Sales motivation scheme is created to serve as a platform where sales management renders both financial and idea opportunities to salespeople. The scheme comes as a bonus or commission to the salespeople depending on the incentive plan.
Aside from adding a payment cap to the commissions paid, other design methods that one can apply, and the technical conditions include increasing a threshold of performance to get fast payment. However, it is essential to know that these schemes come with requirements to make both the sales management and salespeople enjoy the benefits that come with it. Therefore, all the designs methods and technical conditions must be taken very important for the effectiveness of the scheme.
The targets of a sales motivation scheme include a rise in profit margin, getting new clients all over the world. When this is not achieved, it means the scheme is inefficient.
An ineffective sales compensation scheme
When a company experiences limited or no positive effect of the plan, it is said to be as a result of an ineffective scheme. Although these adverse effects only surface in the long run.
The system is ineffective when there is no influence of a sales compensation scheme on the salesperson. It is also useless when the sales force does not get the message being passed.
An ineffective motivation scheme is like a coin with two sides. While some help to develop some areas of one business, others do cause harm to some. Therefore, it is essential to have full knowledge of the negative and positive effects of these schemes for proper improvement in your business. It is observed that people with adequate expertise in this field tend not to experience many difficulties.
It is essential to know that when a company adopts a sales motivation scheme, it forms a significant determinant in the growth of the company. This system, thereby, can cause a lot of crisis either in the short run or the long run. Contrary to an ineffective scheme is an indifferent scheme that does not affect the plans of the company. Companies who run the unresponsive system are less worried as the outcome is not as massive as the outcome of an ineffective sales scheme.
Most salespeople who complain about the scheme’s ineffectiveness are those who do not align with the workings of the project. As a result of this, it is crucial for a salesperson who is planning to take up this scheme to analyze its efficiency against an average salesperson’s behavior. For more clarity, a brief explanation of what an effective motivation scheme is essential.
A sales motivation scheme is efficient when a salesperson enjoys double revenue compared to his or her previous profits. Thus, the project brings about positive changes which are as a result of the sales behavior of that person.
There is a wide range of adverse effects that comes with a system that is not well designed. These effects include a push for selling one product line and other products neglected, thereby increasing the loss of the company. Likewise, it could also be the encouragement of new clients with a decrease in the income of the business organization. There could be inequality of incentivizing all salesperson, and it might even make it hard for some to earn fair commissions.
Let’s look at the definition of an ineffective system and the cases where the system starts becoming problematic and inefficient. There are always pieces of evidence that show that the ineffective sales motivation scheme is harming salesperson. Let’s outline a few of those;
- This occurs when the payments to salespeople are not made in time, and the commissions cannot be accounted for
- This happens when the number of salespersons target for the scheme is too low and slightly below expectation.
- It occurs when the objective for the scheme is not achieved, and instead, other goals which are not in line with the system are pursued. For instance, a project to help salespeople improve their income-earning is inefficient when new clients are encouraged.
Furthermore, inequality between those performing far above the target and those performing below the target signifies sales motivation inefficiency.
Moving on, this happens when the scheme budget does not enjoy the number of profit and the number of salespersons it is meant to bring. This mostly is as a result bad management, lousy company’s culture, immature product, or poor commercial offering appear in a business organization.
Three main risks of an ineffective system
Many risks come with an inefficient system. However, here are the three most significant threats to take note;
- An inefficient system often led to a high turnover of the salesperson. The high turnover creates the problem of paying, training, and changing them with the company’s policy.
- An ineffective system brings about inflation in the cost of sales which causes many salespeople to be unable to meet up with the company’s commission.
- An inefficient system makes a salesperson to sell a product at the wrong period, and to retain existing business when not necessary. It also makes them sell more to new clients when it is at their risk.
Fundamental analysis may prevent the troubles
As discussed earlier, salespeople with adequate knowledge of this scheme tend to experience no difficulties making their profit. For those with little ideas, here is a fundamental analysis that may prevent you from acquiring an ineffective sales motivation scheme. You need to carry the analysis team along in the system in other to analyze the results of the system. However, finance should not be left behind as it shows the financial impact of incentives paid to the company and each product line. Here are five vital analysis to perform;
- An investigation should be carried out on the cost of incentives by examining the paid incentives and profits made. With this, the company has full control over the cost of incentives.
- An analysis should be carried out on the rate of total incentives received by an individual salesperson during a particular time. With this, the company can know if there is the incentive payment is equally distributed.
- Analysis should be carried on the changes in commissions received by a salesperson or a group of salespeople in the long run. The study helps the company to know the rate of salespeople hired. Likewise, it shows if the salespeople are earning below or above the target.
- An investigation should be carried out on the level of performance of the salesperson to determine if most salespersons are above the target or below it. If they are below, it means the system is inefficient.
- Also, an analysis should be carried out on the methods of which commissions are distributed to the incentive programby looking at the level of revenues derived from new clients in comparison with the old one and others.
What to do to correct a system that is identified as ineffective
It is essential to know that the sales motivation scheme does not work effectively for everyone. However, here are some ways to correct the system to ensure its effectiveness;
- Analysis should be performed in other to check if the motivation scheme helps salespeople to achieve well than before.
- A competent operational committee should be created to include members from finance, HR, and sales department. Likewise, a reliable analytics group should be responsible for all analysis in the company.
- The company’s plans for the scheme must conform to the current aspirations of the sales department to the incentives plan.
- Excellent communication should be established among the various departments in the company to explain the changes and to emphasize it, especially for the sales department.
- There should be a frequent review on the frequency of payment while the incentive remains stable to detect any failure within the system for an immediate solution.