In today's competitive business world, managers face a constant challenge to find the optimal incentive model for their sales teams. An effective incentive model is critical to a company's success, especially in the complex B2B market. This article will delve into the issue by analyzing the differences between the approaches of leading versus failing companies and offer recommendations for building an incentive model tailored to different niches and sales strategies.
The Importance of Incentive Models in the B2B Market
Research shows that the right incentive model increases sales people's motivation by 20% to 50% and improves their performance up to twofold (Steenburgh & Ahearne, 2012). In the B2B market, where sales processes are longer and more complex, it is particularly important to create an incentive structure that motivates the team throughout all stages of the process. However, a wrong model can lead to opposite results - a decrease in motivation and performance.
Comparing Models - Leading vs. Failing Companies
A comprehensive study conducted by the consulting firm McKinsey found significant differences between the incentive models of leading companies versus those with lower performance (Benson et al., 2019):
a. Leading companies tend to focus more on long-term incentives, such as annual bonuses for achieving strategic goals. In contrast, struggling companies focus more on immediate incentives for sales.
b. In leading companies, the incentive percentage of the total compensation package is higher - on average 40% compared to 25% in weaker companies. In other words, there is a stronger emphasis on performance.
c. Leading companies build more diverse KPIs that include not only revenue but also metrics such as customer retention, growth in existing accounts, satisfaction, etc. This is in contrast to struggling companies that focus mainly on revenue.
d. 75% of leading companies use dynamic incentive programs that change according to the business situation, while only 30% of struggling companies take such an approach.
A key conclusion from the study is that companies need to build tailored models that balance short- and long-term goals, not just rely on immediate sales as a metric.
Adapting the Model to the Sales Strategy
B2B companies operate in a variety of sales strategies - telemarketing only, a combination of telephony and fieldwork, or field agents only. It is important to adapt
the incentive model accordingly:
a. In short-term telephone campaigns for lead generation or single sales, it is customary to give immediate bonuses for results. But it is important to also include incentives that encourage quality and prevent churn, for example a bonus on leads that have become regular customers.
b. When there is a combined interaction between call center agents and field agents, a clear division of incentives is required that rewards cooperation. For example, joint incentives for creating quality leads and closing deals arising from such leads.
c. For field agents responsible for the entire sales and nurturing cycle over time, the incentive program should reflect this complexity. A pyramid of bonuses for meeting various targets such as annual revenue, customer retention, expansion of existing accounts, closing new strategic customers, and more.
d. In all categories, there is importance to metrics beyond direct revenue to encourage quality and long-term thinking. Customer retention, account expansion and satisfaction are important complementary KPIs.
It is also important to maintain transparency and simplicity in the program, so that salespeople understand exactly how they are rewarded and what the criteria for success are.
Adapting to Different Niches
There are unique characteristics to different niches that are important to consider when building the incentive model:
1. High-tech and software industry:
a. Relatively long sales cycle, sometimes several months to a year.
b. Emphasis on selling complex solutions and not a single product.
c. High importance to customer retention and recurring revenue.
Recommendation: A combination of bonuses for meeting annual revenue targets, bonuses for customer retention and recurring sales. Encouraging collaboration between call center agents and field agents.
2. Medical equipment industry:
a. High involvement of purchasing and regulatory factors on the customer side.
b. Importance of long-term relationships and trust with customers.
c. Sometimes technical expertise and ability to train the medical staff is required.
Recommendation: Significant bonuses for closing deals with strategic and new customers. Rewards for customer retention and expansion of existing accounts. KPIs related to satisfaction and feedback from the medical staff.
3. Fast-moving consumer goods industry (food, beverages):
a. Fast sales pace and high competitiveness.
b. Importance of shelf positioning and visibility at the point of sale.
c. Working with distributors and retailers, not with the end consumer.
Recommendation: Frequent bonuses (monthly/quarterly) for meeting sales targets. Incentives for achieving preferred shelf positioning. Setting clear targets for each distributor/retailer.
4. Insurance and finance industry:
a. Large-scale financial transactions.
b. Combination of telemarketing to schedule appointments and field agents to close.
c. Great importance to regulatory compliance and sales ethics.
Recommendation: Significant bonuses for closing large deals while meeting ethical standards. Rewarding telemarketing teams for scheduling quality meetings. Ongoing training and monitoring of compliance with regulations.
5. Automotive industry:
a. Variety of price levels and models, importance of correct segmentation.
b. Centrality of the buying experience and personal connection in sales.
c. Financing options and accessories as part of the deal.
Recommendation: Differential bonuses by vehicle categories and profitability. Incentives for selling accessories, financing and insurance. KPIs of customer satisfaction and referral rates.
In Summary,
The main recommendation is to adapt the incentive model to the unique economic, competitive and regulatory characteristics of each industry or niche. With an emphasis on multidimensional success metrics beyond gross sales volume.
It is also important to allow some flexibility in the incentive program to accommodate market changes and the characteristics of each salesperson.
In Conclusion,
Building an effecti ve incentive model for B2B salespeople requires a deep understanding of the full range of parameters - business goals for different time frames, unique sales strategy, and ongoing performance analysis.
Success lies in a dynamic, balanced, transparent and flexible model that drives the team to continuous excellence. The investment in developing such a model pays off in the long run in the form of strong sales teams and improved business results.
Sources:
Benson, B., Dempsey, K., Leibowitz, J., & Ramachandran, S. (2019). Motivating your sales force when selling solutions is hard. McKinsey & Company.
Steenburgh, T., & Ahearne, M. (2012). Motivating salespeople: What really works. Harvard Business Review, 90(7/8), 70-75.