Whether or not a sales incentive plan should provide credit for online sales should be primarily linked to the nature of the sales role in question. Specifically, we should consider two criteria:
- Does the sales person meaningfully influence online sales results through the fulfillment of the primary accountabilities and responsibilities of their role?
- Can the individual sales person’s impact on online sales results be tracked and reported with adequate accuracy and timeliness?
The first criterion addresses the issue of alignment to role (and presumably to business strategy, if the role has been well defined). Does providing sales credit for online sales increase motivation by recognizing and rewarding the results of sales effort, or does it cloud line of sight by introducing a metric that is not meaningfully controllable by the sales person? In some cases the answer is clear, in others clear as mud.
The second criterion addresses the issue of feasibility. Assuming online sales are a desirable metric for the role, are there systems and processes in place to enable effective and efficient reporting and plan administration? Let’s consider a couple of examples.
Example #1: Luxury Goods
Indirect sales representatives for a manufacturer of luxury goods are tasked with maximizing product sales from an assigned geographic region, as well as managing the brand presence and the brand “experience” in the region. They call on wholesalers and retailers with the goal of introducing new products and increasing sales of existing products by educating clients on the value and positioning of the brand. They often do “hands-on” merchandising and product placement, and even provide business strategy advice to smaller clients, either directly or in joint calls with a wholesaler. They also look for new retail and wholesale clients to expand their portfolio.
The sales incentive plan for this luxury goods indirect sales role may be designed to include credit for online sales from customers in the assigned geographic region. The sales representative is intended to have a strong influence on brand presence and sales experience in their assigned region, and the majority of online sales for this brand can be traced back to end customers who have been exposed to the brand’s “experience” in the brick-and-mortar world. In other words, this sales role meets criterion #1.
Evaluating criterion #2 is relatively simple because these indirect sales representatives are dealing with regional clients with little or no overlap across regions. Sales from all channels may be tracked and reported by account. The sales incentive plan does not provide sales credit for online sales through the company’s own online store. There is also no credit for sales from national accounts that may have physical locations in the region.
Example #2: Technology Support/Accessories (for example, audio cables or phone chargers.)
Indirect sales representatives for a manufacturer of Technology Support/Accessories are tasked with maximizing product sales from an assigned geographic region. They call on wholesalers to introduce new products and promotions, and provide advice on product assortment. They also call on local outlets of large retailers for merchandising and product placement, and may have some end-customer contact at the retail site. Promotions, merchandising guidelines and marketing materials are developed by corporate marketing; the focus of this role is on the execution. In general, there is significant price sensitivity and limited brand recognition.
The sales incentive plan for this role ideally would not provide credit for online sales. The primary reasons for this recommendation are the price sensitivity and limited brand recognition. While the sales representative’s role in merchandising and product placement may meaningfully impact sales in a physical environment, this advantage is lost in the world of online sales. An online shopper might have become aware of the product in a brick-and-mortar environment, but price sensitivity and lack of brand recognition mean price comparisons and feature comparisons are likely to drive the online sale. Criterion #1 is not met and criterion #2 becomes irrelevant.
Many companies face more complex or ambiguous decision making situations. Perhaps the sales representative has the ability to affect online sales for some clients or some products, but not others. Should the company try to provide selective credit? Efforts to ensure sales credit “fairness” are often penny-wise and pound-foolish. Unless evidence indicates the motivational impact of such sales credit outweighs the administrative burden, it might be best to leave online sales outside of the incentive plan.
Some companies already find themselves managing an incentive plan that does not meet the criteria outlined above, and face the challenge of transitioning to a new incentive plan. What challenges does your company face in managing sales credit for online sales? We welcome your stories and your questions.
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.