Program Planning Continued

Last time we discussed the first steps for effective program planning. We'll continue with two more important steps.

Identify Sales Channel Needs – The best sales incentive plans have channel alignment – all people in the channel are in the loop and focused on helping each other to grow sales with the identified product mix. It is critical for sales managers to identify all of the stakeholders in the channel that can have an impact on sales and include them in some way in the incentive process. For example, if you are running incentives focused on driving sales through contractor sales representatives, you may provide an override to your employee salespeople and contractor managers. At the very least, everyone in your sales channel needs to be communicated with about the program goals and their potential benefits in pulling together.

Determine the ROI Metrics – For years, the incentive business has used “rules of thumb” to determine incentive program budgets, and in fact, these rules have been useful and effective. Examples include using 1% of gross sales or 10% of incremental sales to fund the incentive program. Today however, with financial, sales, and projection metrics available through enterprise information systems, a sales manager needs to attempt to weigh all of the costs associated with the incentive program with the anticipated incremental sales profits to estimate an ROI for the program. Determining an ROI will deliver the real value of the incentive program in good times and in bad economic years can provide solid justification for continuing to invest in sales incentives.

Next time we'll conclude the discussion of Program Planning.

More About Program Planning

As Robert Dawson, longtime incentive market thought-leader and founder of The Business Group writes, “Incentive motivation is not about trips, toaster ovens, TV sets, and gift cards. Rather, incentive motivation is about investing. You are investing in something that can provide your company with the lowest risk and bring your company the highest return of any business investment you can make.”

Ideally, a well run sales organization builds an incentive program to deliver a measureable Return-On-Investment (ROI). The performance plan may include some or all of the following elements: Market research, manufacturing and logistics capabilities, ROI budget analysis, performance goals (team and individual), alignment and inclusion of sales channel stakeholders, product mix, and applicable metrics.

Estimate Potential Sales Increases – Through formal and/or informal market research, sales managers must determine what potential sales increases are possible for the duration of the incentive program and in the months that follow. This information will necessarily have an impact on manufacturing, accounting, logistics, incentive program budget, etc. Sales increases are a factor of many variables, including overall economic environment, product mix and new product roll-outs, competitive situation, strength of distribution channel partnerships, etc. Marketing intelligence can be gleaned relatively quickly and easily from forecast surveys of salespeople, dealers and distributor principals. Professional marketing intelligence firms can provide a more in-depth analysis of sales growth potential and product focus.

Determine Manufacturing, Services Personnel and Logistics Needs – Once you have estimated your sales for the incentive period, it is critical to work with internal resource providers to ensure that the products or services you sell will be available in a timely fashion. Manufacturing, warehousing, and logistics stakeholders all need to be in the loop. If you have materials made in China for example, forecasting errors will have a big impact on your ability to deliver, due to the obvious timing issue of getting products to the US. Failure to have the goods during the incentive program will not only cost you sales, but it may also damage your organization’s credibility going forward and put future sales growth at risk.

We'll cover more planning steps in the next blog so stay tuned.

Incentive Building Block #1 – Program Planning

Several years ago, our company created a sales incentive program for a client in the sanitation products business. Their products were sold in dispensers, so the promotion was designed to motivate their distributor sales network to sell a new touch-free dispenser line. The incentives were well designed and the new products were a hit, so sales went through the roof; actually almost tripling versus the previous incentive program. Those were great results. . .except for one small problem – the client hadn’t forecasted the sales increases, so the factories could in no way keep up with the production. What ensued was a chaotic scramble to ramp up production, provide damage control in the distributor network and calm down angry end users whose products were back-ordered by six months.

What we learned is that incentive planning has to go far deeper than the usual steps that the industry has used for years such as guessing sales numbers, budgeting, and deciding on an “open-ended” or “close-ended” rewards structure. In fact, the right way to look at incentive program design is as a serious exercise in true Return on Investment (ROI) analysis. Anything short of that can leave the sales manager vulnerable to financial and delivery problems.

Incentive Building Blocks

Years ago, I was talking with a prospect, and he shared with me his concern over a failed mid-year sales incentive program. We discussed the various program components, and when I asked how he had communicated the program to his sales force, he indicated that he had made a “big splash” when kicking off the six-month program, which had him perplexed as to why the promotion wasn’t a success. As we dug into specifics however, the gentleman admitted that, other than monthly sales volume statements, he had not promoted the program once during its six month run. He just expected his sales team to remember that the incentives were out there and to get selling. Case closed. Looking back, I can only wish that all of our clients’ problems were as easy to diagnose and fix.

When sales incentive programs don’t drive results as planned, it is often because the sales organization forgot to pay close enough attention to one or more of six key program components; let’s call them the Incentive Building Blocks:
Performance Plan, Communications Campaign, Training, Rewards, Analytics and Recognition.

Sales and marketing managers are already familiar with each of these program elements, but over the following blog entries we’ll dig into each of them in depth as a refresher course on incentive program design. The reality is that most incentive solutions in place today are lacking attention to some of the Building Blocks, hindering the chances for optimal sales results.