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Incentivise Sales People on Margin not Revenue

The debate rumbles on, should you incentivise your sales team or not and if you do is it better to set their targets on revenue or margin/profit. There may be no right answer but you need to consider your Business model and Sales strategy and the long-terms goals of the business.

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The debate rumbles on, should you incentivise your sales team or not and if you do is it better to set their targets on revenue or margin/profit.

Well let’s answer the first part:

Incentivising sales people depends on the type of culture you have or desire to have in your business. If you want an out and out hunter type of environment then paying on performance is a must and that could by up to 50% base + 50% performance.

If you want a more account manager/farmer type of culture then a 90%/10% would be more appropriate. In some cases we recommend no performance incentive/commission because customers like to know that the person they interact with is not motivated to “sell” and has their best interest at heart. Grow, profitability and productivity should be at the heart of any of these decisions.

Where you do get into a commission structure or bonus payment on target we encourage you to set targets that are based on gross profit:

  • Yes we do understand that there is a wide swing in margin depending on the product and we get told all the time that a rep will only sell the products with the highest margin, but that point is weak because with a revenue based target the same rep would only sell the highest value products wouldn’t they.
  • To get over the margin issue we recommend that you segment your products into low, medium and high margin categories and set a target for each category so the reps must sell equivalent amounts across the product range.

There is one final objection that we often hear and that is that “we don’t want the rep to know the actual margin” reason being that it is commercially sensitive. The fact is that any rep worth their salt could calculate the margin of any product to within 1-2% in the blink of an eye.

How do you incentivise your team?

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