Question
Any tips for putting together an incentive plan for “inside sales” employees? We are trying to get our employees into a “value-added selling” frame of mind (instead of price-point) and want to provide an incentive.
Answer
What type of inside sales are they doing? Do they qualify for the 7i exemption or are they non exempt employee? These questions must be answered because, if they are non-exempt, any incentive earned must be included in their hourly rate. If they are exempt, it would make it much easier to implement an incentive with less administrative costs. Assuming you conclude they are either exempt, or that the administrative burden if they aren’t is “worth it,” then here are a few tips for designing their incentive plans.
Tips for Inside Sales Plans
- Incentives are a great way to support an initiative to change behavior, but the rest of the initiative needs to be in place as well. This may include training, systems enhancements, coaching and mentoring, etc.
- If you really want to use incentives to motivate and excite, they need “carrots and sticks” to be part of them. Over time you will want to migrate base salaries down as a percent of target total compensation so that the target incentive must be earned in order for the employees to maintain market-competitive pay.
- The amount of pay at risk depends a great deal on the nature of their inside sales roles. Although it can be more complex than this, one simple division is between jobs that are primarily “inbound” and those that involve more aggressive “outbound” calling. If an inside seller mostly reacts to requests from customers and is primarily doing an order management function (perhaps with some ability to cross-sell or up-sell), then a relatively smaller percent of pay at risk (in the incentive) is appropriate. For outbound inside sales people who more strongly influence a prospect’s decision to buy through their own creativity and initiative, more pay at risk (and more associated upside) would be a good idea.
- Pay frequency and measurement period may be shorter for inside roles than field roles if they are working a shorter sales cycle. For example, if the inside sales people are working with the more transactional sales, or if they are focused on identifying prospects and setting meetings they may be paid monthly based attainment of quarterly goals while the field sales team that is focused on longer cycle selling to larger accounts may be paid quarterly based on attainment of annual goals.
- Beyond this, the basic principles of role-based incentive design apply, including the following.
Basic principles for role-based plan design success
- Pick measures that are linked directly to income generation for the company (e.g., revenue, units sold, margin) rather than activity level (e.g., number of calls)
- Pick as few measures as possible to cover the primary accountabilities of the role. One or two would be a good number for a newly-instituted plan. Three might be OK. More than three would have to be well-justified as it dilutes both the message communicated by the incentive plan and the payout value of accomplishing any of them. Typical measures for inside sales roles include the usual sales volume measures (revenue, bookings, margin value). For inside sales roles focused on identifying prospects and setting meetings, measures may also include results more directly controlled by the inside salesperson like meetings set and completed, or sales accepted leads.
- Design the plans with sales leadership’s involvement so that they introduce them with a message like, “Here are our new incentive plans. We are thrilled to share them with you because we believe they will significantly increase both your income and that of the company. Let me show you how . . .”
- Provide great materials to communicate the plans — since the reason you’re doing it is to motivate and excite your inside sales people.
- As soon as you have an idea of what the final design may be, start planning for accurate and timely administration of the plans and great reporting. You risk losing much of the motivational value if employees don’t see a frequent and easily understood connection between their results and their earnings.
For a more thorough overview of plan design basics, see How to Develop a Sales Compensation Plan.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.