As a leader in Sales compensation thought process I would suggest those common pitfalls and how to avoid them while designing an incentive program to drive Profitability. An appropriately designed Incentive program influences Sales for desired growth/profitability by driving Bold Decisions and creating a better customer experience. So here are three common pitfalls to consider if you are designing an incentive program to drive Profitability.
1. Hazy Objectives: Make sure that the incentive programme’s objectives are clear, and that they are consistent with the organisation’s goals for improving overall profitability. If the sales teams’ favourite behaviour starts to conflict with the organisation’s profit goals, then the objective is ambiguous or conflicting.
2.Underweighting Longer-term performance: Whilst you obviously need to know your daily sales figures, paying attention only to those numbers at the expense of your customers means that over time loyal customers will leave you. Find a balance between current profit and lifetime value of your customers.
3.Complexity and Opaque Level of Distinction: Do not invest in excessively complex incentive structures, which cannot be understood by sales reps. Transparency about the program components and resulting earnings is essential to build trust and motivation among the sales organisation.
4. Realigning non-aligned incentives: Make sure that the metrics based on which incentives are calculated provide a direct line of sight to profitability, and do not unwittingly incentivise the ‘wrong’ behaviour; for example, if the programme focuses on revenue alone then one can sell away, making no mention of profitability margins.
5. Ignoring Roles Outside of Sales: If the vast majority of those people working toward hitting your company’s goals are salespeople, your incentive programme should address sales roles alone. But what if those who are not listing client calls or tallying up commissions play an important role as well? Your customer service team, for example, might give your sales folk a lead to follow up on or your marketing manager might help with a mailing list. Many companies assume that the driving force towards company-wide goals resides in sales alone, but this monitoring bias can easily get you into trouble, with half of your team working against itself.
6.Rigid Program: Business conditions will inevitably change over time, and a rigid incentive program may fail to respond to ongoing shifts in the marketplace. Make sure the program remains aligned with broader organisation and market trends through frequent review.
7.Overlooking Individual Differences: Some sales reps are better suited for in-person selling, while others thrive in using social media. Offering all sales reps the identical incentives might not be as effective as tailoring incentives to fit individual innate strengths and market segments.
8. Poor Monitoring and Evaluation: Track performance of the incentive programme and its impact on profitability. If you do not measure its effectiveness, you will not know if it is achieving its objectives or not.
9) Excessive Complexity of Payout Calculation: Keep the Payout Calculation as Simple as Possible. Complex formulas or mathematical system could lead to errors in payout calculations; increase the disputes or arguments among the sales team and demotivating team members.
10. Reward (lack of recognition and non-financial incentives): monetary reward is the cornerstone of motivation, but other types of recognition and non-financial incentives (public praise or options for professional development) motivate individuals and improve their job satisfaction.
11. Ignores Feedback from Sales Reps: Use your sales team to help design and improve an incentive program. Ask for their feedback. They will always have a foot in the field, so they’ll have useful feedback from customers that designers need to hear. If he or she avoids those traps and designs an incentive system that is balanced, transparent and flexible, it will reward (the desired) sales performance and profitability, while keeping the sales force engaged.
