In the current business environment – where sales is battled on all fronts – it’s critical that sales planning and incentives be handled in sync. When incentives are out of alignment with sales planning, companies can face more than just inefficiencies in how everyone works. Revenue losses can also result. This article begins by explaining the important role of sales planning, it explores the results of misaligned incentives, and it concludes with the frequently asked questions about how to achieve strategic coherence between sales plans and the related incentives.
Understanding Sales Planning
Sales planning is about crafting sales objectives (the strategy), preparing performance goals (the mission) and allocating resources expeditiously and effectively to deliver on those sales objectives. This involves measuring and mapping out potential markets, establishing sales forecasts, allocating territory and setting quotas. To breaks it down, it is the needle on the compass that guides the sales function to achieve the human race’s business goals.
The Critical Role of Aligned Incentives in Sales Planning
Sales incentives intend to motivate salespeople to meet stated performance targets and to reward their efforts if they accomplish these objectives. However, if incentives are misaligned with facts of the situation, management has given employees the wheel and said: ‘Drive the car to Australia.’ The sales performance management team’s job is to make sure incentives are in line with the sales plan. As an example, if the general business strategy is to maximise profitability but the incentive plan pays salespeople to maximise short-term sales volume, the incentive plan would induce salespeople to act against their employer’s strategic objectives.
Real-World Examples of Misalignment
1. The Software Firm’s Dilemma
A software company announced the release of a new suite of products designed to work together across business units. Yet the sales incentive programme rewarded individual product sales. Sales teams began to promote single products instead of integrated solutions, costing the company millions in potential revenue from customers who would have benefited more from the suite.
2. The Retail Chain’s Sales Paradox
A national retail chain offered bonuses to its sales staff based solely on total sales volume, without respect to the margin on those items. The salespeople started pushing high-volume, low-margin items to the detriment of low-volume, high-margin items, which would have benefited the company’s profit and loss statement more than the additional volume generated by the former. By focusing on volume, they lost financial focus and, by consequence, reduced the only number that matters in financial terms, margins or revenue minus costs. The cost of incentive misalignment is that it undermines financial goals.
3. The Pharmaceutical Company’s Hurdle
With a recently launched drug, a pharmaceutical company wanted to get its sales reps to spend a substantial amount of time building relationships with physicians in order to build long-term loyalty to the new drugs – a project with a long sales cycle and lots of upfront education required. The incentive scheme, however, rewarded speedy sales wins, making it more effective (from the perspective of the rep) to stick to the familiar products – well-established drugs that were a breeze to make recent sales with. As a result, adoption of the newer drugs was slowed and revenue growth in this critical product segment stalled.
The Cost of Misalignment
1.If sales planning and incentives are not properly aligned, you can lose between 15 per cent and 50 per cent of your company’s revenue here’s how:
2. Lost Revenue Opportunities: Sales teams may ignore or under perform in high-potential areas as existing incentives do not align with strategic goals, making the sales staff miss out on profit-making opportunities.
3. Inefficient Resource Allocation: Misaligned incentives may channel resources into less profitable activities, thus lowering returns.
4. High turnover of sales staff: When there’s a misalignment it causes salespeople dissatisfaction, because they feel they’re obliged to sell your products or your services that are not the best fit for what their customers want. Salespeople have substantial turnover when they’re dissatisfied, because it’s stressful to try to sell things that people don’t want to buy and it lowers your commission. Your customers won’t renew with you if you’ve assigned them a sales rep who is not a good fit. It’s costly and disheartening to have to hire and train new sales people.
5. Deteriorating Customer Relationships: Infusing sales processes with overly aggressive incentives can erode customer relationships because over-zealous sales tactics can result in lower levels of satisfaction and customer loyalty, thereby reducing the long-term value of customers who feel tired of the harassment.
6. Reckless Drift: When incentives do not support the strategic vision, the organisation becomes lost, consequently negatively impacting long-term mission and revenue growth.
Frequently Asked Questions on Sales Planning and Incentive Alignment
1. Why is aligning sales planning with incentives crucial for revenue growth?
Ans:A natural link between Target 100 and sales planning means you are working to and rewarding Target 100 goals. If a rep is to devote a lot of time to the pursuit of a Sales 100 goal, it needs to be a goal that the company is driving at for sustainable revenue growth, such as building a focus on the most-profitable products or strategic customer segments.
2. How can misalignment between sales planning and incentives lead to revenue loss?
Ans:It might be a sales team focusing on volume, rather than profitability, or on short-term wins instead of long-term relationships. The wrong priorities prevent the company from capturing the revenues it’s entitled to and actually worthy of, or becoming as efficient as it should be in utilising its core resources.
3. What are the manifestations of value-felt contradictions between sales planning and incentives?
Ans:Signs are low, inconsistent sales results: a misalignment metric; salespeople selling the wrong things to the wrong customers in the wrong plaatss, salespeople turnover, disparity between sales performance, and strategic remits.
4. How can organizations realign their sales planning and incentives to avoid revenue loss?
Ans:But organisations may be able to resort back to the same blueprint by routinely examining their sales plans and sales incentives, and adjusting accordingly. The first step in this resourcing approach is to collect sales performance data from personal computer in-baskets and investigate what’s going on. The next step includes soliciting feedback from the sales team as well as their customers and other relevant stakeholders on whether the goals have been effectively communicated and implemented; is the sales incentive plan functioning as intended; and whether certain resources are available to meet their goals. Organisations can then make adjustments to the incentive plans and resources to foster desired behaviours and align with the objectives to achieve the blueprint.
5. What role does technology play in aligning sales planning and incentives?
Ans:Alignment is made easier by the availability of tools to manipulate the data, analyse performance and manage the incentives in real time. Sophisticated sales performance management software allows the firm to monitor changes in the market and the competitive environment, and then to adjust sales plans and incentives in real time to ensure alignment with the strategic direction of the firm.
Sales planning is the framework of sales performance management. Aligning sales plans and incentives is the key to driving consistent, intentioned sales behaviours that will produce sustained, profitable revenue growth. Dis-alignment is costly – it’s revenue being left on the table, along with time and resources wasted in the process. By frequently aligning sales planning with incentives, companies can ensure that their sales teams are motivated to drive not just today’s revenue, but to accomplish the organisation’s longer-term goals.
