A properly built and implemented bonus structure can significantly increase an organization's sales and profitability. So how do you do it right? The answers in the article before you
Why do we need a commision model? after all, the employees do need to get paid
True, every employee gets paid for his work, and apparently it seems like a kind of insolence on the part of the employee to demand extra pay for performance, since the employee gets a salary to do the maximum. This is exactly why they are hired for work, to do their job. And having said that, let's take a look at the facts on the ground, it is rare to find companies in any country today that do not pay incentives or bonus on sales performance (and some in other areas as well). Is everyone wrong? Could be, but probably not. Here are some reasons why many companies choose to give incentives as part of their payroll:
- Economic Savings - Yes, that's right. Giving incentives saves money companies (and lots). So how does giving money save money? The logic is very simple. In the labor market, there is an average wage per employee in each job. Once all companies line up and pay a large portion of the salary in bonuses, this means that the base salary is lower, so all the social benefits are often saved by the organization (depending on the case and local laws).
- Competition for Employees - When an organization advertises jobs for salespeople, or is known to pay high bonuses, it attracts the highest quality manpower. Maneuverability - Unlike basic salary (base) which cannot be changed (can always be increased) without prejudice to workers' rights, an incentive model can be changed by providing advance notice to employees. In this way, a variable importance can be given to certain products / services or through variable work without breaking the law
- Motivation for Action - One of the most important phrases in sales incentives, and the one I've heard and even said myself for executives who have worked for me dozens of times is: "Don't let the incentive model manage your employees." In practice, as far as this phrase is true, the reality is far more complex. When a sales rep sells multiple products and the salary model encourages him to sell more than a particular product (because he earns more), it's very difficult as a manager to make him sell something else. Ultimately, if the model is built correctly, it will direct salespeople in the direction we want them to go, but managers have a crucial role to play in the process, as I'll explain later
Proper structure of incentive model
Each payroll model must provide:
E - Easy to understand. Sales representatives and executives understand the model, know exactly what is expected of them and how they can maximize their incentive. We recommend avoiding the construction of complex and complicated models as the delegates usually do not understand them. Even if the model is ingenious in his way of thinking, it is not worth much if management is the only one who understands the purpose of the model.
D - Drainage pits - water flows to the lowest point and so does failed incentive models. If the model has one element that is significantly more valuable than others, most salespeople will go over the "stick" and go to the lightest and lowest. Make sure the model does not contain drainage pits that may take everyone to the same place (unless this is the purpose of the model).
A - Aimed for purpose and measurement. It is important to make sure that we define in advance the purpose of the model with clear objectives and that the parameters in the model can be accurately measured. In many cases I have heard phrases such as: "Later we can find a way to measure, the main thing is that the model fits what we want." Such sentences usually doom the model for failure, because they produce a future compromise in the form of measurement. An important and critical part of the success of the model is the ability to accurately measure the data we want to obtain.
F - Fair, transparent and achievable. Sales reps should feel that the model is fair and allows them to make money for their performance. If they feel the model is unfair, they may not try hard or leave the workplace. Fairness is not just producing a profit-making model, but also transparency. Employees should be able to get full information on their data and wages at any given moment and feel that the goals are achievable
Important tips in bonus procedures
- Offsets - Selling quality is one of the most important things that should be emphasized in building an incentive model. It is recommended to retroactively offset canceled sales or encourage a bonus for an agent with low cancellation rates, etc.
- Presenting the model - In the initial presentation of the model to the sales people it is important to get ready in advance. A clear presentation must be made with the model and clear and accurate explanations should be included. After the explanations, agents should ask questions and make sure they understand the model and know what they are rewarded for. The model must be presented with positive energies. We recommend incorporating music, games, videos, etc.
- Model changes - In most of the models I have built, changes have been made over time to adapt the models to the changing business and organizational environment. The salary model change must be made in most cases and is inevitable. Still, I do not recommend many model changes. The model should rarely be changed as far as possible and allow any change of accrual period of at least one month to two months before making another change. Sometimes there is a problem in implementing and perceiving the changes that take time and should not be rushed and judged before giving a sufficient time to examine the issue. Also, changing a model may impair salespeople's motivation and may make matters worse. If it is a small change, it is sometimes better to absorb and not change, but it is certainly not valid in all cases and depends on the situation.
- Salary ceiling - Never set a salary cap for a sales rep. If the model you built is profitable for the company, it is profitable in any quantity, so let the representative reach an endless commission
- Strengthening implementation - Building an incentive model and presenting it to executives and sales people does not necessarily pave the way for its success. In order for an incentive model to bring about significant change, it is important to strengthen the process of integration and to implement the model and its importance among employees. Here are some things you can do to strengthen your implementation:
- Personal conversations - In every team there is a representative or two who are the strongest or influential in the team. It is advisable to take them for personal conversations before and during the deployment and harness them for the move. If this is a model where you have encountered many objections after the show, it is advisable to take as many personal conversations as possible and explain the benefits of the model to employees. If no one is satisfied, you may want to check if the model is really fair
- Recurrence procedure - It is important to present the model severa times after launch and to show success and excellence to encourage employees to use. It is important to encourage questions and ensure an understanding of the model every time
- Resolving Resolutions - Resisting the model and presenting the benefits is a selling process for the managers. Try to avoid the objections in advance by building a simple and fair model, explain it properly and listen to the words of the employees. Do not dismiss their objections and try to understand where the opposition is, is there really something in their words and can it be corrected and improved? Be attentive and patiently explain each question and argument. Try to avoid arguments and conduct the discussion in the form of a question and answer. Avoid saying as much as possible: "It won't change, that's how it is." Keep an open mind, that does not mean that you will change the model tomorrow and certainly it cannot be changed for every whim of every employee. Remember, it's always easier to say how good it was before. In the end, you get used to everything given a supportive environment
Types of bonus models
In the construction of bonus models there is no "right and wrong". Obviously, there are unacceptable models, but of the ones I will now present (which is only a partial list), each model should be tailored to the organizational workspace, products sold, target audience, sales style, work processes, quantity and percentage of cancellations, etc. What will bring us the best results is the best model. Here are the different models and types of sample models. Each template has its own advantages and disadvantages. There is no perfect template. Note that there are templates that refer to part of a model and cannot be used as a model on their own. You can definitely combine several templates to create a model:
- Percentage of ... - In this style we reward the representative for a certain percentage of his total sales. You can pay for a percentage of the total amount of money sold, a percentage of the profit, etc.
- Ranges / Stairs - In any range of sales / money you receive an additional commission or a certain amount of money. The higher the representative reaches, the more he will earn
- One by one - this method produces dependencies between two or more parameters. If you reach X in a particular parameter, you earn more than selling another product. This method is most often used when one wants to sell a particular product that is more profitable without hurting the sales of another product
- Slap Kiss (Profit / Loss) - This method earns X on each sale and loses Y on each cancellation. In this way, more quality sales are encouraged
- Daily / Weekly / Monthly Goal - This method gives us a target for a certain amount of time that earns the sales person an extra bonus. This method prevents employee absenteeism and increases sales toward the end of the target period (week / month)
- Point Method - This method turns all products and profits into points. The money is paid according to points. Recommended when there are many products and want an easy method to measure and explain
- Jackpot Date - Each month choose an hour / day / hour / week with double bonuses / 20% more / 1 + 1 etc.
- Personal goal - a challenging goal by seniority / ability. Arriving at the destination will earn the employee X money
- Team Goal - Encourages teamwork and is highly recommended. Reaching the team destination entitles all employees to a bonus. The bonus can be given by working hours / contribution to the group effort
- Closing / conversion percentage performance - most often used by organizations where the cost of leads is very high. In this case, we will also compensate representatives for the percentage of transactions that closed out of all the leads they received. You can combine with several methods to create a fair and profitable model
- Sell expensive, earn more - this method rewards the salesperson's profit and gives him wide freedom of action. It sets the price per customer. The more expensive a sale is, the more he will earn. Note that in this case there is a problem of uniformity in the prices provided by the organization
- Customer seniority - In cases where there is a monthly recurring payment by the customer or the sales person is also a customer portfolio manager, fees can be paid based on a proportion of the monthly amount the customer pays according to his seniority or as long as the customer pays. Encourages long-term work and good service in the sales process
- Sales Table - With this method, each representative receives an exact table of fixed fees for each product and each sale price
- Individual initiation project - to encourage teamwork. Any apprentice worker can be pinned to a training agent. Employee will receive additional compensation for his trainee performance
- Bonus threshold - In the case of employees who are absent from work for extended periods / do not do their job well, a bonus threshold can be set that disqualifies you from receiving a bonus under certain conditions such as: number of working hours, amount of sales, delays, subtractions, etc.
- Extra goal - setting another goal such as: 125% meeting the goal and giving an additional bonus on excellence
- Personal choice - Allows selection from a predefined set of personal goals. The delegate selects a destination that, if reached, will receive an additional bonus
- Surprise Bonus - Reaching the monthly goal will reveal to the delegate another destination (which he did not know until he reached the destination). Reaching the extra destination will earn him another bonus. Most often used when a particular product is a priority and after reaching its sales target, you can focus on another product's target. When delegates do not know what the next destination is, they focus on reaching the current destination
- Sales Trade - This method allows delegates to transfer sales to each other in order to reach their goals. Encourages collaboration and teamwork. It is important to formulate clear rules to avoid misunderstandings
- Individual team goal - In addition to a team goal, a goal can be given that will require each team member to reach a certain amount or sales amount in addition to reaching the team goal. In this case, the strong will help the weaker, because their bonus depends on reaching both the team target and the other representatives reach a certain number of sales
The sales rep incentive model has a major impact on the performance and profitability of the organization. It is important to make sure that the models are first thought out and tailored to my needs