Sales Incentive
Definition: In sales, an Incentive can be defined as something of monetary value, which is offered in the form of a reward or compensation, to motivate the salespeople to attain a certain set of sales targets, performance levels, and is used as a tool to drive business success. Incentives can further be two types: monetary i.e., given in the form of bonuses or commissions; non-monetary, which might be in terms of rewards.
Detailed Explanation
Incentives are designed to encourage sales staff to go above and beyond their regular duties. They are typically tied to achieving certain targets or milestones, such as reaching a sales quota, successfully launching a new product, or securing key accounts. By offering incentives, companies aim to align the interests of their salespeople with business objectives, ensuring that both parties benefit from increased sales performance.
Types of sales incentives include:
- Monetary Incentives: Direct financial rewards, such as commissions, bonuses, profit sharing, and spiffs.
- Non-Monetary Incentives: Non-cash rewards, like travel rewards, gift cards, extra vacation time, or public acknowledgment.
- Performance-Based Incentives: Rewards for meeting or exceeding performance benchmarks that are often structured in a tiered fashion to motivate further improvements.
- Behavior-Based Incentives: Rewards that are directed at eliciting specific behaviors that benefit the sales process, whether in the form of teamwork, customer relationships, or using the new sales technologies available.
Importance in the Sales Process
- Motivation: Incentives provide the sales team with a motivation to push themselves harder and inspire them to reach sales target levels by putting in their finest efforts.
- Performance Improvement: Incentives enhance overall performance and sales effectiveness through the reinforcement of desired behaviors and results.
- Alignment with Business Goals: Incentives help in aligning the activities of the sales team with general business goals so that everyone is working toward the same objective.
- Retention: Competitive incentive programs help to maintain top sales talent by acknowledging and rewarding such talent for their contribution to the company.
- Boosts Morale: This can boost morale and job satisfaction, translating into a more positive environment at work and better customer interactions.
Real-World Examples
One technology company devised a commission-based, tiered incentive scheme for its sales staff. They pay 5% on sales up to $100,000, 10% on $100,001 to $200,000, and 15% on sales of over $200,000. This gives an impetus to the sales staff to ensure that they surpass their sales targets.
An example is in a car dealership whereby the top salesperson in each quarter is awarded a weekend getaway as a non-monetary incentive. That will breed competition among them so that the sales team can put extra work into selling.