Incentives can Drive Sales Performance

Incentives are a powerful method of driving profitable revenue in Europe's telecommunications, technology, insurance, retail, pharmaceuticals and financial services sectors

Callidus Software, the industry leader in Enterprise Incentive Management (EIM), is launching a campaign to explain how incentives can positively influence sales performance and revenue within Europe's leading companies.

"Incentives are designed to motivate behaviour in a way that will provide a reasonable return".

"It is proven that incentives do work, but there is no universal agreement as to what incentives are or how often they should be paid," states James Kennedy, client services director for EMEA at Callidus.

"Most executives would agree salespeople should be paid as frequently as would be effective".

"But how can the value of proper incentivisation be measured and if one plan is more successful than another, how can you determine how much better?" Kennedy explains: "In terms of sales performance management, there are three groups to consider".

"Sales executives want the ability to reward performance with some measure of flexibility to overrule logic and reward perceived effort".

"Financial controllers and directors require accuracy, reliability and predictability in payments".

"Finally, recipients of incentive compensation want to maximise incentive pay with minimal wasted effort." Incentive compensation plans in insurance, technology, financial services and telecommunications tend to be particularly complex and have cross-border requirements and heavy legal regulations.

Finance and sales departments have multiple points of tension where their goals diverge and both groups must agree the return on investment (ROI).

Kennedy states: "Sales executives introduce incentives to motivate behaviour".

"For example a store might be offered a 10% discount by a manufacturer if it sells 100 units within 30 days".

"The Sales director could offer up to a 9.99% commission to the sales team if they sell over 100 units of the product within 30 days and still make 0.01% additional revenue for each unit as opposed to no additional revenue." He continues: "Following the same simple example, suppose now that a different manufacturer offers a 5% discount for selling 50 units within 90 days".

"Here, the sales director has 90 days to move a smaller number of units but has a lesser percentage to offer as incentive".

"Of course, if the base value of the second example is much higher than the first example, this will impact the sales director's plans".

"This clearly demonstrates the sales director needs a decision-making tool to determine the most effective route to take." He comments: "If you earn part of your income from incentives, you are very keen to understand your numbers and likely to have several plans at one time".

"One plan might give you a right of redemption, another plan may be set with a cap on earnings, another might include unlimited potential, but within a narrowly defined set of criteria, and yet another plan may involve a number of different options, each with a different result." The first stage of the actual business process is enabling the credit, measurement, incentive, deposit and payment cycle.

The second level of corporate investment in the incentive compensation process is partial automation and the use of non-integrated software to store and translate information.

Spreadsheets or simple databases come into prevalent use, along with data warehousing, ERP and CRM systems.

Total integration and automation is the final step in the evolution of the incentive compensation process.

At this stage, an integrated process can carry a compensation plan from definition through to actual payment".

"Kennedy comments: "Error rates on a fully integrated, automated system approach .1%".

"They also feature much more efficient response times to eliminate errors".

"Thus, an organisation with appropriate requirements can realise between 2.9-9.9% ROI, on average, over their original system".

"These percentage points must be offset by any additional software, hardware and training expenses".

"In a majority of instances, there is still an ample business case for making a change." Kennedy concludes: "Strong competitive activities balanced with neo-protectionism throughout Europe are combining to bring Sales Performance Management into the forefront of the agenda for Finance Directors, Sales Directors and recipients of incentive compensation".

"Leaders in telecommunications, technology, insurance, retail, pharmaceuticals and financial services are all seeking greater competitive efficiency".

"Incentive compensation is an area that has an immediate and lasting impact on revenue.".

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