10 Different Types Of Incentive Programs

Here are different types of incentive programs.

1. Cohort-based incentive programs

In the Cohort base incentive programs, users are classified on the basis of several cohorts like top performers, middle performers, and tail-end performers.

Typically 5-10% of users are top performers, 25-30% are middle performers, and the rest 60-70% are tail-end performers. It's important to look at these users differently because they come with different mindsets, calibers, and approaches.

Setting up a Cohort-based incentive program:

Step 1: The first step is to map the performance cohorts for your organization/ team. Identify and categorize the top 10%, the middle 30%, and the last 60% of your team members. Qualify every member into one of these categories.

Step 2: The objective of the cohort-based incentive program is to motivate and bring up the average performance of the cohort. For doing this, you need to identify the average and maximum performance of the cohort. If the program needs to have a business impact, it needs to push performances to above the average performance of the cohort.

Step 3: Go on to create milestones between the group average and 105% to 120% of the group maximum (for the top performers of the cohort to be motivated with the program).

Step 4: Offer preferably incremental or even fixed incentives for every milestone.

Similarly, the slabs can be set up for the rest of the cohorts by maintaining the reward value within the permissible limits of the business.

2. KPI & micro-KPI linked incentive programs

Typically incentives are given based on final sales output. However, to influence the final output intermediate outputs need to be incentivized too.

For example, demos lead to opportunities and opportunities lead to Sales. Here are more demos a salesman gives, more opportunities he will generate, and more closures to happen. Hence micro-incentivizing people based on Demos and Opportunities influences sales behavior.

Setting up a KPI-based incentive program:

Step 1: The first step is to identify the KPIs relevant to the target team members

Step 2: The objective of the KPI-based incentive program is to push team members to complete micro-KPIs that help achieve the end goal. For doing this, you need to individually identify the average and maximum of every Micro-KPIs of the team during the past quarter/period.

Your overall target for a KPI needs to be between this average and the maximum achievement. Ideally, this should be at the 2σ mark if your team’s previous performances on each of the Micro-KPIs are plotted on a normal curve.

Step 3: Go on to create milestones sequentially for every Micro-KPI

Step 4: Offer incremental or fixed incentives for every milestone.

A typical incentive program for an example ‘Sales Process’ KPI will look like below:

End Goal: Sales closure

Program Name: Super Closers

Micro KPIs: Number of Demos, Number of Project scope document completed, Number of Sale Agreements signed, Number of Sales closed

Reward type and value: Variable and Incremental incentive

3. Badge-based incentive programs

It's important to appreciate users' basis of their achievements and behaviors with non-monetary rewards. Badges and certificates can be used to motivate people- particularly to include and motivate performance at the starting end of the target achievement.

Setting up a Badge based incentive program:

Step 1: The first step is to identify the badges based on milestones of the program

Step 2: The objective of the badge/certificate-based incentive program is to push team members to complete the distance between the start of the month and the first rewarding milestone.

Step 3: Go on to create milestones for every step identified.

Step 4: Set up and offer badges for every milestone identified

A typical incentive program for example, ‘Badge based Program till 80%’ will look like below:

End Goal: Push users till 80% of target achievement

Program Name: Badge rush

Milestones: 20% of Target achievement, 40% of Target achievement, 60% of Target achievement, 80% of Target achievement

4. Hierarchy-based incentive programs

Sales usually have a regional sales team that reports to a zone-head and then Geo-head and then a national-head. It's important to roll out incentive programs across all levels of the hierarchy. This keeps each of the levels motivated at all times.

A typical hierarchy-based program could either be a KPI-based or cohort-based program mapped for every hierarchy individually - with its own targets.

5. Behavior-based incentive programs

Different types of sales teams face different behavioral barriers. Some may face fatigue for improvement, or certain sales ratios aren't improving (like Demo: Closures, Cross-sales, Upsells, etc). Incentive programs can be configured to improve these ratios.

Setting up a behavior-based incentive program:

Step 1: The first step is to identify the behaviors/ business ratios that result from these behaviors

Step 2: The objective of the behavior-based incentive program is to push team members to break through their stagnant performance ratios. Similar to the micro KPI programs, identify a range of values between the 2 sigmas and 3 sigmas of each of these ratios in your team.

Step 3: Go on to create milestones that check for fulfillment of each of these ratio limits identified.

Step 4: Offer fixed/ incremental rewards for every milestone

A typical behavior-based incentive program for example, ‘Sales Allrounder’ will look like below:

End Goal: Push users to participate in cross-selling and upselling

Program Name: Sales allrounder

6. CRM-utility-based incentive programs

It's been a fact that 70% CRMs fail to convince sales teams to their full adoption. Sales teams are reluctant to change and use a CRM.

Communicating 100% dependency on incentives on the sales team's CRM feed and creating an incentive program that pulls data from only the CRM increases its usage/adoption radically.

7. Seasonal or time-based incentive programs

Businesses may have seasonality during the month or during the year. To evenly spread the business volumes - Time-based incentive programs are launched.

Seasonal incentive programs are also rolled-out during business spike season. This makes users go the extra mile when the market is the most potential.

A typical hierarchy-based program could either be a KPI based with special targets applicable for the time period. (These could be dip season targets that are lower than a normal period target and festive targets that are higher than the normal period targets.)‍

8. PIP (Performance improvement programs)

There are users who either are not competent or are not willing to deliver/sell. It's important to churn those users objectively. PIP programs (or next 30-day plans) are configured based on the past performance of users. The output of which is considered for retention.

Setting up a PIP incentive program:

Step 1: The first step is to identify the KPIs that the user needs to complete in the next 30 days to be allowed to be retained.

Step 2: The objective of the PIP program is to help retail team members and develop them to become better performers. You need to identify the lower rung of performances of KPIs of the rest of the team during the past period. The target for the PIP KPIs need to be set as this minimum performance. Split these targets into 4 intermediary targets (typically one for each week)

Step 3: Go on to create milestones for every group of PIP KPIs

Step 4: Offer badges at every milestone and if the budget allows a reward.

A typical incentive program for an example ‘Rising Star’ PIP will look like below:

End Goal: Performance improvement

Program Name: Rising Star

PIPs KPIs: LMS module completion, PIP Target achievement

9. Team-based incentive programs

In order to bring a sense of togetherness as a team - team-based incentive programs are launched. These incentive programs are typically geographical or managerial-led.

A typical team based program could be a KPI based program with overall team targets broken into milestones.

10. Beat-the-champion incentive programs

To give a mega-boost to users - Beat-The-Champion of last month/quarter/year is launched. This influences users (especially middle and lower level performers) to get a self-push to achieve more and beat the champion.

Setting up a Beat-The-Champion incentive program:

Step 1: The first step is to identify the list of champions (first 4 rank holders) and their respective ranks

Step 2: The objective of the Beat-The-Champion program is to help users beat the target achievements of these champions.

Step 3: Go on to create milestones for target achievements of each of the rank holders.

Step 4: Offer rewards at every milestone.

A typical incentive program for example ‘Beat the Champion’ program will look like below:

End Goal: Performance improvement

Program Name: Beat the Champion

Frequently asked questions for incentive programs

Here are the frequently asked questions for incentive programs:

1. Why sales incentive programs are important?

Sales incentive programs are important because they help to:

• Motivate sales teams
• Improve performance
• Align goals
• Increase revenue
• Enhance employee engagement
• Foster competition and collaboration
• Provide data insights
• Adapt to market dynamics
  

Sales incentive programs help create a competitive and motivating environment, increase sales productivity, improve morale and engagement, and ultimately drive revenue growth.

2. What is a sales incentive program?

A sales incentive program is a structured initiative designed to provide rewards and incentives to salespeople based on their performance in achieving predefined sales targets or goals.

The sales incentive program typically includes a set of criteria, metrics, and rewards that are communicated to the sales team.

Sales incentive programs can take various forms, such as cash bonuses, commissions, trips, gift cards, or recognition and awards.

3. How do you set up a sales incentive program?

To set up a sales incentive program, follow these steps:

1. Define objectives
2. Establish metrics
3. Set targets
4. Design incentives
5. Determine eligibility and rules
6. Communicate program details
7. Track and measure progress
8. Provide timely feedback
9. Administer incentives
10. Evaluate and adjust
    
    

1. Define objectives: Determine the specific goals and objectives the program will focus on, such as increasing sales revenue, promoting a particular product, or entering new markets.

2. Establish metrics: Identify measurable metrics that align with the objectives, such as sales volume, revenue, or customer acquisition. These metrics will determine eligibility for incentives.

3. Set targets: Define challenging yet attainable targets for each metric. Targets should be realistic and tied to the desired outcomes of the program.

4. Design incentives: Determine the type and structure of incentives that will motivate sales representatives, such as cash bonuses, commission increases, prizes, or recognition.

5. Determine eligibility and rules: Clearly outline the eligibility criteria and any rules or guidelines for participation. This may include performance thresholds, timeframes, and eligibility for specific sales roles.

6. Communicate program details: Effectively communicate the program's objectives, metrics, targets, incentives, and rules to the sales team. Ensure they understand how to qualify for incentives and the timeframe of the program.

7. Track and measure progress: Implement a system to track sales performance and progress toward targets. Regularly review and analyze the data to monitor individual and team performance.

8. Provide timely feedback: Continuously provide feedback and updates to sales representatives regarding their progress and performance. This helps them stay motivated and informed about their eligibility for incentives.

9. Administer incentives: Once targets are met, promptly administer incentives according to the program's guidelines. Ensure accurate and timely distribution of rewards.

10. Evaluate and adjust: Regularly evaluate the effectiveness of the sales incentive program. Collect feedback from participants and analyze data to identify areas for improvement. Make necessary adjustments to ensure the program continues to drive desired outcomes.