MOTIVATION: WINNING BONUS PLANS…and why some waste your money

0ver 450 orders by 10 sales agents in 10 weeks.  Results like this require a skillful sales team...and the right incentive program.

The chart on the right shows how one sales team responded very differently depending on the incentive program.

One incentive program produced 60% better results...that's sales to 200 more stores...compared to the weaker incentive program.

Read on...to learn why one bonus program was wildly successful and one simply wasted money.

YOUR SALES AGENT’S TIME: THINK OF IT AS MARKET SHARE

Like retailers, sales agents sell products from several wholesalers. They control which vendor they're selling for at any given time.  When your sales agent pulls out another vendor’s catalog you're out of the loop.

Your non-exclusive sales agents are crucial to your sales ...yet just like your customers, you have no direct control over them.  Your success, hinges on the amount of time they choose to spend on you.  You're competing with all their other vendors for “market share of their time”…don’t underestimate that.

YOUR SALES AGENT IS YOUR CUSTOMER
Start thinking of your sales agent as your customer.  You offer retailers incentives to "spend more" money on your products.  Which incentives will motivate agents to "spend more" time on you? 

It takes time to  write an order. The more orders sales agents write for you, the bigger your market share of their time is. So incentives based on order writing, not on sales, is what you want to target.  You want to provide an incentive to encourage the activity that creates the sales, not the sales themselves.  

The distinction in the objective makes a huge difference.  We'll show you why...and we'll show you the huge difference in results you get by linking incentives to order-writing instead of sales...READ ON 

BONUSES: ORDER-WRITING INCENTIVE  VS REVENUE BASED INCENTIVE

Two bonus programs were run with this wholesaler to determine which program produced the best sales results.

Each program was run for a 10 week period.These were the two programs:

SALES BASED

INCENTIVE PROGRAM	Sales commission rate increased by 20% for a 10 week period.
OBJECTIVE	Increase sales

ORDER WRITING BASED

INCENTIVE PROGRAM	$1000 bonus was paid if agent wrote 30 orders in a 5 week period (slightly over 1 order per day for 25 consecutive work days).  This was done for two consecutive 5 week periods for a total of 10 weeks.
OBJECTIVE	Increase order writing activity

 

The sales based incentive had the possibility to be much more valuable because it had no performance cap and the commission rate was increased

THE RESULTS - not even close.

 

The results were overwhelmingly in favour of bonuses based on order writing rather than sales. It's not even close.

The chart on the bottom right show the "sales based" incentive program.  Despite the big incentive of a 20% commission rate increase, the sales agents actually wrote fewer orders (253) than usual (281).  The average sales per order remained the same (sales data confidential) so total sales were slightly lower with the incentive program.

In other words the vendor paid more for less sales.  Not a very good incentive program!

. 

The order-writing bonus was much more effective as we can see from the left chart.  Total orders increased 60% from 281 orders to an amazing 455 orders over 10 weeks. This also resulted in a 60% increase in sales!  Now that's money well spent!

WHY THE DIFFERENCE: fuzzy vs sharp
The "20% commission-increase based" bonus focuses on sales, which is what everyone tries to do every day anyway.  The ultimate value of the bonus itself is vague.  The agent knows they could make more money, but it's unclear how much more.

The order-based bonus has a clear potential outcome: write 30 orders in 5 weeks get an extra $1,000. Do it again and you get it again.  Simple, clear and easy to value.

This incentive program worked because it targets the activity that produces sales...the actual writing of an order.  In other words it's focused on increasing the amount of time the sales person spends on you...it increases your market share of your sales agents valuable time. 

Everybody benefits...you have more sales, your sales reps have more total commissions and a nice extra bonus.

DON'T BLAME YOUR SALES AGENT
The first attempt was the commission-based program, which was a failure.

Now the easy way to explain the first failure would be to blame the sales agents for not responding to the incentive, or blame the weak economy,  These are the easy default reasons we tend to fall back on...and that's always a big mistake.

But by thinking a bit more about the experiment, and understanding the true reason for the failure, which was targeting sales instead of activity, we ultimately produced an incentive program that appealed to the sales agents and produced an outstanding result.

You can too.

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