Incentive Insights: How "Balanced" Is Your Sales Incentive Plan? | SalesAndMarketing.com
LinkedIn  Twitter  YouTube  Facebook
Share |

Incentive Insights: How "Balanced" Is Your Sales Incentive Plan?

Many companies have inserted "balanced selling" mechanisms into their sales incentive plan, with the intent of encouraging their sales forces to sell multiple products—and penalizing them if they don't. Yet these same companies eventually scrap the balanced selling incentive because it doesn't work, is overly complicated, or in some cases, actually reduces sales.

So, should you even consider incorporating a balanced selling component into your plan? What are the considerations and complications of such a move? What should you avoid?

And what if your company already have a balanced selling component in its plan? Is it working? If not, how can it be improved?

The Need for Balanced Selling

Let's first define what we mean by "balanced selling." Imagine a sales force selling what we'll refer to as Product A and Product B. Each product is measured and incentive is paid separately based on performance to the respective product goals.

The concept of balanced selling simply requires salespeople to perform well in both Product A and Product B to be considered successful and maximize their sales compensation earnings. Through the lens of a balanced mechanism, blowing out the quota for Product A and being at 50 percent of the Product B quota would be considered failure.

Companies pursue balanced selling incentives for many reasons. Some require it because they think their stock valuation depends on balanced selling—they believe the company must be a leader in widget and gadget sales to maximize the company's valuation.

Other sales executives want to ensure the sales force isn't merely selling the "easy product," and like to link two or more products to ensure the sales force is focused on everything.

Still others pursue balanced selling for purely political reasons. For instance, a product marketing manager may have a portion of the sales force cost allocated back to his or her budget, and in return, the product manager expects to have a specific mechanism in the sales incentive plan that emphasizes their product.

Or perhaps the CEO has put his career on the line by purchasing a company or product line, and now needs the acquired product to perform…or he's headed for the unemployment line. In this case, you can be sure that there will be a component in the sales incentive plan to help ensure the CEO keeps his job.

Unintended Consequences

Balanced selling incentive structures can go wrong in several ways. The most common of these is when salespeople accept a lower level of total sales to earn the balanced selling incentive.

For instance, salespeople selling the aforementioned Product A and Product B earn a large bonus at the year-end if they hit both quotas. Most have achieved their Product A quota by November 1, but are far behind for Product B.

Inevitably, they will drop Product A and focus exclusively on selling Product B if their ROI is higher for selling Product B. In most situations, the sales force will end up with lower overall sales than if it had continued selling the way they had been until November.

A second way we have seen balanced incentives go wrong is when they are impossible to achieve. We worked with a client that set up a system to reward a sizeable bonus when a salesperson hit quota for five product buckets.

When we saw this incentive, we pointed out that for each product, approximately half of salespeople will achieve their quota. The percentage of the sales force that can be expected to meet all five product quotas is just three percent. Indeed, when we did the analysis, we discovered only three percent had hit all five buckets. Most of the remaining 97 percent had given up early on.

The third situation when these incentives go bad is when they are too complicated. A dominant trend in sales incentive design is to strive for simplicity, but adding a balanced selling component will add complexity to the plan. You have to be sure beforehand that improved business results brought about by the balanced component in the sales incentive plan will more than offset its increased complexity.

Doing it Right

When the discussion turns to the need for "balanced selling" in your organization, be prepared to push back and ask pointed questions: What's the benefit of balanced selling? Do we really need it? What are its unintended consequences?

If upper management presses ahead, test certain scenarios and share the results with senior leaders. For example, a scenario can determine the best outcome when Product A and Product B both have a national quota of 100:

Scenario 1

Product A is at 102.

Product B is at 103.

Total sales of 205.

Both products meet quota, but we have the lowest total sales of all three scenarios.

Scenario 2

Product A is at 115.

Product B is at 95.

Total sales of 210.

Only product A achieves quota, but we have the max sales of all three scenarios.

Scenario 3

Product A is at 95.

Product B is at 112.

Total sales of 207.

Only product B achieves quota, but we outperformed scenario 1 in total sales.

If upper management chooses Scenario 2, then it's probably best not to put a balanced selling component in place—total sales is what matters most. If they choose Scenario 1, clearly balanced selling is worth more than the highest total sales, and a balanced selling component is thus worthwhile.

With these insights, you have the information necessary to construct the plan. You can structure the balanced selling linkages based on the relative importance illustrated in the example above. These incentives can include linking the products together, linking together the upside opportunity only, paying on total sales, or paying bonuses for multi-product achievement.

Balanced selling incentives can be extremely effective, but they must be done the right way, for the right reasons, and with the right level of complexity.

Chad Albrecht is a principal and a sales compensation practice leader with ZS Associates, a global management consulting firm specializing in sales and marketing consulting, capability building, and outsourcing. He can be reached at chad.albrecht@zsassociates.com.