Budgeting for Sales Incentives
We’re in the thick of budgeting for the coming year, and quite often we’re asked by clients, “how much should I allocate for incentives this year?”
That’s always a difficult question to answer, because the sweet spot in spend for your situation is, well, situational.
We look at it like this: if you design your incentive right, it not only pays for itself, but the more it pays, the more successful you’ve been.
Open or Closed Programs?
Budgets can be heavily dependent on your choice of “closed-end” vs. “open-end” programs.
In “closed-end” incentives, the awards budget is limited to a specific amount ($100,000 for example). The downside of a closed-end incentive is that your top performers, who already produce for you, will likely reap the bulk of the rewards. Most participants will not be motivated by a program where they perceive they don’t have a chance of earning.
“Open-end” incentives are those in which everyone who achieves their sales or purchase threshold earns an award. While the costs can’t be predicted with high confidence, properly set quotas guarantee that the incremental revenue will more than pay for the awards.
Overall program budgeting guidelines:
- 80% of your budget toward rewards
- 10% toward program communications
- 5% toward program management, and
- 5% toward program measurement to prove it works, and improve the program going forward
Need more information?
We recently created a unique incentive approach that helped our insurance client deliver a 65% Return on Investment.
With 45 years of experience, we can deliver on your specific growth needs too. Contact us today.