Sales Incentives: Common Pitfalls and How to Avoid Them

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Many founders have had trouble figuring out how to increase sales motivation and performance. After all, there is a dearth of specific information and no one-size-fits-all solution. However, one thing that everyone agrees on is the importance of sales incentives. 

More than 90% of the top-performing companies use sales incentives to boost sales. Not only do these rewards increase sales revenue, but they also keep employee satisfaction and morale high. But simply introducing incentives does not cut it- Improper incentive planning can stagnate your pipeline and tank your growth. What’s worse? Bad sales incentive planning may not be apparent until it starts making your business bleed money.

This blog explores the topic of sales incentives in detail and walks you through 5 common pitfalls founders make when designing sales incentive programs. 

What are Sales Incentives?

Sales incentives are any reward given to salespersons to encourage them to meet their performance targets. These may include financial incentives such as commissions on sales, bonuses, etc., or non-financial incentives such as vacation time, sponsored trips, or gifts. 

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Commissions, for example, are the most common sales incentive. They offer a percentage of the deal amount to the salesperson responsible for closing the deal. This gives them an active stake in wanting to win the deal, leading to higher motivation. However, incentives need effective design and implementation to have their desired effect.

Higher-than-needed incentives make sales behavior drowsy, whereas less than the required rewards make room for feelings of frustration and disengagement. Therefore, setting up your sales team with the right incentives program to push them, yet keep them satisfied is tricky. 

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Founders often find themselves amid sales incentive pitfalls so let’s look at the 5 most common ones and circumvent ways to avoid and overcome them.

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7 Common Sales Incentization Mistakes (And Their Solutions)

It is important to note that sales incentivization is highly reactive and differs from industry to industry, however, across all domains, these are some of the most common mistakes that hide in plain sight and hinder the true performance of your salesforce. 

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‍1. Overly complex compensation structures

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Most companies dive too deep into incentives and create incredibly complex compensation plans as they try to “cover all bases”. However, this only adds to the time spent processing payments by admins, and it severely undermines the employee’s ability to understand their compensation terms.

Complex incentive structures lead to more errors and hassle. They actively disengage the salesperson from keeping in touch with their earnings, making incentives futile. 

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The Solution: The better the connection between incentives and salespersons, the better the sales performance. Clear-cut, customized, and streamlined incentive plans keep reps up-to-date on their earnings and make processing incentives much easier on the finance side. Incentives should be clearly understood and communicated to the workforce to work in the manner intended.

Scenario: Sarah, a salesperson at ABC Tech, struggles with her company’s overly complex compensation plan. She has to track commissions across multiple product categories, quarterly bonuses, and team performance targets, all with different payout schedules. This complexity makes it difficult for Sarah to understand her earnings, and she often spends hours trying to decipher her pay statement. As a result, she becomes disengaged, losing motivation to hit her targets. A simpler, clearer compensation plan would help Sarah stay focused and motivated, while also making the process more efficient for the company.

Sales compensation software like Visdum automates the sales compensation process and makes it much easier to implement clear and efficient incentives while giving full visibility into performance and earnings to the salespersons, admins, and organizational leaders.

2. Rigid incentive programs

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In the modern landscape, sales have to be dynamic, and naturally, so does sales compensation. Rigid incentive programs refer to commission structures that don’t change for long periods and do not account for market changes, seasonal dips and booms, and/or product launches.

Rigid compensation structures do not allow an organization to make use of momentary changes and high-volume seasons- the reps need to be pushed especially hard to capitalize on these short-term conditions. 

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The Solution: Flexible compensation structures give the company room to push certain goals before others. Changes in market trends, such as low demand due to a holiday season, should not affect a sales rep’s earnings since it is entirely out of their control. Similarly, focus on different products can also distributed by introducing short-term incentives on priority products.

Scenario: John, a salesperson, is frustrated by his company’s rigid commission structure. During a holiday sales boom, his targets stay the same, and he doesn’t earn extra for the increased workload. In slower months, he feels the pressure to hit the same goals, despite market conditions being out of his control. A more flexible compensation plan, adjusting for seasonal changes and product priorities, would motivate John to work harder and better align his efforts with the company’s needs.

Using spreadsheets to manage your compensation regime can prove to be a big hurdle to introducing this flexibility, and most companies that want to streamline these operations switch to automated solutions that provide deeper control over incentives.

3. Lack of proper alignment between company objectives and sales incentives

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Incentives promote certain behaviors. An increased commission on a certain product will make reps focus on selling more of that product. Similarly, higher commission rates on larger contracts will make the reps want to close more high-volume deals. Often, incentives can promote the wrong kind of behavior, which may lead to increased sales performance but not meet company goals simply because of misalignment.

For example, when a new product is launched, and the incentives are not revised to make selling the new one more rewarding, sales reps may not push hard enough to sell the new product, leading to a low market penetration. 

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The Solution:  Sales behavior and incentives should be aligned with company objectives and revenue intelligence can play an important role here. Revenue intelligence platforms like MeetRecord provides managers with visibility into the sales pipeline and team performance offering insights into how deals are closed and products are sold.

These insights can help them design and update better compensation plans tailored to their business objectives. Additionally, sales leaders  can leverage MeetRecord's AI-powered coaching to help improve their team’s performance and refine strategies for better results.

Scenario: Anne, a sales rep, notices her commission is higher for selling long-standing products, but when the company launches a new product, there’s no change in the incentive structure. Despite the new product being a priority for the company, Sarah focuses on selling what’s familiar and lucrative for her, resulting in poor market penetration for the new product. This is a classic case of misalignment of incentives with company goals.

3. Infrequent Payouts 

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Infrequent compensation leads to a high employee turnover rate. What’s important is to have smaller, more frequent reward and recognition opportunities.  According to the Incentive Research Foundation (IRF), properly structured incentive programs can increase employee performance by 44%.

Commissions and reward programs are most effective when they’re paid out immediately after the closure of a deal or the achievement of a goal. Annual or quarterly fixed incentives reduce the efficacy of these rewards.

The Solution: A faster and more reactive sales compensation mechanism needs to be implemented that involves more frequent, even if smaller, rewards for meeting goals. This needs a faster calculation and data collection system for the management of incentives, making sure that achievements do not go unnoticed for long periods. 

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Scenario: Celine, an experienced sales professional, is great at her job and closes more deals than anyone else in her team, however, her company follows a quarterly commission payout schedule, which has been slowly distancing herself from her motivation and her attachment to the company. She feels she isn’t rewarded nearly enough, since she only gets the incentive amount once every 3 months, and nothing else to keep her going day-to-day or week-per-week. She starts searching for opportunities that are more rewarding, leading to the company's loss of a talented sales rep.

Such situations drive home the importance of fulfilling the sales team, and keeping them motivated every day- a task unachievable with infrequent rewards.

4. Lack of non-monetary incentives

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As contrary as it may sound for a sales compensation discussion, monetary incentives alone fail to propagate a performance-based culture. According to the IRF, top-performing companies are 90% more likely to use non-cash incentives along with cash incentives.

Non-monetary incentives such as extra time off, vacation packages, awards, gifts, etc. show the employees that the organization cares about them. They lead to higher job satisfaction and high retention rates, which is what fuels fierce motivation for sales teams.

The Solution: Organizations should ensure that their incentive structures are not purely monetary. Spot awards, vacation time, etc. should be seen as another important wing of incentives that need to be directed toward meeting organizational goals. This comprehensive guide on sales incentives has a lot more on how different kinds of incentives (monetary and non-monetary) affect sales performance. 

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Scenario: As being a sales rep can be a very demanding and oftentimes disappointing role, ABC Tech introduces paid days off and vacation packages for the top performers of the sales team. This leads the team members to have a personal attachment to the company goals, and they are more fulfilled since their work is being recognized outside of monetary terms, leading to higher sales performance and considerably less sales rep turnover for the company. 

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5. A lack of dispute resolution and communication mechanisms

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There are always situations where clarifications and explanations regarding incentives may be required, especially if the reps have no visibility into computation and no breakdown of their earnings in their commission statements. In such situations, it gets very frustrating for sales reps to not be able to understand and record the results of their effort. If a sufficient mechanism for communication between the revenue/finance team and the sales team is absent, it can lead to disengagement and higher turnover.

The Solution: Companies should understand that their job is to not only implement rewarding incentive programs but to also ensure that they are well communicated and received by the people they are designed for. A dedicated representative from the revenue team should be made available to the sales team for clarifying such issues, even better if there were weekly/biweekly catchups ensuring the team is on the same page. Automated solutions that give real-time visibility into commissions from each deal are the best solution to avoid disputes and keep reps up-to-date.

Scenario: May is a sales rep who’s been having discrepancies in the amount she’s been receiving and what she had expected as per her compensation terms, however, she finds that there is not a single person who can address her complaints. She feels she has been devoting too much of her selling time to resolving this, leading to drops in productivity and resentment.

6. One-size-fits all incentives

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An SDR’s role is very different from an Account Executive, and so is the role of a BDR from an Inside Sales Representative- If all these sales roles are so different, then why should their incentives be the same? There are many differences that incentives need to account for such as roles, as mentioned previously, product lines, geography, seniority, etc. Similar incentive structures for these different roles can lead to frustration and feelings of unfair treatment, and incentives might simply be unable to motivate if they are not suited to the exact person they affect.

The Solution: Customized and responsive incentives that reflect and compete with industry standards are the best way to make each sales team member feel heard. This is tough to implement and often ignored because revenue teams simply lack the manpower and bandwidth required to maintain and develop plans that keep changing for each person, especially in the case of large teams.

Scenario: Manson, a sales team lead, feels his incentive structure is unfair since he mostly spends time coaching, training, and overseeing the sales team’s performance, and does not do a lot of active selling. His incentives are still based on closed deals, much like the AEs, leading Manson to be dissatisfied and disengaged with these administrative and training tasks, as he does not earn much from those tasks. His role required incentives based on team performance- a customized approach.

Wrapping Up 

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Companies must realize that the time to revamp sales processes is now upon them. The advent of AI and automation has significantly increased visibility into granular sales details, leading to manifold increased opportunities to make sales processes more efficient. For example, tools such as MeetRecord capture and analyze sales conversations to produce actionable insights into the health of the deal and sales behavior, thereby helping in sales training and coaching. Thus, just the implementation of incentives is not going to cut it.

Incentives are most effective when they ‘hit’ the exact behavioral instinct that is required to push sales. More frequent rewards, real-time visibility into earnings, sales contests, more frequent rewards, etc. are the characteristics of highly efficient new-age sales compensation methodologies. Automation is not a garnishing benefit, it is crucial to sustain sales growth in highly competitive markets.

The incentive mistakes mentioned in this blog are just some of the most common ones to begin with, and getting these resolved is the first step to having a crisp and streamlined incentive compensation strategy. 

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