Sales Incentives and its Effects on Performance Metrics
Updated: Mar 31
What is the most difficult challenge an organization faces to keep their sales team motivated and encouraged? It is the practice of rewarding employees with an additional compensation for meeting and exceeding the minimum sales threshold.
This is commonly termed as sales commission. Sales commission motivates, encourages and gives structure to the sales team to work towards a specific goal. It is an important metric to identify the output of the sales team by connecting income to it. It is an integral part in the sales compensation plan.
Imagine more than half the employees leaving due to a poorly designed and implemented incentive and compensation plan. Thus, when establishing a sales compensation plan for your company, you need to pick one that’s going to benefit both your employees and your organization. Sales reps do what you pay them to do. Commissions provides an environment of healthy competition, which brings out the best team performance. Markets are transforming at unprecedented rates today, and according to Forrester, 65% of leaders are under more pressure than ever to reach rising success goals. It's important to ensure that compensation promotes the right sales habits in order to achieve the sales objectives, particularly when change is so rapid. Some of the most common sales commission plans include:
1. High salary, High commission
2. Payment for individual sales
3. Payment for territory volume
4. A share of profit margin
There are also certain sales games which can improve the commission structure of any company like preparation games, cash games, goal specific games and team work games which provide motivation towards working towards earning the commission. Sales commission is an indispensable part of any job profile these days, the importance of which is called for. The reasons why sales commissions are play a vital part are as follows:
When one is paid on a commission basis, they work harder to achieve the target, particularly if there's a chance of someone else reaching there first. Businesses will have a healthy atmosphere of rivalry as salespeople seek to achieve the goals and receive production incentives as a result of the lucrative commissions at the end. The curve rises as a result of competition, and more salient information is delivered.
Better customer service:
The main foundation of commission-based pay is based on customer satisfaction. Any company/organization will have a fun, problem-solving atmosphere that invites excellence when the sales team is focused on assisting customers. In these situations, a company may expect to see repeat customers and even referrals. Employers will seek out a company that can engage with customers on a base level.
Managing payroll expenses:
Employers benefit from commission-based compensation because it helps them to better control their payroll costs. Employers may keep costs down by basing the amount they pay their workers on the amount of revenue or profits they generate. This is especially true for employees who do not perform well. It's also a perfect way to build a proactive and prompt workforce.
Commission salespeople like to set their own schedules, which boosts employee productivity and satisfaction.
Simple to Grasp and Measure:
The method is simple to comprehend and calculate.
Employees are paid exclusively on their revenues under commission-only arrangements, which is more cost-effective for the organization. This makes it a good idea for startups that don't have a steady revenue stream.
To achieve top-tier results, one must find the right sales commission structure. However, effective sales compensation requires more than just picking the correct sales commission arrangement. Companies should be assessing and maximizing their benefits on a regular basis. And, in today's volatile markets, businesses must be able to address key questions such as these:
Ø Do we have the right strategy for achieving our objectives?
Ø How do we draw on previous results and incentive successes?
Ø Are there any flaws in our current commission systems that we can address?
Ø Are we paying our salespeople equally in comparison to our rivals in the industry?
Ø Do we still have the ability to meet our objectives if a top performer leaves?