Often we get asked to come in and review a client’s sales incentive program. Sometimes it is for their sales organization, other times it is a program targeted at their distribution channel or agent network. The only difference in the client's mind is that for one group the incentive is a W-2 event – in the other it’s a 1099. The basic goal is the same – target people who sell.
After listening for a while I usually asked why they run the program. The answer is usually – increase sales.
I then go through the oft-quoted “5-questions” process…
Question: “Why increase sales?” - Answer: “Increase revenue.”
Question: “Why increase revenue?” – Answer: “Increase profit.”
Question: “Why increase profit?” - Answer: “That’s what our stakeholders/shareholders want”
Question: “Is that the only way to increase profit?” – Answer: “No.”
Question: “What other ways could you increase profit?” – Answer: “What’s that got to do with an incentive program?”
Me: “Glad you asked….”
Most companies assume incentives are only about sales. They also assume that sales is the one place where incentives have the biggest impact on a company’s revenue and profitability. For some reason most companies look at profit as a function of sales more than they do in than any other area of the company. However, focusing on other areas of the company can have a huge impact on profit without touching revenues. I’ve found many companies that have a treasure trove of opportunities for increasing profit buried deep in their company’s operations.
When I get the question on “what’s that got to do with an incentive?” I bring out the chart below (I think I’ve mentioned this before but after a 600 or so posts the mind gets fuzzy.)
Take a look at the chart. The purpose is simple – connect the activities that lead to increasing shareholder/stakeholder value in a company to activities that can be influenced and impacted by a well-designed incentive and reward application.
(You can download it here for use in your next meeting with the CEO – I give you permission to be smart!)
As you can see from the chart (and this is only a thought starter – each company is different and can probably add many, many other activities that impact overall company value) there are a ton of other ways to influence behavior in an organization that will increase profits and value for the ownership.
It’s Always About People
The key to understanding how to leverage incentives and rewards in an organization is to realize that ALL activities in a company are conducted by PEOPLE – and the outcomes are a function of their BEHAVIOR – and incentives affect behavior.
ANY outcome in a company begins and ends with behaviors. Influencing those behaviors influences the outcomes.
Your expertise in understanding your company and the costs and revenues that drive your profitability aligned with an understanding of how to influence behavior correctly (that’s a key word – don’t skip over it) can have a huge impact on your business bottom line.
Don’t assume that sales is the only place where incentives can have an impact. Review the chart and ask yourself – “Are you doing anything in any of the areas other than sales to positively impact behavior?”
If not – ask us. We won’t pull any punches.
A
Marketing and Incentive Design Consultancy