Activity-based Sales Incentive Metrics – The Good, the Bad & the Ugly

Do activity-based metrics belong in your sales incentive plan? The simple answer here is no, but why do so many companies include them, even when advised not to?

The truth is there are many reasons:

• Lack of strong sales leadership
  
• Looking to change a seller’s behavior
  
• Long sales cycle
  
• Lack of a strong performance management culture
  
• Belief that there’s a strong correlation to sales activities and sales results
  

We’ll share three scenarios that may change the way you think about activity-based sales incentive metrics.

The Good

It may be appropriate to include activity-based metrics when you have roles where the sales cycle is greater than 12 months, and you want to reward your sellers for achieving specific milestones during the sales process in the absence of a sale.

This helps with the roller-coaster earnings patterns, allowing sellers a way to earn some incentives along the way in a year where they may not close a sale, but have made significant progress towards closing sales. Make sure sellers are not able to earn their full annual incentive target on activity-based metrics alone, as you don’t want to overpay in situations where they may overachieve their sales goals in the following year due to timing.

The Bad

Using the sales incentive plan in the absence of strong sales leadership is not part of a high performing sales culture. We should expect all sales managers to communicate clear expectations to their teams, motivate their team to achieve their sales goals, and develop strategies and techniques necessary for achieving sales goals. We should also expect them to pay attention to negative patterns and address them as appropriate. It is the sales manager’s duty to ensure their team is delivering desired results. Supervision is essential. Track their performance. Make sure each seller is living up to the expectations of the organization. Performers must be encouraged while the non-performers must be dealt with using utmost patience and care.

The Ugly

More often than not, we see companies utilize activity-based metrics with the following outcomes:

• All sellers earn activity-based incentive payout
  
• A large percentage of sellers earn the maximum incentive payout possible
  
• Total sales incentive payouts are at or above budgeted levels, but the organization missed their overall sales or profitability goals
  

This typically means sellers are making sure they achieve their activity-based goals, but usually at the expense of achieving their revenue and/or profitability targets.

Sales Compensation Philosophy

Here are a few questions to consider as you design your sales incentive plan:

• What is your organization’s strategy?
  
• Where are you in the business life cycle?
  
• Are there any unintended consequences that need to be considered?
  
• What is your communication plan?
  

Written by: Erik Berman, BCR Consultant