Incentivize profitable sales in your pay for performance system

by on June 17, 2009 · 0 Comment POSTED IN: HR Info Center

Your Pay for Performance system should emphasize profit over revenue

And, in some cases you may want to insert Management By Objectives into your pay for performance system, especially, for new people who may have to have some time in order to get the pipeline full in order to generate any revenue or achieve their quota.

There may be time to do that and you may want to do, MBO types of things, but in their goals, but I would encourage you over time not to do very many of these.

Generally, when using MBOs in a pay for performance system, 90% of the MBOs are achieved by 95% of the people out there. And, consequently it doesn’t really differentiate somebody’s performance.

I mentioned some – a backfire situation. I mentioned this very first situation where they emphasizing new business. Well, this is actually a little bit different.

What they – in this particular case they emphasize new business. Their sales incentive plan, actually, customers were coming in. They had a record number of existing record losses in existing numbers of customers. Although, a record number of new business customers, the net effect was a loss in revenue.

In the second scenario, though, the sales incentive plan, reward people based on revenue generation, sounds like a good goal for any salesperson to have. You get a certain percentage of the revenue generated.

Unfortunately, in this particular case there was more than one product that was being sold. In fact, there were many products and some products, believe it or not, are more profitable than others. And, generally the more profitable products are the hardest to sell.

Consequently, without recognizing that difference in the sales plan, this particular sales or plan reward just on revenue no matter where it came from or what product was sold. So, consequently the sales force sold the easiest sell or the least profitable products and the company did not achieve a profit, because of that.

So, if you’re going to reward revenue, which sounds great, it could backfire on you. What you really want to do is reward profitable revenue in your pay for performance system.

Edited Remarks from “Incentive Talk: How to Design an Incentive Plan that Works for – Not Against – Your Company’s Goal” by Rick Olivieri

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