Growth Factorials

All of us have come across sales incentive structures that are complex, confusing and ineffective. In one of my previous roles, I realized that our sales incentive structure was a mess. Different team leaders had their own structures with varying objectives, leading to disproportionate earnings for some and no incentives for many. The system was inefficient, causing opacity, delays, and a lack of fairness. To address this, I collaborated with our sales ops team to simplify the structure, focusing on three key variables: achieved revenue vs target with a minimum eligibility, a multiplier each on overachievement and discounts given vs target discount.

I believed the framework was simple and effective, but upon launching it, the team’s performance unexpectedly declined. A team leader even claimed that the new incentive structure was to blame. Taken aback, I delved deeper and discovered a major misalignment. Instead of prioritizing revenue targets, most of the team was fixated on overachieving on the discount multiplier front.

Let me explain this. Team members had a discount budget, and if they gave a lower discount than allocated, their incentive would multiply. For example, a 16% discount could lead to a 1.2x multiplier on the incentive. However, this led to a problem – they were losing customers by not using their full discount quota, potentially missing the minimum revenue requirement for incentive eligibility.

The issue stemmed from a lack of clear communication on maximizing incentives by driving higher revenues within the new structure. Once diagnosed, we revised the incentive structure. Now, maintaining a certain discount level was a requirement for eligibility, but there was no multiplier if the discount quota wasn’t used. The sole dimension to maximize incentives became revenue, and the team’s performance immediately improved.

The lessons learned were crystal clear:

Firstly, communication is paramount. It’s essential to convey intentions and expectations clearly to ensure everyone understands the reasoning behind decisions. Assumptions can lead to misunderstandings, underscoring the need for continuous, transparent communication at all organizational levels.

Secondly, simplicity is key for smoother execution. If you want your team to optimise on too many variables, their performance can suffer, while a clear and simple focus on a single goal allows for faster and better execution.

Thirdly, hypotheses should be treated as untested until proven on the ground. Continuous testing and iteration based on real results are crucial before solidifying a concept into a theory.

Whether in sales or beyond, these invaluable lessons can transform your business strategy and drive success.