March 5, 2018
Motivating indirect or external sales teams has always been difficult. It’s tough enough to hold the attention of your own employees, let alone someone else’s. Constantly inundated with products and programs from other suppliers, your wants and needs—hard as this may be to imagine!—are not the first thing your resellers, distributors and their sales forces think about every morning. If your agenda corresponds with theirs, wonderful. If not, too bad.
To help capture engagement, vendors offer a variety of channel sales incentive programs. This is exactly the right approach, because incentives work. Research from the Incentive Research Foundation indicates that incentives can boost performance by up to 44 percent. In one instance, a Fortune 500 manufacturer realized dramatic results from a channel sales incentive program in the form of a 32 percent increase in total revenues, a 30+ percent increase in market share in nine of 12 markets, and a net operating income increase of 19 percent of revenue. Wow.
The question isn’t whether to run a sales incentive program, but how to best design and execute it. A lot easier said than done, however, which is what we’re going to discuss here.
Unfortunately, many vendors treat their channel incentive programs as an obligatory check-the-box exercise, intended in theory to “meet competition”—a nice way of saying “table stakes, whether we like it or not.” The predictable result is short spikes in sales based on singular transactions, with no accompanying long-term ROI. The programs are tolerated as a cost of doing business. Growth is spasmodic. Inertia reigns.
There’s a better way.
This article will provide a new framework for thinking about sales incentives that can help you measurably improve the effectiveness and efficiency of your incentive investment and create a competitive advantage. This will be particularly helpful if you sell considered-purchase products, if your products require a long sales cycle, and when the sales representative (direct or indirect) is a key driver.
It’s going to come down to this: breaking out of the usual mode of program design, and breaking out of the safe and familiar zone of spreadsheets. There’s just no gentle way to say this, but if you’re still managing channel incentive programs from a spreadsheet, unless those programs are very small, it’s time to stop. It’s limiting your options, it’s slowing everything down, and if it hasn’t already, will probably cost you some money because there’s so much room for error. (How much money? Possibly quite a bit. A study by Accenture suggests as much as 10 percent for one industry.)
You’re going to need a platform. There. We said it. But more on that later.
That wise old saying applies to many things in life, but particularly well to sales incentives.
Which brings us to SPIFs. Specifically, straight SPIFs.
With few exceptions, most indirect incentive programs focus on post-sales rewards in the form of individual SPIFs or headquarters rebates. There are reasons SPIFs are popular, and it’s not only because they’re the simplest form of incentive. They’re extremely useful when introducing new products, reducing inventory, incenting a particular behavior, bundling products, or simply to increase engagement with otherwise indifferent sales teams. In short, they work.
On the other side of the coin, SPIFs can also be addictive, discouraging teamwork and distracting from building sustainable relationships. One sales consultant labels them as narcotic, because once you start, you can’t stop. Suddenly you realize you’re incenting people to do what they’d be doing anyway, spending money for the privilege of running in place.
But here’s the key point in terms of channel incentive strategy: You’re rewarding for run-rate business, instead of incremental performance. You may get quick results, but what you’re not likely to get is impact on your overall long-term performance.
In other words, know that if you design a program that rewards for the quickest and easiest sales, that’s what you’re going to get. It’s what you’re always going to get, and next quarter or next year you’ll be starting from the same place.
Now, that’s hardly the worst thing in the world, but you’d probably rather have an incentive strategy with the flexibility to drive long-term incremental performance and levers you can use to adapt to business challenges as they arise. So what other options do you have?
How about a SPIF on steroids? That’s one way of categorizing incentive programs that involve bundling, tiers or thresholds. Or put another way, if you think of straight SPIFs as shooting off a rocket—up it goes, and down it comes—tiered programs can be thought of as snowballing over time.
The benefit of tiers and thresholds is that they focus on growth—and incent that growth—over a much longer period. You track not only how a reseller or rep has done on a single product in a single transaction, but how they’ve done on all your products over the course of the quarter, or better yet, over the course of years. They encourage expanding and diversifying sales over the long term, and properly rewarded, result in loyalty and a relationship based on mutual benefit, rather than “what have you done for me lately” individual transactions.
Programs such as these can usually apply at both the headquarters and individual levels:
Eventually, once a company reaches a certain threshold, they can become the proverbial “silver” partner, or “gold” partner, or “platinum” partner, and you can leverage those statuses to increase their rewards. Once you have solid data on how people react to your incentives, you can recognize typical patterns and personas and develop plans to move your partners up in the hierarchy accordingly. In this way, growth can be increased incrementally, because you can only sell so many washers to so many people a month. And with that incremental growth comes a true and profitable partner relationship.
All incentive programs have changing behavior as their central goal. We recommend incenting to change a lot of behavior.
Just as you know which of your internal sales reps are successful and which are not (and why), you know which of your resellers, distributors and partners are successful and which are not. You understand and appreciate the habits and characteristics that separate them from the pack. It’s precisely those traits that you want to replicate across your entire indirect sales network.
If you can measure it, you can incent it.
The goal becomes shifting the focus from incenting sales alone to rewarding the foundational behaviors that result in more sales. It’s the collective impact that drives sales success. Behaviors are easier to track individually, making it easier to calculate ROI.
So, consider rewarding your resellers and distributors for performing the behaviors that generate success now, and that will still be generating success 10 years from now, independent of any particular sales incentive. There’s a lot more to sales than just selling.
Imitation is the sincerest form of flattery, and it’s also a good way to build a solid sales culture.
Start by making a list of the key behaviors practiced by your most successful partners. Then add to it a list of other key behaviors they’ll need to achieve your particular go-to-market objectives.
Below are examples of effective sales activities, divided into pre- and post-sales categories. Naturally, not every item will apply to your business, so use them as a starting point and add as needed. Next, determine the relative importance of each behavior, and how often you’d like to see that activity occur. The reward value for each should align with the effort required.
This gives you the structure for allocating your incentive budget. You know exactly what needs to happen, and how often, to achieve long-term goals for sustainable growth.
Your list of behaviors should be relatively easy to track, although the data may be dispersed through several systems. But it’s essential that you follow up and track each one.
Now that you’ve identified the key behaviors and assigned relative weights to each, the next step is putting them into play. Determine whom you want to motivate and how you’ll provide your incentive. We’re advocates of minimizing the number of programs you offer, but making sure those programs influence as many behaviors as possible. Here are a few considerations.
One advantage of SPIF programs not mentioned earlier is that the rewards center at the greatest point of impact: the person doing the selling. The corresponding challenge can be managers who resist participation, because they’re not excited about suppliers influencing their sales staff. A long-term loyalty program designed to reward both sales and non-sales activities—including team incentives—can help smooth this over. Some other characteristics of individual reward programs:
Unlike programs that target individuals, rebate programs are typically paid to the companies themselves. Rebates were conceived to help maintain street price: If the product were discounted in advance by the amount of the rebate value, many companies would simply reduce the resell price. Once pricing is reduced and margin disappears, the trend is hard to reverse. Rebates can also be used as growth incentives, because the value can escalate as specific objectives or tiers are achieved: