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Why an Incentive Strategy is Really an Investment Strategy

Devin Ferreira | October 4, 2019

incentive investmentIf you had the opportunity to make an investment that offered you a return of 100%, would you make it? Would you bet the farm on Apple, Google, or Bitcoin if you knew you had a reasonable shot at doubling up on your investment in the near future?

Of course you would. But even with a much lower rate of return—a “good” ROI for a typical mutual fund runs somewhere around 8%-10%—we still tend to see investment strategies as sound financial planning and something that all responsible adults should be considering. That’s because we seem to look at investments as seeds of a money tree that, upon planting, will grow and grow until one day we’re ready to reap its delicious fruit.

The same sort of psychology holds true with other personal investments like real estate and education. We’re willing to pay the $70,000 to go to Harvard, or sink $350,000 into that starter home because to us it means we’re investing in our future, not simply paying for a service.

Not only are they investments worth making because of the future return—which we may not actually see until years or decades later—but there’s also a qualitative value added that pushes the financial component into the background. Yes, there is an implicit job offer baked into the experience of attending Harvard, but there’s also four years of prestige and pride that go along with the experience. These two factors combined are what make the experience—and the investment—a valuable one.

Incentive Investments

What do we invest in as an organization? The obvious element is salespeople. We invest money to hire competent salespeople, who in turn help generate a profit, or return, for our organization. And yet, while we may view our salespeople as a direct organizational investment, we still don’t always seem to view sales incentives in this same light.

Instead of looking at a sales incentive strategy as an investment, we tend to look at it in terms of cost. What will this program cost us? How much do we need to spend to run this program successfully? These are preliminary questions that we get all the time.

Which is not to say that they’re bad questions. The bottom line should always be top of mind. So, of course, we’re concerned with the cost of tuition, and we’ll have to pass on houses that are out of our price range. But if, after your freshman year at Harvard, you had the chance to land a job that paid you $140,000 or more, wouldn’t that alone be worth the money? Wouldn’t we consider that a worthwhile investment?

Unfortunately, incentive investments are often overshadowed by the specter of cost. There are a couple of reasons for this. First, if a program isn’t data driven, ROI can be murky or difficult to measure. There may also be skepticism as far as correlation versus causation when it comes to sales behaviors, which can work in the favor of a third-party whether the results are better or worse than expected.

But at the same time, a robust reporting and analytics component can help resolve these concerns and provide the type of quantitative data that backs up results. Just like you would never trust a stockbroker who chooses how to spend your money based on their “gut,” you’d be wise to avoid an incentive company that isn’t able to track performance growth and analyze this data for you.

And what about that elusive ROI? Is a sales incentive really worth the investment of running a program? While most companies will keep this data under lock and key, independent research does suggest that sales incentive programs can produce ROIs anywhere from 10% to 100%, with obvious variance depending on the type of program, size of program audience, length of program, and other factors.

But in our experience, this is actually underselling the success of these sales incentive strategies. Typically, with our programs we tend to see ROIs more in the range of 50%-500%. If an investment firm were offering that kind of range to its clients, my guess is you’d be seeing a line out the door trying to get in.

What’s more, there’s a qualitative element to sales incentives as well. For an employee sales program it’s the increased engagement of your sales team and the recognition among peers of individual success. For channel sales, there’s the boost in mindshare and overall visibility, which are vital when your VARs’ sales behaviors and attention are discretionary. Ultimately, this these “incentive investments” give your audience another reason to do business with you. Mindshare captures market share.

Conclusion

When organizations want to assess the value of their sales incentive programs, there’s a reason they’ll ask about its ROI—its Return On Investment. It’s because there’s an implicit understanding that an incentive program is really an act of investment—in your organization and your people. Whether it’s an employee sales incentive, a channel incentive, or customer incentive, these programs demonstrate to your audience that you’re invested in them and their engagement. Usually, they’ll reward this investment by returning the favor . . . and investing in you.

Looking to invest in an incentive program for your sales team or channel sales network? Contact us to find out how we can maximize the return on your incentive investment.

 

 

Sources

https://bitcoin.org/en/

https://www.thebalance.com/good-annual-mutual-fund-return-4767418

https://money.usnews.com/money/blogs/on-retirement/2014/03/13/why-young-people-shouldnt-hesitate-to-invest

https://www.cnbc.com/2019/04/05/it-costs-78200-to-go-to-harvardheres-what-students-actually-pay.html

https://www.hmiaward.com/blog/top-4-channel-incentive-pain-points

https://theirf.org/am-site/media/measuring-the-roi-of-sales-incentive-programs.pdf

https://www.hmiaward.com/blog/incentive-motivations-choose-sales-growth/

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