B K BHATIA
Director Of Company
Harsh Shukla
Ceo And Md Of 3 Uk Based Mnc's
+1 Other

Hi,
Could someone help me in formulating incentive policy and incentive plan for sales staff. Ours is a wooden flooring company. We have eight sales people and two sales head. Please suggest me how to formulate the policy. What should be the minimum target for giving incentive? What should be the amount of incentive for minimum achievement of target and above minimum target. When and how should the incentive be paid? Is it after sales targets are achieved or after payment has been received? Should incentive be paid monthly, quarterly, half yearly or yearly. Please advice me on the other aspects of SIP also.
Shall be obliged for the help rendered to me.
Kavita
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There are no standard policies on 'Incentives', though the objective in most cases is to reward those sales executives who contribute to the growth of sales revenues. The entire cycle starts with the overall sales revenues desired to be generated by the Sales Team during a Financial Year. This is further broken down into quarterly revenues for the team, as also for different geographies in which your sales force is distributed.

Let us assume the Manager A (for one geographic sector) has three sales executives & the overall sales revenue target is Rs X. He further distributes his target X to the three sales executives equally as (X/3 + x). Please observe that 'x' is to ensure that even if one of the three sales executives falters, the overall target of Rs X assigned to the Manager is somehow achieved. In a case like this, one of the incentive schemes for the team under Manager A could be: (i) Achievement < X, no incentives (ii) Achievement = X, incentive = 1% of X (iii) Achievement = 1 to 1.25 X, incentive = same for case (ii) + 2 % of the extra revenue generated (iv) Achievement = 1.251 to 1.5 X, incentive = same for case (iii) + 3 % of extra revenue generated.

You may observe that in the above scheme, it is a total quarterly incentive to the team. Some organizations decide that the Manager A would get 40 % of the amount and the balance 60 % shall be distributed amongst the 3 sales executive in proportion to their achievements against the targets assigned. Such a scheme helps in maintaining the team spirit, yet making the team members compete with each other to earn more.

Well, this is one of the numerous algorithms available to design sales incentives.
Thank you for your quick help, Mr. Bhatia.
When should incentive be paid to the sales people? After all payments of sales made are collected or/and in case when the dispatch is in transit or payment is not collected against some sales made, incentive is deferred to next quarter or incentive plan should depend upon time bound performance?
Best,
Kavita
Mr. Bhatia has posted a good solution. I would like to add a few more details.
Let\'s begin like this - Q: Why incentive? A: To stimulate growth and share revenue accrued out of growth. Work standards are difficult to put in place for Sales, so let us take a round about course.
Step 1: Thresh-hold sales volume. Mr. Bhatia is right. However if the target is too low or too high you may need to adjust the thresh-hold value.
Step 2: Allow extra benefit for market penetration - this will really boost your sales in future. Allow some incentive for new customer acquired. If the customer was purchasing other brands earlier more incentive.
Step 3: Allow incentive on the contribution of the sales. Example staff A books order for Rs. 125 for an item costing Rs. 100 should get more than staff B who books the same item for Rs 115.
Step 4: (Very Important) Allow dis-incentive for increasing sales cost.
The question therefore is how to apply all these in one scheme. The solution is simple - gi
Hi Kavita,
The replies received so far are very good.
However, we found that our sales staff need the targets to be justified, rather than adjusting targets later on, (which really defeats the object).So the first thing to do is to set a target, and then the incentive plan.
WE take the individuals employment costs such as salary + benefits + employer costs. To this figure we add a small percentage of the business running costs. Then we add a profit margin. This figure gives you the minimum target. Please note the profit margin, is where you pay the incentive from,(which can be adjusted), In other words the individual has to earn the incentive. The incentive percentage can be tiered. The incentive must only be paid in the month/quarter following full and final payment of the invoice. I suggest you create a spreadsheet with all the different scenarios and apply the one that fits best for your company.
Regards
Harsh
Kavita, please refer to your query above:
Normally, the payment of incentives, for performance in a quarter, is made after the realization of sales revenues. Reason for the same is that the 'Purchase Orders' may sometimes be cancelled by the purchaser.
Keeping the above in view, one could maintain a log of all paid/ outstanding incentives for each employee.
Mr Bhatia : I am quite new to this forum and amazed to see the quick responses of my query.. I must thank you for both your replies. Sure, these replies will help me allot in formulating our Sales Incentive Plan.
I may come up with few more questions, if I get stuck somewhere. Hope to get your guidance on that.
Best,
Kavita
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