Basic principles to make effective sales incentive programs for sales managers

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How to make effective sales incentive programs?
By M. Nino Mayvi Dian
Sales incentive is one of the motivation drivers for every sales person I‟ve known. Most people
said that salesman is a job that can have „unlimited‟ income and that income is gained from
sales incentives. The word „unlimited‟ doesn‟t literally mean no limit at all, because every
businesses must earn profits and these incentive programs must not reduce it. But, it has to be
seen „unlimited‟ for your sales persons, but in the same time it will cause no harm to the
business profits.
I‟ve wrote this article to share simple ways of creating efficient, effective, and attractive sales
incentives programs. I‟ve been worked in sales field for more than 13 years, and mostly in big
companies that created multi millions dollar revenues, but I‟ve felt that their sales incentive
programs weren‟t so attractive to me.
Once I‟ve asked to my superior about the incentive programs, why the programs weren‟t made
so incredibly attractive to boost sales person‟s motivation. And, he said that there were
limitations caused by the company‟s rules, which I concluded that the programs were made just
as it is, regardless it is effective or not.
If you‟re a top level sales person in the company, and you have all the freedom and authorities
to make sales incentive programs, you should make incredibly attractive programs. Great and
attractive sales incentive programs don‟t mean that it will cost more to business profits, if you‟re
using the correct principles when you create it.
So, let‟s not forget the 3 basic principles when you‟re making sales incentive programs:
1. It should be ‘unlimited’ and ‘easy to get’,
Sales incentive programs should create „unlimited‟ income and „easy to get‟ perception
for your sales persons. Most sales persons perceive the word „unlimited‟ related to the
amount of money or benefits that they‟ll receive. And, „easy to get‟ means that it doesn‟t
have too many boundaries, constraints, and restrictions to receive incentives. And how
much is perceived to be „unlimited‟? Also, what is „easy to get‟ perceived by your sales
person? Every sales person has their own perception about „unlimited‟ and „easy to get‟.
Then how will you know the appropriate answers about those questions that it will
represent most of your sales person perceptions? Conduct a simple research by group
discussions, sharing moments, and any other ways to seek information about your sales
person perception. Do not use only your point of view when you create the programs,
because in the end you‟re not the person who‟s going to receive the incentives.
Make good questions in your questionnaires. Good questions will result good answers,
which it will reflect most of your sales people perception about „unlimited‟ and „easy to
get‟.

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If your company has multiple sales areas or locations and possibly involve different
cultures and habits, I strongly suggest that you give the authority to make the research
and incentive programs by your local sales leaders. I won‟t recommend generalization of
sales incentive programs for multiple sales areas, otherwise your programs will be
possibly ineffective and the program goals won‟t be achieved. All you have to do is
giving the guidance and monitoring the implementations.
After you have and analyze the research results, all your sales incentive programs must
be based on it and accommodate your sales persons needs.
2. It should not cost on company’s profits,
This second principle is strongly related to the first principle. Because, incentives are
expenses and expenses are reducing profits. Therefore, the second principle is always
give ultimate priority for company‟s profits. What‟s the point to have an incredibly
effective and attractive sales incentive programs, but the programs reduce the
company‟s profits at overall.
The question is how to make an incredibly effective and attractive program, but in the
same time, company‟s profits aren‟t jeopardizing at all.
Terms and conditions are the ways to maintain it. Create terms and conditions for sales
and incentive programs with business goals as the point of views.
Some of you will ask how to elaborate these terms and conditions with business goals?
Will it be still perceived „unlimited‟ and „easy to get‟?
According to my opinion, terms and conditions must support the achievement of
business goals, especially on profit achievement. Programs should be made in such
ways, that when a sales person is going to receive certain amount of incentives, it
should have carefully considered and calculated that it won‟t have unwanted effects to
company‟s profits.
For example, your incentive programs must have direct correlation with company‟s
account receivables. After all, company pays the incentives from customer payments,
doesn‟t it? I think it‟s still perceived „unlimited‟, because you don‟t limit the incentives
amount. You just limit on how your sales persons will receive the incentives, which they‟ll
receive the incentives after customer make payments of their orders.
If your company‟s business is mostly on project basis and progress payments are
applied, then all you have to do is just make adjustments on incentive payments, make it
as progress incentive payments. I believe that your sales persons will not have objection
about it. If your sales person is refused about it, because they think collections aren‟t
their responsibilities, then you can apply additional incentive for assisting customer to
make on time payments, which it will directly encourage your sales person to help
collection team for following up delayed payments. I believe that it‟s still applicable.
Because your company must has daily sales outstanding (DSO) target, and your board
of management won‟t be pleased if sales targets are achieved, but in the same time the
DSO target isn‟t achieved.
There are many ways to make terms and conditions for sales incentive programs, and it
depends on the business models of your company.

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3. It should be understandable and motivate,
This last principle is essential for supporting successfulness of sales incentive programs.
It doesn‟t care how good and attractive of your programs, but your sales persons don‟t
understand about it, which it could make your sales persons don‟t get motivated by it.
This last principle is mostly forgotten by most companies (according to my experiences).
According to my opinion, your sales incentive programs could be one of the attractant to
get best sales talents. Share it briefly to the candidates in the interview process. Let
them know what the company‟s rewards for the best performers. Brief introduction
doesn‟t mean that you only say, “We have incredibly attractive sales incentives for best
performers”, or “Yes, we do have sales incentives for you if you‟re achieving your sales
targets”.
You must make it as one of the SOP when company conducts recruitment process for
sales persons. The explanations or introductions must be standardized, written and
verbally. So, every HR people who conduct the recruitment process must know about
the programs, even not in details.
Don‟t you ever underestimate about the importance of sales incentive programs
introduction for potential sales person candidates. It could be one of your company‟s
weapons to get the best talents. Best talents will be received many attractive offerings
from many companies, and if your company, probably not have high popularity in the
employment market, these sales incentive programs could be made as your company‟s
competitive advantage, and gain significant leverages for your company‟s popularity.
I‟ve been experienced many job interviews, and rarely the recruiters mentioned about
the sales incentive programs. Often, I had to ask first about it. But, their answers were
just so ordinary, such as, “Yes, we have sales incentive programs”, or even worse if the
interviewer was an HR person, he/she answered “Ooh, let me check first with the user”.
Prevent those things happen in your sales person recruitment process. Otherwise, the
candidates will assume that your company isn‟t the best place for them.
That‟s my opinion about the effect of sales incentive programs toward sales person
recruitment process. Then for our existing sales persons, how do we ensure that our
sales persons understand and motivate by our sales incentive programs? The answers
are doing the socialization and periodic evaluation of the program‟s effectiveness.
Socialization, this process could be done by annual sales kick off meeting, regular sales
meeting, morning sales briefing, etc. The important thing is about spending the
manager‟s time to share about the incentive programs. If you share more, I believe that
your sales team will understand it. You should use these sharing moments for motivating
your sales people. Make them know that these programs are made for them, and
intentionally to increase their employee benefits. Drive them to make these incentive
programs as one of their career goals that must be achieved.
Periodic evaluation of the program‟s effectiveness is must be conducted to know how
well the impact of the programs toward actual sales achievement. It might not the only
factor that cause unachieved sales targets, but it could be one of it.

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How do we know that our incentive programs aren‟t effective? First, your sales
achievement is far below from the target. Yes, it might not cause by incentive programs,
but you should evaluate and discuss it with your sales people. Ask them, is it caused by
unattractive incentives? Or the target tends to be unrealistic to achieve? If most of your
sales people said that your incentives were not attractive enough, then you should
review whether you have used the first principle properly. But, if your sales people said
that the target tends to be unrealistic to achieve, then you should read my previous
article about how to set company‟s sales targets (“6 Steps to Set Company‟s Sales
Targets).
Sales incentive programs should be flexible and adjustable as along as the sales targets will be
achieved with support from these programs. You can modify it at anytime when you‟ve found
that the programs aren‟t effective. You might say that how can we modify it any time while it is
directly related to the budget? Yes, you can do it. Budget only mentioned about numbers, nor
the methods, terms and conditions, etc. Therefore, you can still modify it at anytime as long as
you don‟t modify the numbers.
Ensure that you‟re using sales incentive programs as one of your people management tools.
The best incentive programs should be able to drive sales people motivation significantly, and it
has direct effect on the sales achievement.
Achieving company‟s goals is the ultimate objective, and we, as managers, must use all the
tools and resources that we have to achieve the goals. Sales incentive program is one the tools
to achieve company‟s goals, so there‟s no excuse why your company isn‟t able to make
attractive incentive programs.