Steering Sales Behaviour Using Incentive Schemes

Summary

The transcript discusses sales force incentives, highlighting the complexity of designing effective reward systems. It emphasizes the balance between economic motivations and behavioral factors, suggesting that incentives alone may not always address the root problem. The speaker outlines three key steps: shaping the scheme, determining calculations, and ensuring effective communication. The main goal is to align incentives with desired outcomes, such as profit or revenue, and avoid creating ambiguity that could demotivate salespeople. The importance of clear, understandable incentives and consistent feedback is stressed to drive desired sales behavior.

Takeaways

• 💸 Sales incentives are a blend of rational economics and behavioral economics, including management biases and heuristics.
• 📊 Sales reps in this case were paid based on revenue, but management interviews revealed a preference for profit or gross margin incentives.
• 🛠 The responsibility to adjust incentives to align with desired behaviors lies with management.
• 🏆 The Sales Excellence Framework consists of five pillars under sales execution, helping set up for success.
• 🧠 Incentives often affect other areas of the sales program and should not always be viewed as the sole solution.
• 🔧 Incentives might sometimes be a symptom of deeper problems elsewhere in the organization.
• 📐 Three key steps to structuring incentives: shaping the scheme, determining payout calculations, and ensuring proper communication.
• 📖 Clear communication is crucial to avoid misunderstandings, especially in complex sales guidelines that could demotivate salespeople.
• 💡 Incentives should be easy to understand, relate to profit or price, and reward salespeople for incremental earnings.
• 📈 The incentive plan should be significant enough to motivate behavior change, and frequent updates on objectives should be provided instead of waiting until year-end.

Q & A

How does the sales force typically get paid?

The sales force is usually paid based on revenue or profit margins, depending on the company's incentive plan.

What are the two main factors driving sales incentives?

Sales incentives are influenced by financial economics and behavioral economics, combining monetary incentives with behavioral drivers.

Why is behavioral economics important in sales incentives?

Behavioral economics is important because it considers biases, heuristics, and other psychological factors that impact how salespeople respond to incentives.

What was the structure of the incentive plan in this case?

In this case, the incentive plan was based on revenue, meaning sales reps were rewarded based on their end-of-year revenue generation.

What did the management team want to change in the incentive plan?

The management team wanted to shift the focus from revenue-based incentives to profit or gross margin-based incentives.

What advice was given to management regarding incentive plans?

The advice was to adjust the incentive plan to align with the desired behaviors, as it's the management's responsibility to set up effective incentives.

What is the Sales Excellence Framework?

The Sales Excellence Framework includes a sales strategy and five pillars that focus on setting up the organization for successful sales execution.

Why is it important not to rely solely on incentives to drive behavior?

Sometimes, incentives are a symptom rather than the problem itself. Relying solely on them may overlook other factors affecting sales performance.

What are the three key steps in designing a sales incentive plan?

The three key steps are: shaping the scheme, calculating payouts, and ensuring clear communication and implementation of the plan.

Why is effective communication crucial in implementing sales incentives?

Effective communication ensures that salespeople understand the plan, avoiding misunderstandings and disappointments over hidden terms or unclear objectives.