How Much Should I Invest in a Sales Incentive Program?

How Much Should I Invest in a Sales Incentive Program?

November 13, 2014

If that’s the first question that comes to mind when you start your sales planning then, congratulations – you’ve already decided that this is an investment, not a cost. And while many marketing programs require money to be spent without a clear path to an ROI calculation, the beauty of a sales incentive is that most of the investment occurs after the benefits have been realized.

Think of that initial question in two ways – “What budget is needed to match the required goals and ROI” and “How much should I reward the participants, to make it truly motivational for them?”. If you can match these two elements, then you’re on the way to designing a successful program.

Budgeting Based on ROI
Assuming you know your current revenue, growth targets, and gross profit margins, you can easily calculate the level of investment you can justify, assuming you hit those targets. Assign a specific percentage of the anticipated incremental profit to fund the sales incentive program [Download our worksheet here, for a step-by-step calculation]. Bear in mind that the majority of the budget will only be spent if participants reach or exceed their goals, so it is a low-risk approach to growing revenue.

Linking your budget to your incremental profit is a sure way to get sign off from the corner office.

Offering Incentives that Drive Motivation

There’s no point in running a program that doesn’t catch the attention of your sales team. The potential rewards need to be significant enough to change their behavior – to increase activity, move focus to particular products, or to close the right type of deals. While the level of compensation varies between industries and sales roles, a good starting point is to set the value of the available reward at 5% of their expected compensation, within the timeframe of the program (so for a one-quarter program, take 5% of three months compensation, including commissions and bonus).

Choosing the Right Reward

Now that you’ve established a budget, how do you decide on the type of reward? The Incentive Research Foundation published an extensive review of the various types of awards in 2011, which highlights the typical awards used dependent on the budget. Merchandise and gift cards take an equal share at most budget levels, with Travel becoming most significant above $100,000.  A more recent study by the same group, published on MeetingsNet, shows that the average per-person spending on merchandise awards in 2014 is $255, and on giftcards is $195.

As a general rule of thumb, consider the rewards levels as follows:

  • Up to $1,000 per participant : Points redeemable for merchandise and giftcards
  • >$1,000 : Individual Travel, or Points
  • >$5,000 : Group Travel, Individual Travel, or Points

Making it Count

Deciding the investment level for a sales incentive program is just the first step in designing an effective program. The rules and parameters that you set for the program will have a significant impact on the behavior of the sales team, and the style and frequency of the communication will influence the level of participation. Each of these areas is discussed in our new White Paper “Designing and Implementing an Effective Sales Program”. Download it now for more information, and ROI worksheets.