It might sound counter-intuitive at first, but once you crunch the numbers, you’ll see why paying for activity actually saves you money. I’ve worked for several companies and seen tons of sales incentive techniques applied, but none as effective as ‘pay for activity.’
As the leader of ConnectWise’s sales division, it’s my job to keep reps motivated and selling. Having done my time as a rep at previous companies, I know it’s important to make payouts not only attainable, but compelling.
Even for the best sales reps, heartburn ensues when they feel like they’re not in control of their own bonus destiny. However, on the flip side, if you’re the boss paying out those bonuses, you want to control variable costs. That’s where the ‘pay for activity’ model comes into play.
You’re probably familiar with the ‘pay for performance’ model. Under such a model, your sales rep might get about a 2.5% cut of all new business he brings in if he meets certain minimum revenue requirements. Unfortunately for the sales rep, it’s often an all-or-nothing game. And if those goals are unattainable, or he has a bad quarter, he’s out his entire bonus. And when he’s out his entire bonus—typically a sizable chunk of his salary—he’s likely to look elsewhere for employment.
So then, the goal is to create a mutually beneficial scenario. One where you’re not going broke, and they’re not either. Enter the ‘pay for activity’ alternative. By mixing in an activity-based element to reps’ goals, you’ll give them the chance to achieve at least a portion of their bonus every time.
Like I mentioned earlier, most bonus plans simply pay out a percentage of new sales made. It’s based on sales, or performance, not activity. Activity is less variable. It could consist of making 1,000 phone calls per month, or emailing 500 new leads. It’s a simple action reps can perform to make a portion of their bonus—regardless of the sales outcome.
Now, let’s talk about what you get out of it. To make sure you’re also benefiting from ‘pay for activity’ model, only incentivize activities that have been shown to generate sales. For instance, if cold calling moves your business forward, that’s a good activity to incent.
By making a portion of reps’ bonuses virtually invariable, you’ll reduce the overall percentage you’ll have to pay out if they max out all of their multipliers. And you’ll give them the peace of mind that comes with knowing a portion of their bonus will always be achievable. So you gain happier sales reps, and end up spending less in the long run. But that’s not all.
The biggest advantage of this model is that you’re incenting a rep to maintain a level of activity that almost always results in revenue. That’s the real win-win. The rep controls his activity attainment, which triggers the invariable pay, and at the same time ensures the company realizes revenue growth. There’s a little more to it than that, so I’ll walk you through the details in my next post.
Want to see the math behind this concept? In my next post, I’ll crunch the numbers to show you just how much you can save with a ‘pay for activity’ sales incentive supplement.
Oh, and by the way, ConnectWise lets you track and manage everything I just talked about. So, if you’re ready to start using ’pay for activity’ in your organization, contact us now for more information.