In the competitive world of sales, incentives play a crucial role in motivating teams and driving performance. However, one common pitfall is rewarding “business as usual” activities instead of delivering added value to your business, leading to complacency and stagnation. Sales incentives should be strategically designed to inspire exceptional performance, innovation, and value. 

Read on as we guide you through some of the key considerations for designing an incentive that will help you to maximize impact. 

Before we dive in, we’ll explore key terms such as return on investment (ROI) and return on objective (ROO) and how they can help you calculate the value of sales incentives. 

What’s the ROI for a sales incentive program?

ROI measures the financial return of your sales incentive program relative to its cost. It helps you understand whether the sales incentives are generating more revenue than they cost, and is typically displayed as a ratio.

How do you calculate ROI in a sales incentive program?

The way most organizations calculate return on investment is:

Total incremental sales generated, or gross margin generated minus total incentive cost, divided by total incentive cost.

For example:

Example sales incentive program cost $100,000	Example sales incentive margin generated $400,000 ($100,000 additional sales at gross margin rate of 40%)
$400,000 – $100,000 = $300,000 (net sales margin generated)
$300,000 return
$100,000 investment = 3:1 ROI Meaning for every $1 invested, you received a return of $3

Another way that ROI can be calculated is to look at the total cost of your sales incentive program as a percentage of your incremental revenue generated. In this instance, your ROI figure would be X% cost as a % of sales. A rule of thumb is that the program cost should be in the range of 5-10% of the incremental sales generated. However, the appropriateness of this percentage would depend on your gross margin rate. For example, if you’re selling highly profitable products with a highly paid sales team, it may be perfectly reasonable to have a higher percentage of cost to ensure program effectiveness. 

What is ROO?

ROO measures the success of your sales incentive program in achieving specific business objectives, such as increasing market share or improving customer satisfaction. It provides a broader view of the program’s effectiveness beyond just financial returns.

How do you calculate ROO?

ROO involves setting specific, measurable objectives at the outset and then evaluating the extent to which these objectives have been met. 

For example, if your objective was to acquire 50 new customers and you acquired 60, your ROO would be 120%.

In addition to ROI and ROO, here are some other ways you can calculate sales incentive value and impact:

• Incremental sales or ‘lift analysis’: Lift analysis requires subtracting Base Sales from Total Sales to determine Incremental Sales. Base Sales are the sales that would have occurred regardless of the program. Incremental Sales are the sales that were a direct result of the program. 
• Analysis of variance – The Bonferroni correction or Gosset’s “Student’s” t-test can be used to determine whether any difference between a control and test group or program period and previous period is due to the program or by random chance. 
  

How do you maximize sales incentive value?

To truly harness the power of ROI and ROO in your sales incentive programs, you need to design a sales incentive with the end in mind. In other words, define the incentive objectives and success measures upfront, and then work back to identify the most suitable incentive structure to align with your business goals. 

Let’s explore the critical steps you should take to maximize your sales incentives value:

Step 1: Define clear objectives

Are you looking to increase sales by a certain percentage? Do you want to penetrate a new market? Or perhaps you want to boost the sales of a new product? 

Clear, measurable objectives are essential as they provide a benchmark against which you can measure success. 

Example objectives could be:

• Increase overall sales by 20% in the next quarter.
• Acquire 50 new customers within six months.
• Boost sales of a new product line by 30% within the first year.
  

Step 2: Identify key performance indicators

Once you have your objectives, identify the key performance indicators (KPIs) that will help you measure progress towards these goals. KPIs should be specific, measurable, achievable, relevant, and time-bound (SMART). They’ll serve as the basis for determining whether the sales incentives are effective. Remember, one size doesn’t fit all. If your sales team are operating in different regions, measures of success are likely to vary, as well as how you may be able to measure those. Don’t forget to build in regional flexibility, if required, into your plan to ensure you’re maximizing the value across your whole salesforce.

Example of KPIs:

• Monthly sales growth rate.
• Number of new customers acquired.
• Sales volume of the new product line.
  

Step 3: Determine the desired behaviours

To avoid rewarding business as usual, focus on the specific behaviours that will drive your objectives. This might include upselling, cross-selling, acquiring new customers, or closing deals faster. The goal is to incentivize actions that contribute to significant business growth rather than routine tasks.

Example of desired behaviours:

• Increasing the average deal size through upselling.
• Cross-selling complementary products to existing customers.
• Reducing the sales cycle time for new customer acquisitions.
  

Step 4: Calculate the financial impact

Understanding the financial impact of achieving your objectives is crucial. This involves estimating the additional revenue generated by the desired behaviours. By calculating the potential financial gain, you can determine how much you can afford to budget on incentives.

Example calculation:

1. Estimate additional revenue: Determine the potential increase in revenue from achieving your objectives. For instance, if your goal is to increase sales by 20%, calculate the additional revenue this would generate. If your current sales are $2,000,000, a 20% increase would result in an additional $400,000. Leverage historical performance data and complete predictive modelling of performance to gain clearer insights on the potential success rate and help to create a range of expected outcomes. This range can help you understand the best-case, worst-case, and most likely scenarios, allowing for more informed decision-making and strategic planning.
   
   
2. Determine incentive budget: Decide what percentage of the additional revenue you’re willing to allocate to incentives. A common range is 5-10%. Using the previous example, if you allocate 10%, your incentive budget would be $40,000. Consider within this budget how much will need to be attributed to any fixed costs, such as management or administration costs, vs. variable costs such as reward spend. A good rule of thumb is an 80/20 split towards reward.
   
   
3. Allocate incentives: Decide how you’ll distribute the incentive budget across your sales team based on their performance and contribution to the objectives. At this point, it’s important to consider that the highest incremental performance uplift is most likely to come from your middle 60% of performers. Structuring your incentive and reward budget to motivate this segment of your sales team will maximize the value of your sales incentive. And not only that, according to our research, the companies that find meaningful ways to reward over 50% of their sales organization in a year not only experience better sales but also higher employee retention than those who don’t.
   

Step 5: Design the incentive structure

With the financial impact in mind, design an incentive structure that’s both attractive and sustainable. 

Considerations here should include:

• Which sales incentive rewards will be best placed to motivate your team? Ensure that the rewards are significant enough to motivate but also remain aligned with your budget. BI WORLDWIDE Canada believes that sales incentives are most impactful when they sit outside of any contractual compensation arrangements. As such, differentiating them with the use of personalized non-monetary rewards such as experiences, gifts, recognition, or travel is proven to be more effective at driving motivation.
  
  
• How frequently will your sales team be rewarded? For example, will you only reward at the end of the incentive or will you include an opportunity to earn interim (monthly, quarterly) or immediate rewards to sustain engagement and provide more regular reinforcement of the desired behaviours throughout the course of the incentive program?
  

Step 6: Implement and communicate

Once the sales incentive structure is designed, communicate it clearly to your sales team. A strong visual identity and program name can be really effective at creating engagement and energy around an incentive. 

Through your communications, ensure they understand the objectives, the desired behaviours, and how they can achieve the rewards. Throughout the sales incentive, plan regular communication updates which might include personalized performance updates, signposts on how to improve performance, and reminders of the rewards on offer and their progress to achieving them. Transparency and consistency are key to maintaining trust and motivation.

Communication tips:

• Consider designing a visual and copywriting identity to bring your sales incentive to life.
• Hold a kick-off meeting to introduce the sales incentive program and provide the opportunity for questions. This, in turn, will help identify areas where more explanation is required.
• Provide regular updates on progress towards goals. 
• Consider communication frequency. For example, as a salesperson is nearing reward achievement, or as the sales incentive program is nearing its end date, ramp up communication cadence to build momentum and excitement.  
• Celebrate interim successes to keep the momentum going.
  

Step 7: Measure and adjust

Regularly monitor the performance of your sales team against the KPIs. This will help you determine if the incentives are driving the desired behaviours and achieving the objectives. Be prepared to adjust the sales incentive program if it’s not delivering the expected results, and be sure to communicate any of these changes to your team. 

Monitoring strategies:

• Weekly or monthly performance reviews.
• Feedback sessions with the sales team.
• Analysis of sales data to identify trends and areas for improvement.
  

The impact of effective sales incentives 

Well-designed sales incentives can significantly boost business performance and employee satisfaction. For businesses, they can lead to increased sales, higher ROI, and enhanced productivity. For employees, sales incentives can improve job satisfaction, motivation, and team dynamics. By recognizing and rewarding achievements, sales incentives create a motivated, high-performing sales team that drives growth and success.

BI WORLDWIDE Canada has numerous examples of successful sales incentive programs that have delivered impressive ROI and ROO:

1. One client surpassed sales goals by 150% in the first year of incentivizing a new product. By combining training participation, sales performance incentives, and a mix of non-monetary rewards (points, travel, and recognition), they achieved an impressive ROI of 34:1, showcasing significant financial returns.
   
   
2. Another client utilized our patented GoalQuest AI® methodology to set personalized sales targets, resulting in a 4.1% overall sales lift and an average 12.2% performance increase over the individual baseline. This targeted, data-driven approach also reduced incentive costs per unit by 40% compared to previous years, highlighting the effectiveness of insight-led incentive design and self-selected goals.
   
   
3. A client who implemented a group travel incentive program and fostered competition among similarly performing teams, providing their whole network with an opportunity to win, saw a 250% increase in sales during the incentive period. What’s more, the incentive created a halo effect, with sales continuing to double in the two months after the incentive ended, showing that experiential rewards can drive substantial and sustainable performance improvements.

Source: BI WORLWIDE client program results

Creating high-impact, high-value sales incentive programs

Calculating the value of sales incentives isn’t just about assigning a monetary value to rewards. It involves a strategic approach that aligns incentives with business goals, encourages exceptional performance, and avoids rewarding routine activities. By focusing on ROI and ROO, sales directors and marketing leaders can design an effective incentive program that drives significant business growth and keeps their teams motivated and engaged.

Maximize your sales incentives for greater returns

BI WORLDWIDE Canada’s expertise and data-driven approach provide valuable insights into creating incentives that truly inspire and motivate, no matter where your sales team are based.

By continuously evaluating and refining your sales incentive programs, you can ensure they remain aligned with your evolving business objectives and market conditions, creating a dynamic and motivated salesforce that consistently delivers outstanding results.