefits are indirect monetary rewards including vacations, insurance plans, pensions.

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Sales Incentive Objectives

1. Increase overall sales volume

2. Introduce new products

3. Sell new accounts

4. Improve morale and goodwill

5. Move ‘slow’ items

6. Bolster slow season

7. Offset competition

8. Prepare for strong season

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Sales Compensation

Money-sensitive salesperson: salesperson are motivated to work harder by an increase in remuneration

Leisure-sensitive salesperson: salesperson is motivated by different perks and benefits offered to him apart from his basic pay structure

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Sales Compensation Trends

Emphasis on specific goals: many companies are trying to relate sales compensation to specific management objectives.

Shift to combination plans: sales compensation plans that include salary plus commissions and/or bonuses.

Changing sales strategies and tactics: team selling requires a compensation program that rewards all members of the sales team appropriately. Team compensation plans must offer incentives to non-sales members as well as to salespeople, to achieve corporate excellence.

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Steps in Developing a Compensation Plan

1. Review the sales job: proper job description

2. Determine specific objectives: sales compensation objectives should be related to the marketing goals

3. Establish the level of compensation: sales compensation should be set at a level sufficient to attract, retain and stimulate the type of salespeople desired

4. Choose the method of compensation: method of compensation influences the performance of the sales force be it salary, commission, bonus or a combination. When choosing a method of compensation, factors to consider are motivation, control, and cost

5. Implementation: presenting the plan and evaluating

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Other Fringe Benefits

Profit-sharing: If a company’s profit rise above a set level, employees receive a cash bonus.

Stock-purchase plan: Employees may acquire a share in the business by purchasing stock at a discount price.

Credit Union: A company-sponsored credit union allow its employee members to save regularly through payroll deductions or to borrow at low interest rates.

Employee services: Miscellaneous benefits like free parking, recreational facilities, discount on company’s products etc.

Cafeteria plan: Tax favored plan which allows employee to choose his/her desired benefits

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EVALUATION

A Sales person has to meet certain targets and goals during a certain period of time. His performance is measured bearing in mind the following criteria's.

REVENUE GENERATED THROUGH SALES UNITS SOLD FIRST TIME USERS / ADD IN OF THE NUMBER OF

NEW CUSTOMERS

ESCALATED (percentage)

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Steps in Development of a Sales Evaluation Program

Planning(a) Make a detailed study of the sales job

(b) Write the job description

Managing(a) Establish performance standards

(b) Evaluate and determine reasons for salespeople performance above or below standards.

(c) Take action for improvement

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A Sales Evaluation must be the following:

Realistic: It must reflect territories, competition, experience, sales potential etc.

Continuous, known, expected: It must show a salesperson when and how work is evaluated.

Motivating: It must stimulate a salesperson to improve

Informative: It must provide useful information about a salesperson and the territory for management.

Participatory: It must involve salespersons in their own evaluations.

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Objective, not subjective: It must be based on standards, not on opinions and prejudices

Flexible: It must be adaptable to changing market conditions

Specific: It must fit the company and the sales force involved.

Economical: It must be worthwhile in terms of money and time.

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Sales Force Control System

It provides a set of procedures for monitoring, directing, evaluating and compensating sales personnel:

Outcome-based control system: that monitor the final outcome of the sales process.

Behavior-based control systems: control system that monitors that individual stages, or behavior in the sales process.

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The Appraisal Checklist

1) Sales quality 2) Sales activity3) Selling skills4) Job knowledge5) Self organization and planning6) Participation7) Administrative monitoring and control expense8) Company relation and commitment9) Product knowledge10) Interpersonal relations and customer satisfaction11) Professional development

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1. Sales Quality

(a) Did the Sales Person sell the entire range of products services or just a few.

(b) Did he or she concentrate on selling the least expensive or least profitable ?

(c) Did he or she maintain list price or sell off price?

(d) Did they concentrate on all the market?

(e) Are some of the metrics for measuring Sales Quality of the Sales person.

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2. Sales Activity

The Sales Manager knows that certain activities by the sales Person lead to increased Sales

- Qualifying Leads- Asking for Referrals

Selling Laterally to different departments within the same firm

- Calling on inactive accounts- Upgrading Accounts

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Activity Process

1. Number of outbound prospecting calls made during the past time period for new business

2. Number of outbound prospecting calls made during a time period for business from existing customers

3. Number of initial sales interviews given during the time period

4. Number of presentations given during the time period.

5. number of proposals generated and delivered during the past [time period]

6. Number of trade shows and/ or events (selling opportunities) attended during the past [time period]

7. Growth (percentage) of each figure above over the previously measured period

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3. Selling skills and customer relation

Making Conversions Creating Empathy Using Probing Questions to identify Customer

Needs and Problems Presenting Features, Benefits & Proof Quantifying Questions Answering Objections Shortening the Sales Cycle Identifying decision makers & influencers Handling price increases.

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4. Job Knowledge

The metrics for measuring Job Knowledge would include the following:

Knowledge of the Organization Its Customers The Competition The Competitive Advantages of the organization. Products/Services features and applications Pricing Programs Market & Industry related information Company Policies

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During a Customer visit, the Sales person should be able to handle any type of queries thrown at him. Most of all they would involve questions based on:

Product performance Competitive Pricing Industry Trend sales New Applications

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5. Self Organizing and Planning

His efficient use of time for traveling in the territory Allocation of time for different activities and

functions and various geographic areas. Maintaining records and profiles of customers Setting appointments Planning Each day and week Planning & Presentation Keeping samples and sales literature neat.

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6. Participation

Participation: Prompt attendance and involvement in Sales meetings, trade shows, seminars, outside workshops, advisory groups and new product committees, together with prompt replies to companies questionnaires.

A sales person who continuously fails to return memos emails on what new services received the best customer response, would receive a poor rating and vice-versa

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7. Administrative monitoring and expensive control

A good sales person would surely be a good administrator in terms of:

- planning, monitoring sales efforts, - prompt submission of accurate route sheets, - calls reports, orders and service agreements,- expense accounts, - customer credit information, - customer profiles and status reports, - market assessment analysis,- how he manages the costs and the budget

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8. Company relation and personal characteristics

Personal Characteristics could include:

his approach towards his job in terms of enthusiasm, self confidence, assertiveness, aggressiveness, persistence, drive, flexibility, judgment, stability, dependability, sense of urgency, imagination, creativity, initiative, responsibility and his being a Team Player above all.

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9. Product Knowledge

It is of vital importance for the Sales person to be updated to the core when it comes to knowing the product he sells. Apart from that he has to process complete knowledge about the competitors / substitutes of the product.

New product/ Service knowledge, New Industry knowledge acquired by the Sales person is considered.

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10. Interpersonal skills while handling sales

Related procedures & customer relations: Skills are of vital importance to know the over all attitude and behavioral components towards his job, his customers, the prospects, and the market over all.

Does he maintain the “Stay in Touch Relationship” discovering primary issues of concern building rapport establishing trust addressing objections planning action steps asking for referrals seeking additional selling opportunities

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THE RATING SYSTEM

Ratings are generally done on basis of: Poor/Fair/Average/Very Good/Excellent.

Performance appraisals ask managers to set standards, be critical and sit in judgment.

Because of this, many organizations have binary rating systems, i.e. “ Meets the Standards” “Below Standards” or “Acceptable” or “Not Acceptable”.

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THE EVALUATION INTERVIEW

The ultimate effectiveness of the appraisal process depends upon how the Sales Manager prepares for, organizes and conducts the salespersons interviews and vice-versa.

30 days in advance to the interview the appraisal form should be circulated among sales people. This could be done in a comprehensive memo or email or it could even be done at a meeting or during a conference.

Information including the appraisal goals, benefit, topics, metrics, definitions rating system, interview process, time frame, changes and each party’s responsibilities.

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REVIEW

Sales people must have access to the results on which they would be evaluated.

They should be asked to review their pervious goals; to see if anything has changed? And how well were the goals previously set in the last evaluation have been accomplished.

A review of the past 3 quarterly appraisals for recurring problems, trends will enhance the evaluation process.