Gaining a Motivational Edge Through a Fast Start Sales Incentive
By Jerome A. Colletti and Mary S. Fiss
When it comes to achieving a new annual business plan, all companies are interested in getting off to a fast start. “Let’s get off to a fast start” is a common leadership refrain sung to the salesforce to accelerate results and gain momentum in the early months.
Sales leaders often rely on sports analogies to make their point. At least one sports research study lends credibility to desirability of getting off to a fast start. Nancy Katz’s 2011 study in the Academy of Management Education reports that hockey teams ahead at the end of the first period win 72% of the time. In sales, there is a similar synergy between actual annual performance and early achievement of sales quota. Colletti-Fiss’ research shows that sales teams that get off to a fast start in Q1 and Q2, defined by meeting or exceeding quota, are twice as likely to achieve the annual business plan as those teams that do not. The purpose of this article is to provide insights about how to use a fast start sales incentive to motivate and reward early wins in business plan achievement.
Fast Start Sales Incentive Definition
Fast start sales incentives can be either cash or non-cash rewards. They can be implemented on either an ad hoc (e.g., SPIFFs/contest) or permanent plan basis. In the latter case, they are a component or element of the annual sales compensation plan. This article focuses on fast start sales incentives to those designs that are part of the annual sales compensation plan and are paid in cash.
Typically, fast start sales incentive pay is viewed as premium or over achievement incentive compensation, or, target incentive pay earned plus an upward adjustment to that amount for turning in results sooner than typically projected.
Business Situations That Are Right for a Fast Start Sales Incentive
The origin of fast start sales incentives can be traced to businesses that experience either seasonal or cyclical buyer purchases. For example, seasonality affects sales in the pool and spa industry. Typically, Q2 and Q3 are the highest volume quarters because the products are most frequently used during the summer months. In that industry, if Q1 sales typically represent 10% to 15% of total annual sales, achieving sales substantially above that level would evidence getting off to a fast sales start. Thus, motivating and rewarding sales results ahead of seasonal purchases is one business situation in which a fast start sales incentive could be both appropriate and applicable.
Countering cyclicality in buying, particularly in B2B markets, is another appropriate business situation in which to consider the use of fast start sales incentives. In the software industry, for example, Q4 is the strongest quarter because corporate buyers want to spend their budgets before year-end. Also, in some cases, vendors in that industry have conditioned buyers to expect more favorable pricing through year-end discounts, special payment terms or both. Motivating and rewarding sales reps to work with buyers to pull some Q4 sales into Q3 or Q2 could be accomplished through the use of a fast start sales incentive component.
In businesses that realize revenue on a usage or subscription basis, the benefits of realizing revenue through the entire year (i.e., starting in Q1) are far superior to a sale that results in only one quarter of revenue (Q4) for the year. For that reason, the use of fast start sales incentive is quite prevalent in ratable business model enterprises.
Common Fast Start Sales Incentive Techniques
The two most common design techniques associated with fast start sales incentives are: 1) a defined bonus for early achievement of a specified performance result; and, 2) accelerated/multiplicative incentive rate for achievement of fast start performance. Of the two design techniques, we find that companies prefer the multiplicative incentive rate to a defined dollar bonus. The principal reason for that preference is that the magnitude of additional incentive earned is tied to how good a job a sales person does relative to achieving/exceeding the fast start performance expectation.
A fast start sales incentive that involves a multiplicative design uses two variables: 1) the amount of incentive (either commission or bonus) earned under the plan formula (without regard to “fast start” performance) and the “multiplier,” — the factor used to adjust upward the base amount of incentive earned with fast start performance. For example, in a company that historically realizes 20% or less of total volume in Q1 sales, getting off to fast start by achieving 25% or more of total volume is a desirable result. To reward that accomplishment, a fast start incentive could be designed to provide 125% (the multiplier) of the incentive compensation earned (X) for target or greater performance.
The size of a fast start incentive opportunity is largely a management judgment based on the financial value of the business that has been “pulled forward.” However, in our opinion, for the fast start incentive to be both motivational and financially worthwhile to a salesperson, it should fall in the range of 20% to 25% of the target incentive award.
Fast Start Sales Incentive Return
Typically, the funds for a fast start sales incentive are carved out of the upside incentive opportunity. Because that is the case, the cost of motivating and rewarding a change in the flow of business must be balanced against the benefits of realizing that business sooner rather than later. Finally, providing a fast start incentive opportunity to sales reps to alter the flow of business should be evaluated from a customer relationship perspective. With information in hand about both business and customer benefits, management can determine how much emphasis to place on a fast start sales incentive plan component.
About the Author
Sales compensation expert Jerry Colletti is the author of more than 70 publications and is a frequent speaker at conferences and seminars. He is the managing partner at Colletti-Fiss, LLC and a member of the WorldatWork faculty.
Mary Fiss is partner at Colletti-Fiss, LLC, and has extensive experience in the development and implementation of sales compensation plans, variable pay plan for teams, reward and recognition plans for sales and customer service staffs, professional development and performance management programs for sales and sales management personnel.
Read the March 2011 edition of Sales Compensation Focus.
Contents © 2011 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.
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