How To Build the Best Sales Incentive Plans for Your Business

Sales incentive plans are a great way to dangle a carrot in front of sales your sales team, offering a tangible reward for hitting and surpassing targets. These sales incentives can take many forms, but at their core, they all focus on one thing: driving performance with financial rewards.

And when it comes to motivation, cash is arguably the best carrot. It gives your team the freedom to choose their own rewards — whether that's a dream vacation, a new car, or those concert tickets they've been eyeing. It's a flexible, personal incentive that speaks directly to what's meaningful to them.

Sales incentive programs are a great component of your overall sales performance management process because incentive plans are mutually beneficial. Also called sales compensation plans , they help your business achieve its sales goals while providing the seller with an opportunity to maximize earnings. Let's walk through the basics of a sales incentive plan and cover some best practices for building your own.

• What is a sales incentive plan?
• Why are sales incentive plans important?
• Two primary types of sales incentive plans
• How to create a sales incentive plan: 3 best practices
• Challenges of implementing a sales incentive plan
• How to choose the right sales incentive software

Sales incentive plans motivate your sales team by allowing salespeople to earn above their core compensation. Managers may offer monetary or other types of incentives for meeting targets or performing specific selling actions. Ultimately, it's a great way to reward excellent performance and drive long-term success.

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Sales incentive plans are the strongest way to encourage sales teams to sell the products or services most important to your business — in the way you want them to. For example, many software as a service (SaaS) companies need their sales teams to foster long-term customer relationships to ensure recurring revenue.

Building relationships isn't easy, though — especially if you're managing a large region or thousands of leads. Even with the greatest technology to help identify the right opportunities, most sellers still benefit from an incentive to stay motivated. Using a sales incentive plan allows you to communicate your desired strategy, detailing what the business wants the seller to accomplish and how much they'll be compensated when they meet outlined goals. To motivate a SaaS account executive , a company might add an incentive having to do with booking X number of in-person or virtual meetings to encourage relationship-building.

Sales incentive plans are important — and getting them right is just as crucial. Setting unreasonable targets or incentive compensation that's too low can work against you, demotivating employees and leading to attrition. (The Salesforce State of Sales report found that 64% of sales pros say they'd leave their company if offered a similar job with better pay.)

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The best sales incentive plans are simple, but they also require nuance. The objective is to make it crystal clear how sales teams are going to be compensated, and what for. That said, a plan shouldn't be so simple that it ignores the behaviors you want sellers to perform. For example, if you want sellers to book meetings, it's important that you aren't exclusively incentivizing them for closed deals.

Basically, your incentive structure will typically break each incentive down in one of the following ways:

The most common type of commission, this is most appropriate for sellers who are actively closing deals. When you give them a percentage of the deal value, they're more motivated to land a larger deal — one with an extra product or service add-on, perhaps.

Paying by unit is most common for rewarding early career salespeople who are typically performing tasks such as cold calling, booking meetings, influencing lead generation, etc. You might, for example, offer an incentive for every sales-qualified lead or for every meeting booked (e.g., $50 per lead or $100 per meeting).

A sales incentive plan may contain some incentives that are percentage-based and others that are unit-based. Depending on your sales compensation strategy, you may want to leave room to boost sales performance by increasing commission percentages once certain targets are hit. Or you might increase the pay per unit if a seller lands a specific type of customer or sells a particular product or service.

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Building strategic and compelling sales incentive plans begins by starting with a strong foundation. The first thing to consider is your mission as a business. Of course, the ultimate goal is to drive revenue, but it's important to define what you're selling and who you're selling to. Once you're clear on the mission, product, and customer base, you can use that foundation to build effective sales incentive plans for each key sales role.

For each plan, ask: How does this role align with the overall business goals? For example, a company might choose to target Fortune 500 customers because its products and services are best suited for larger businesses. This company determines that its sales team will focus sales motions on three primary products. The mission makes it clear that sellers should not focus on smaller deals with smaller companies.

Next, think about how you want your salespeople to sell the product or service to the right customer. The example above is simple, but let's say this company has a large sales team, so the selling behaviors will vary by role. A plan for entry-level business development representatives (BDRs) , for example, may specify X number of phone calls per day, booking Y number of meetings each week, and generating Z dollars in pipeline for their account executive.

In some cases, a plan may not require multiple criteria because the role is already very targeted. For example, let's say you have an account executive who works in the Northeast selling an AI chatbot to companies who earn $100 million to $100 billion in annual revenue. That's already a specific territory and a single-product use case, so perhaps it makes sense to just assign a commission percentage for every closed deal.

The trick is to determine what compensation amount is within your budget while still motivating to sellers. Paying $10 per meeting isn't motivating, and $1,000 isn't scalable. Instead, you might offer the BDR $100 per meeting booked. Look at industry benchmarks and make sure you understand your current sales landscape so that targets and payouts are ambitious and achievable.

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A well-designed plan shouldn't require frequent large changes or generate confusion. Here are a few common challenges that companies face when implementing them.

Challenge: Larger companies are especially at risk of creating too many personalized sales incentive plans to efficiently manage. They may also design plans that are too complex in an attempt to reward too many behaviors or competing priorities. If your seller looks at your plan and doesn't know where to begin — or how to do the math on a calculator — your plan is too complex.

Solution: Begin by talking to key stakeholders and thinking through whether it makes sense to build plans by role, team, or region. You'll need several plans with flexibility to make adjustments. The number of sales incentive plans needed will depend on your business, but you can begin by looking at the challenges each sales team faces. For example, if a product is already selling well in one region but poorly in another, the incentives may need to be different for each region.

Challenge: Too much complexity can make it challenging for your team to understand how they're compensated. Your sales incentive plans should make it very clear to the team how they get paid and what they're paid for. Simplifying sales plans across teams is often a good strategy to help align teammates. For example, if all account executives are on the same plan, they can share strategies that are working with one another.

Solution: Use sales performance management software to make it abundantly clear how sellers are being evaluated and how they're performing. Using a complex spreadsheet they can't access may lead them to doubt the calculations or question their earnings.

Challenge: If the quarter gets off to a slow start, you may panic and feel tempted to make compensation changes . This can confuse sales teams, who need time to adapt to new strategies. Generally, you should give your plans at least a quarter to integrate — especially when introducing fundamental changes.

Solution: That said, if business metrics and compensation are low, everyone's going to feel it. After two quarters, you risk attrition from your top salespeople, and this is a sign that the plans may need some attention. Many companies also feel tempted to change plans every year in the first quarter, but that can risk changing just for the sake of change. Look closely at what is and isn't working because plan changes are disruptive to sales teams (unless they're short-term and small, like a SPIFF ), and they often remove simplicity and transparency when things are in flux. Also, sometimes the business wants to go in one direction, but rep feedback reveals that the strategy isn't working. It's important to listen to that, too.

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Sales incentive software becomes important once a business reaches a size or maturity where spreadsheets or the number of plans become hard to manage. That's often when salespeople routinely ask questions about their commissions.

These five factors are important when choosing a sales incentive software platform:

1. Integration with a CRM: It's crucial to integrate and easily move data between sales incentive software and your company's CRM because it enables accurate and real-time tracking of sales performance data. That data is then used to calculate commissions and bonuses and provide insight into the activities and deals that are moving the needle.
2. Ease of use: Sales incentive software should make life easier for your finance team or incentive compensation manager . Be sure it works for key internal stakeholders frequently using the system on the back end, who may include finance and accounting teams, and HR payroll.
3. Access for reps: This is critical since one of the key benefits of using sales incentive software is the transparency it provides. The software should allow sellers to easily see their plan and their up-to-date progress.
4. Real-time analytics: Analytics should be close to real time so that reps can immediately see the impact of a deal closed or a selling activity on their earnings. (Generally, a rep should be able to see their commission within 24 hours after closing a deal.) Real-time analytics also support a seller or leader's ability to quickly take action or change course.
5. Support: Make sure there are resources or services available to help administer and use the tool — and that you know up front what the costs for support are. Companies that provide a high level of service and in-house knowledge can be very powerful in setting you up for success.

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There are many creative ways to incentivize your sales teams, but be careful you're not dangling an apple when they really want a carrot. Your sales teams' livelihoods are on the line, so make meaningful, data-driven changes that will help line their pocketbooks and boost your business's revenue.