How a self-funded incentive program can help build your business
Imagine being able to achieve exceptional business growth in a low growth market. Imagine being able to reward your best customers with a holiday to the Maldives, that is completely self-funded. Sounds too good to be true? It’s not – this is possible through a self-funding incentive program.
We all know that incentive programs, by definition, positively change people’s behaviour in their role (typically sales), day after day. They motivate people to work smarter and harder, to go beyond the expected norm and to work better than they have ever before, while achieving growth for the business.
So, what is a self-funding incentive program?
A self-funding model means the reward component of the incentive program is funded by the incremental margins that the program generates. This model ensures businesses only ever pay for rewards after sales growth is achieved through a strategic tiered target approach. But how….?
It all comes down to math:
Assume a salesperson is expected to sell 2,000 golf clubs at $500 each, generating $1,000,000 in revenue. The profit margin is 20% or $200,000. The strategic goal for the participant to earn the reward is to sell an additional 300 golf clubs (15% more) at $500 each, generating an extra $150,000 in sales. These sales, assuming a profit margin of 20%, result in an extra profit of $30,000. If 50% of this additional profit is spent to provide an effective incentive program, that would equal $15,000. So, the company has earned an additional $15,000 in profit and the salesperson will receive the benefit of an incentive reward, which in many cases could fund an aspirational reward such as the trip of a lifetime. A reward they may never of had the opportunity to obtain in the first place.
3 key benefits of the self-funding model:
1. Target based rewards – you reward only on a result
Setting strategic sales targets is the first step in turning the invisible into the visible for your customers. Appropriate sales targets for your incentive program can be calculated by utilising a combination of:
- Last year’s sales results;
- Business as usual growth (normal expected growth);
- The growth percentage you aim to achieve during this period.
A tiered target approach method means your customers will be constantly motivated throughout the program’s entirety by unlimited reward possibilities which are reflective of their sales efforts. If not for the self-funding incentive program, these extra sales may be soaked up by competitors. Additionally, these programs allow you to gain a greater share of your customers wallet. And because of this productivity profit, business owners can be reassured knowing that rewards are being paid from the extra value that has been created (so it isn’t really costing the business anything).
2. You don’t reward everyone, only the achievers
Self-funding incentive programs are different to other programs, such as loyalty or rewards, in that they only reward those participants who go above and beyond. Simply, those who do not achieve their sales target, will not receive their reward. This helps to motivate and inspire the behavioural change you seek that can deliver growth for the business. In the event a sales target is not met, the only cost to the business would be any expenses associated with the promotion and design of the program. As a result, the business still benefits from any extra sales that are secured in pursuit of the reward during the program period. At Incremental, our programs not only allow the participants to experience great rewards including overseas travel; their partners can join in the adventures too.
3. The greater the sales, the greater the rewards
Reward options for self-funding incentive programs can be tailored to ensure your customers are being motivated in the best way possible. Consider 5-star holidays, from Ferraris to safaris– the bigger and better the reward, the higher the engagement, the higher the chances of sales targets being achieved. When it comes to developing the reward component, don’t be afraid to think bold and creatively.
Where to start with your self-funding incentive program:
Incremental have developed a self-funding incentive program where their signature ‘Upside Only’ financial model has been successfully executed across more than 100 programs globally.
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