Should you incentivise your sales staff?
It is widely known that if you want to drive sales you need to incentivise your staff. Sales men are a mercenary lot and they only respond to cash.
Paying out large sales incentives is the default option.
Yet a few companies that don’t believe in individual incentives. Instead, they offer a higher basic package and a bonus based on total company profits.
They argue that this approach works far better.
But sales incentives are a given, a management truth
How can you drive performance without them? The logic behind the improved productivity goes like this:
1. Incentives are a threat
If your pay structure has a heavy incentive weighting then maintaining your standard of living is very stressful. There are very few of us who work at our best when they are under threat. Remove the threat and performance improves.
2. People cheat
Anybody who has ever looked at individual targets will tell you a horror story (or two) about cheating to hit the target.
3. Business is a team sport
This is true for sales as well as anywhere else. If you remove the individual incentive then your sales force are far more likely to collaborate with each other, sharing what they know, instead of keeping trade secrets to themselves.
4. Incentives are a management burden
Your management team can either spend their time chairing endless debates about who made which sale or coaching your sales force on how to make more sales. Which is more valuable?
5. Many incentive schemes have a limit and that limit acts like a break
If a salesman has already hit his sales target for the quarter it is financially sensible for him to stop selling and sit tight until next quarter, not pick up the phone and talk to the next prospect.
6. Most customers don’t like being sold to
They would far rather develop a relationship, feel comfortable with a salesman and then make a purchase. Incentives lead to an almost combative culture, each new sale is a conquest.
7. Your sales department should represent your customers
Arguably, it is in the long-term interests of your organisation for your sales force to be the voice of your customer. This is unlikely to happen if your sales force see their customers as a meal ticket.
The long game
In the short-term incentives work. If you absolutely, positively, must drive revenue now, accept no substitute. But the long-term game is a very different thing.
You don’t have to take my word for it. I’ve never run a sales force in my life, but are sales people really that different to anybody else?
Maybe it is worth a test.
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James,
I love that you pose this question. I have often wondered about the origin of the sales commission and about who decided that their role warranted a commission, but those who assisted on the sale (in my role, I am instrumental to the deal/solution) or those who delivered on what was sold did not.
Annette :-)
The damage done by sales incentives is large. In the short term, as you say, sales incentives can drive sales – for an unknown (potentially very high) cost. Two of my posts on this area:
http://management.curiouscatblog.net/2010/01/28/the-trouble-with-incentives-they-work/
http://blog.deming.org/2012/11/eliminate-sales-commissions-reject-theory-x-management-and-embrace-systems-thinking/
Unfortunately short term gain is a powerful motivator.
Thanks for the links John.
Hi James,
Even in the light of loads of evidence of how much damage they can cause, many firms still use sales incentives.
I know you are a fan but I would just point people to Dan Pink’s work on what motivates us, particularly the RSA Animate video here: https://www.youtube.com/watch?v=u6XAPnuFjJc
Adrian
Thanks for the link Adrian, great video
Hello James,
I am reminded of a wise Chinese saying that goes something like this: every stick has two ends, you get to choose only one of these ends. Which is another way of saying every choice, every act, has consequences. And the consequences flow from the choice. A sales incentive is a mechanism for incentivising sales folks. And they tend to work: get more sales made. As to whether this turns out to be beneficial or not can only be determined over the longer term.
Recently, I came across a professional services firm that does not pay bonuses (equivalent of commission) on hitting individual targets. Nor departmental targets. Nor business unit targets. The bonus is paid on the overall performance of the corporation. The thinking behind this: the various players are interlinked and can/do have either a positive or negative impact. To tilt the table towards positive impact, the sales incentive is on corporate performance.
maz
And did it work Maz?
I used to work for Mars Inc. who had a very similar approach