Migrating Sales Incentives Towards Price Performance Reward

Migrating Sales Incentives Towards Price Performance Reward

The vast majority of sales programs do not have incentives focused on rewarding price performance. There are certainly plans that include incentives based on margins but not specifically on price.

So, first, why do we want to reward sales teams on price performance? If your sales team is currently involved in the pricing process through actually setting prices or discounting then you may want to consider a reward for performance achievement.

The key is to isolate price in the equation. Sales teams generally have the ability to impact sales unit volume as it is a key aspect of the job. They may also have pricing influence or control. What they don’t have is the ability to control margins. They have the ability to impact margins but not control them because the generally don’t have access to controlling costs.

We are then left with sales unit volume and price performance. Let’s look at a situation where the sales team is currently being compensated on profit margin attainment.  How do we move towards a price performance incentive?

One approach is to minimize the disruption in compensation while adding the price component. In our scenario the reps are paid 28% commission on profit margin. Simply adding a price performance feature to this plan may not be sufficient to get the reps attention. Instead, consider reducing the profit margin commission to 25.2% (a 10% drop) and adding a price performance feature that brings the commission back to the original 28% mark.

The rep will lose no compensation when they achieve the margin and price performance goals. The key is to set price performance goals for each rep that provides a target where the 28% profit margin commission is realized.

Migrating toward a price performance incentive will minimize disruption and send a strong message that price management is an important aspect on the front lines.

About the Author
Ralph

Ralph Zuponcic

President, Price Point Partners

Ralph is a national authority on strategic pricing. He has been featured in publications including The Wall Street Journal, Fortune Small Business, CFO Magazine and Marketing News.

Get in Contact

Start Measuring Your Price Performance!

Speak With One of Our Price Consultants Today!