How to rationalize your channel incentive program investment
- November 27 2019
- Posted by: Anila Macula
- Category: Blogs
Many companies find that determining their incentive program investment can be a daunting task.
Where do you begin? How will you rationalize the money you spent? In this blog, we’d like to share six steps that can help companies optimize their incentive spend, based on what we’ve learned from Accenture.
Step 1: Be Clear About Your Sales Strategy
Determine what you’re after with your incentive program.
For example, do you want to hit your bottom line or your top line? Make sure that you’re explicit about your indirect channel incentive strategy. It should clearly communicate the incentive performance metric that you’d like to target (i.e. program effectiveness, incentive spend optimization) and the actions the organization wants to incent.
This seems like a basic tip but sophisticated organizations often lack a clear and simple incentive strategy, that’s aligned with their collective goals.
Step 2: Create a Clear Taxonomy
Have a clear vocabulary and speak the same language with your intermediaries and partners.
For instance, you may need to clarify the type of investment, type of bonus, or incentive program that you’re granting your sales partners and intermediaries. Core terms like “value add,” “new business,” “promotions,” and “benefits” might have different interpretations for different people.” What constitutes promotions? Is it new marketing material, posters or sales strategy? What do you mean by “incentive program”? Do you have different programs for different partners and intermediaries?
Make it clear for yourself and your intermediaries. Your partners expect a clear overview because they want to understand how they can make money from your incentive programs.
Step 3: Align Your Incentive Program With the Needs of Your Sales Partner
Once you’ve established a clear taxonomy, the next step is to make sure that your different incentive programs, are aligned with the different needs of your partners or intermediaries. Not all incentive programs will apply for the same type of sales partner.
Determining if there’s a good alignment between yourself and your partners, is crucial to your success. You need to ask partners or intermediaries what’s important to them, make an inventory, and align that with the behaviour and sales strategy that they’ll perform. This way, you can increase sales and achieve a mutually beneficial outcome.
Step 4: Get an Overview of Your Spending
Make sure that you have an overview of how your incentive programs are impacting your P&L (profit and loss). For example, you may need to know how your current spending is affecting your top and bottom line.
A good tip is to document all the things you’re spending on (i.e. rebates, partner program compensations, deal registration etc.). Next, you need to determine how this impacts gross revenue, net revenue and profits, and the flow of spending in various channel spend processes.
By clearly identifying the process of data or activity flow, companies can identify the partners/programs/channels that are effective at helping them achieve their desired objectives.
Step 5: Creating a Hypothesis
If you want to make changes in your investments, it’s important to formulate the expectations you have from these changes. What is the value of making that change? Are there opportunities that rationalize the need for these changes?
After answering these questions, you’ll need to create various hypothesis and assign resources to make these changes. For example, you might need to conduct policy or program changes, operational changes or process quick wins.
You can brainstorm various scenarios, but the important thing is to view the impact of these changes through your intermediaries or partners’ point of view.
Step 6: Have a Reward Statement
The last step is to create a clear reward statement. A reward statement is maybe one pager that makes it super clear for your sales partner or intermediaries how they’re earning money from you.
Not only can this help your company identify key metrics for their various incentive programs, but it also clarifies where you’re spending money, how you can improve budget allocation, based on the hypotheses we’ve previously discussed (in Step 5) .
Putting It All Together
Here’s what you need to do to rationalize your incentive program investment: Have a Clear Sales Strategy – create a simple and clear sales strategy that’s aligned with your goals.
Create a Clear Taxonomy – clarify the terms with your partners or intermediarie.
Align Your Incentive Program With the Needs of Your Partners or Intermediaries – Ask intermediaries what’s important to them and consider that when determining the terms of the incentive programs, as well as their tasks.
Get an Overview of Your Spending – document your spending.Create a Hypothesis – hypothesize the changes you’ll make, their impact, and the adjustments you’ll need to make.
Have a Reward Statement – Provide a reward statement that makes it super clear how your intermediaries are earning from you, as well as how you’re spending your money.
Think about all these elements if you’re rationalizing your incentive programs and how they can apply to you.