Incentive plans effectively motivate sales teams when they focus on rewarding appropriate behaviors. Significant company budgets are often wasted on incentive programs that fail to produce matching revenue outcomes. The root of the issue? The underlying problem is that Key Performance Indicators (KPIs) lack clear definitions or proper alignment.

Organizations need to identify which Key Performance Indicators lead to revenue generation to control incentive budgets and optimize return on investment. This article offers a step-by-step approach to select and improve KPIs within your sales incentive plans to make sure they match your business objectives.

Choosing the right KPIs is essential for effective sales incentive plans.

KPIs serve as the essential structural foundation for every incentive plan. The defined success metrics determine what performance objectives the sales team aims to achieve. However, not all KPIs are created equal. Certain KPIs lead to actual revenue growth while others generate activities that fail to produce tangible results.

Common KPI Pitfalls:

a. Meeting-based KPIs such as the number of meetings or demo calls might lead to increased activity without generating sales results.
b. Lagging indicators like bookings offer valuable insights but fail to impact sales activities at an early stage.
c. Sales reps’ social media engagement metrics appear impressive in reports yet fail to generate revenue.
d. Your incentive budget reaches peak efficiency when you tie KPIs to quantifiable financial returns.

Step 1: Classify KPIs – Revenue-Driving vs. Non-Revenue-Driving

Begin by evaluating your current KPIs to understand how each one affects revenue performance. Combine historical performance information with qualitative input from sales staff to organize your KPIs.

a. Revenue-Driving KPIs (Examples):
b. Closed Won Revenue: Directly tied to income.
c. Net New Customer Acquisition functions as a driver for sustained business growth.
d. Average Deal Size: Encourages reps to go after larger opportunities.
e. Sales Cycle Reduction: Accelerates cash flow.
f. Non-Revenue-Driving KPIs (Examples):
g. Number of Cold Calls Made: High volume doesn’t always equal quality.

h. Training Module Completion: Training Module Completion matters yet does not directly result in sales success.
j. CRM Updates: The CRM Updates function is vital for maintaining system cleanliness but fails to generate revenue.

Step 2: Evaluate Correlation to Revenue

Perform correlation analyses between each KPI and actual generated revenue. The process of evaluating correlations between KPIs and revenue can be executed through either sales performance analytics platforms or simple regression analysis methods.

Example:
“Number of proposals sent” was used as a KPI by Company A. The analysis revealed that proposals produced discussions in 30% of cases and resulted in deals just 10% of the time. The conversion rates and revenue improved when the KPI changed to “qualified proposals sent to decision-makers” and this happened without any rise in incentive pay outs.

Step 3: Segment KPIs by Role and Sales Motion

Not every KPI works for every role. Sales roles require different metrics which should be adapted to align with their specific responsibilities and activities.

Example Segmentation:
a. BDRs/SDRs (Top of Funnel):
b. Effective KPIs: The conversion rate of qualified leads and the number of meetings.
c. Scheduled with Ideal Customer Profiles function as effective KPIs for BDRs/SDRs.
d. Account Executives (Mid-Funnel):
e. Effective KPIs: Pipeline created, deals closed, deal velocity.
f. Account Managers (Post-Sale):
g. Effective KPIs: Expansion revenue, churn reduction, customer satisfaction (CSAT).
h. Assigning inappropriate KPIs to sales roles leads to confusion and undermines the impact of incentive systems.

Step 4: Measure Cost per Revenue Dollar Generated

Evaluate the worthiness of incentivizing a KPI by comparing the amount of incentive budget optimization it uses against the revenue increase it generates.

Example:
Company B decided to use 25% of incentives for a cross-functional collaboration KPI but did not achieve measurable revenue growth or customer success despite enhanced teamwork. By allocating the same funds to sell higher-value KPIs better ROI boosted both revenue figures and employee satisfaction.

Formula to Use:
To calculate Cost per Revenue Dollar divide the KPI incentive expenditure by the revenue generated through that KPI.

When incentive costs exceed revenue contributions from a KPI the indicator needs reassessment.

Step 5: Implement Leading + Lagging KPIs for Balanced Control

An effective incentive plan must feature both leading and lagging KPIs.

Leading KPIs: Predictive indicators (e.g., early-stage pipeline created)
Lagging KPIs: Outcome-based indicators (e.g., quarterly revenue achieved)

Balanced Example:

a. 30% incentive based on pipeline quality (leading)
b. 70% incentive based on revenue closed (lagging)
c. The mix allows teams to monitor early performance progress while still achieving final results.


Step 6: Pilot and Refine

Test new KPI structures in a controlled group before implementing them across the whole organization. Measure:

a. Behavioural shifts
b. Revenue impact
c. Incentive budget usage
d. Sales rep feedback
e. Adjust KPIs based on insights before scaling.

Example:
The SaaS company tested a change in their performance metric from total product demos to those demos resulting in trial sign-ups which proved more effective at matching buying patterns and resulted in an 18% rise in their lead-to-close conversion rate.

Step 7: Align KPIs with Corporate Strategy

All incentivized KPIs should support larger corporate goals like profitability and market expansion.

A KPI which doesn’t support current strategic initiatives should not be included in the incentive plan.

Example:
The appropriate KPIs for the strategic goal of entering a new vertical market would include:

a. Revenue from target vertical
b. Meetings booked in vertical
c. Win rate in vertical
e. Organizations should utilize incentive dollars as a tool to boost their strategic goals.

Conclusion: Smart KPI Management = Smarter Incentive Budgets

Companies can generate additional revenue without expanding their incentive budget allocations. Organizations need to strategically choose which KPIs they decide to incentivize. Companies can optimize the efficiency of their incentive dollars through careful selection of revenue-impacting KPIs and elimination of irrelevant ones.

Data alongside teamwork between financial and sales divisions coupled with an ongoing optimization approach sets the foundation for improved KPI based incentive plans.

Are you prepared to pinpoint which KPIs effectively drive revenue growth within your organization? First conduct an audit of your current incentive plan and allow data to guide your decisions.