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Grow Your Bottom Line by Offering Incentives

May 23, 2019

 

There is a simple lesson and rule-of thumb taught in any entry-level economics course; if you want to increase activity within a specific industry, you need to create

 

an incentive. To lay the ground work, there are two types of incentives/motivators: intrinsic incentives and extrinsic incentives. Intrinsic incentives are discovered through personal motivation, with no outside pressure, and typically, that person is performing some task to achieve personal fulfillment. A great example of intrinsic motivation is a pianist who plays their instrument every night before going to bed because it is what they love; there is no outside pressure or monetary gain, but it makes them feel content. Contrarily, extrinsic incentives, and the one we focus on here, entails the chasing of some reward.

 

There are economic incentives in virtually every aspect of our lives, and they are a driving force behind our behavior (whether we consciously realize it or not). The US government has created tax incentives to increase charitable giving, provided crop subsidies to farmers in the Midwest to increase food production, and “sin-taxes” on alcohol and tobacco to limit their use. So, how effective are these government incentives? They are incredibly effective, and Benjamin Lockwood, a Public Policy Researcher from UPenn’s Wharton School, notes that a 10% “sin-tax” on sugary drinks creates a 10% reduction in consumption, even when elasticity of demand is taken into consideration.

 

Using this example and rudimentary deductive reasoning, we could conclude that offering financial incentives to sales teams would increase their overall sales performance. A Harvard Business Review Article titled “Motivating Salespeople: What Really Works” took a deep-dive into various motivational methods sales executives are using in an attempt to engage their teams and increase performance.  Here is a summary of their findings:

 

Capping Commissions Decreases Revenue

Sanjog Misra and Harikesh Nair studied the effect of compensation plans and commission capping at a contact-lens manufacturer, and they discovered that salespeople stopped making sales once they achieved their maximum commission payout. This makes inherent sense because many people might not work harder if they don’t receive any reward for their additional value creation. Misra and Nair noted that when the manufacturer altered their compensation plan and allowed unlimited commissions, the company’s revenue increased 9%!

 

Overachievement Commissions Are Effective

Overachievement commissions are “higher rates that kick in after quotas are met. For example, salespeople may earn 10% on a dollar with their regular commission rate until quotas are reached, but earn 20% on a dollar for all sales above quotas”. Overachievement commissions are designed to keep the best-selling employees engaged throughout the entire year, and removing them from a compensation plan reduces sales by approximately 17%.  

 

Create Multiple Winners Based on Performance-Tiers

A study revealed that incentives with multiple winners boost effort and performance better than incentives with winner-take-all gift structures. Noah Lim, one of the coauthors on the study, has done further work demonstrating that more (rather than fewer) gifts or rewards should be awarded as the proportion of talented sales employees rise in an organization. His findings show that “executives should offer at least as many gifts as there are stars in a sales force. The reason is intriguing. Increasing the number of gifts in an incentive increases the chances that a laggard or a core performer will win a gift in place of a star, which motivates stars to work harder. On the whole, these results show that frugality toward top salespeople is detrimental to firm performance.”

 

In conclusion, Harvard’s Business Review on motivating salespeople shows the best way to increase company-wide revenue is to create positive incentives that allow sales departments to earn more money and compete for travel packages/gifts.

 

Here at Conference Event Management, based on our experience, we’ve found the best incentive events include our expert hotel and cruise site selection, coupled with full event management packages, gift fulfillment and merchandising, and registration/event website services which make it easy on a client to be able to reward their teams and increase their sales. Ready to take your business to the next level and grow your bottom line? We’ll show you how.

 

Motivating Salespeople: What Really Works. (2012). Harvard Business Review. Retrieved 23 May 2019, from https://hbr.org/2012/07/motivating-salespeople-what-really-works

 

(2019). Simon.rochester.edu. Retrieved 23 May 2019, from https://www.simon.rochester.edu/fac/misra/mkt_salesforce.pdf

 

 

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