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Sales "Incentive" or "Disincentive" Plans

Updated: 4 days ago

"It is only natural, of course, that each man should think his own opinions best: the crow loves his fledgling... "Saint Thomas More, Utopia

This quote by Saint Thomas Moore, a 16th century Renaissance cleric leader, made a lasting impression on me as a young man.

It is taken from his book “Utopia”, written as a guide for leaders of state. It’s not one of Moore’s most famous quotes, and it didn’t occur to me at the time that it might also be applicable to determining the policies of a company.... but time and again I have found that it has proven out, even with something as basic as restructuring a company's Sales Incentive policy.

This is due in large part to most Sales leaders rising to their positions through the sales organization… generally as a top earning sales professional, then manager, Director, VP, etc... and the bias in the majority of Sales Incentive Plans is on top line revenue growth, which these leaders excelled in. Moreover, the sales teams they lead have that same bias... and while the old adage that nothing happens until someone sells somethingstill holds true, the profitability of what is sold is the key to creating and maintaining a healthy organization.

I’ve seen many examples over the years where top line revenue growth (and decline) had more to do with the ebbs and flows of a major customers business, the industry the company served, or the economy as a whole... with sales people rewarded or punished for something they had little to no influence upon. This leads to frustration and misalignment between the sales team, corporate leadership, and how everyone else in the organization is rewarded.

Over the years, I’ve found the best way to overcome this misalignment is to base the Sales Incentive Plan rewards on growth of “Gross Profit”, or revenue less the direct cost of providing a service or product. Due the the top line revenue bias I mentioned earlier, however, sales teams strongly resist this approach at first (ie, "the crow loves his fledgling..."), but a transition from a top line revenue plan to a gross profit based plan over the course of a fiscal year can be key to a successful transition.

And the benefits far outweigh the effort… the primary one being the alignment of your sales team with the company’s primary objective: profitable growth for your shareholders. It also closes the chasm between sales and other functions in the organization, like operations, manufacturing and administration, who are charged with controlling the cost of running your business and increasing profits. And I've found that if implemented correctly this can also contribute to higher overall Employee Engagement/ Satisfaction levels.

While old Sir Thomas may have had the alignment of heads of state in mind when writing Utopia, his advice is just as relevant to building a successful company.... and, yes, even a Sales Incentive Plan.

I hope this is helpful advice, and if you’d like to share your company’s experience with Sales Incentive plans on our blog please feel free to comment or reach out to me directly.

John Costanzo

Tel.: (516) 588-9165

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