Why Daily Bonuses, Spiffs and Contests Don’t Work

IntroductionAfter you’ve chosen the best compensation plan for your inside sales team – either straight salary or commission or a combination of the two – the next step is to determine how best to keep them motivated and focused on making their daily and monthly revenue goals. Many business owners and managers choose daily spiff programs or contests to develop or keep sales momentum going, but how effective are these initiatives?

The Pros and Cons of Daily Spiffs
Providing daily bonuses or “spiff” programs, or other weekly or monthly contests, have long been a part of the inside selling environment. Most sales reps and managers have experience with handing out or receiving cash for the first deal on the board or for the achievement of a daily sales goal, or of handing out or receiving lunch vouchers or even DVD players for month end “top dog” status. The reason these daily bonuses are still around is because they work on some level.

There is no denying that sales reps will work harder if there is a special bonus attached to the work they are already doing anyway. As long as the bonus is truly reachable by all the sales staff, a percentage of the team will temporarily try harder to earn the additional spiff. The key words here though are percentage and temporarily. Again, although many managers can attest to the increase in effort and sometime production, in the end the consensus is that after a while the spiff programs lose effectiveness.

Some of the inherent problems with spiffs and contests are a perception by some of the sales team that no matter how hard they try, the better reps will still dominate and win the awards. There is a lot of truth to this as top reps are often in the position to win with better pipelines, higher quality leads and better selling and prospecting techniques. Because of this, half the sales team tends to check out and ignore the contests and can even become de-motivated by them.

A more practical problem with daily spiff programs, however, is that they tend to become more expensive as last month’s $500 dollar overall bonus often needs to get bigger to get the same result. Sales reps get jaded easily and the top reps are quick to voice their disappointment at the same low bonus paid out for all the extra work they feel they have to do. “Is that all you’ve got?” is their often tacit reaction to next month’s bonus. So up goes the investment on management’s side, yet as the investment goes up the effort and results often go in a different direction.

At the end of year, many business owners and managers look back at all the additional money they paid out in daily spiffs, bonuses and contests and come to the same conclusion – the investment wasn’t worth the bottom line result. According to CSOinsights.com, 48% of inside sales teams still fail to reach their monthly production goals despite the contests and bonuses offered. Fortunately, there is a better way.

A Better Way to Compensate and Motivate
A better model for driving and compensating production begins by focusing on and rewarding overall production itself. Rather than focusing on short term effort or the achievement of daily or weekly goals, companies always benefit more by focusing on monthly and quarterly production numbers and getting their sales reps to think more in alignment with the company’s goals. Here’s a case in point:

Recently we consulted with a company selling healthcare products over the phone. The sales team consisted of a seasoned group of about twelve reps, and we added three new reps during a 90 day period. There were many issues to be addressed, but coming up with a new compensation plan was at the top of the list. This company had relied on the daily spiff and bonus program for years and overall the team was spoiled, unmotivated and ultimately unproductive. To get them motivated again, we made two primary changes.

The first was to discontinue all daily spiffs and cash bonuses and replace them with a controlled monthly bonus program that was based on goal attainment. In other words, if you didn’t hit your monthly revenue goal, you didn’t qualify for any of three new month end bonuses. The immediate result and benefit of this new program was to take the rep’s focus off the daily, “What’s in it for me?” attitude and instead refocus them on the company’s goal of overall monthly revenue attainment.

Aligning the rep’s focus with the company’s focus changed everything. First, the reps were no longer focused on a series of short term goals, but rather, were now focused on one month at a time. This had the immediate benefit of keeping them motivated during the entire month. Secondly, by not rewarding them for achievement of incidental benchmarks, (daily production, first deal in, etc) reps had to work harder and stay focused longer to achieve the one goal that mattered – their overall monthly production.

As reps remained more alert to their overall production goal, managing them became easier as well. Rather than deal with the daily bonus programs and the attitudes that came with them, the front line managers were now able to focus on the one thing that mattered – monthly revenue goal attainment. Once the focus on bottom line numbers was renewed, managers could get back to the basics of sales management. This meant less time babysitting attitudes and more time driving pipelines and sales. With management and reps more evenly aligned, production steadily rose.

And, of course, with the elimination of daily cash bonuses and spiffs, the company also saved money.

The second change was to give the sales reps an internal advancement plan based on their production and goal attainment. In taking a page from larger, often public companies, what we find is that people are more motivated when there is an opportunity for growth within their own company. Employees will work harder, stay longer and experience more job satisfaction – and be more productive employees – if they feel their work and efforts are appreciated and rewarded.

Because this company wanted to scale their sales team and grow market share, it was easy to develop an internal management advancement program. What they did was develop a program whereby if a sales rep hit their numbers for 6 consecutive months, they became eligible to become a team leader. A team leader in this company would manage up to four reps and would receive a small direct compensation based on production and other factors. In addition to this, a team leader who hit their team numbers for 10 consecutive months became eligible to be a unit manager, thus managing a larger team. Additional compensation would be available. Once this level was attained, further advancement was possible as a sales manager, sales director, etc.

One important point is worth noting here – just because the advancement plan was there didn’t automatically mean that all who attained their production levels were automatically moved into positions of team leads or managers. It was all based on company need and availability of positions. As the company grew and production progressed though, eligible candidates were promoted.

The result of having the management advancement plan was a measureable change in attitude and effort from every member of the sales team. Top producers took their jobs more seriously and became more active team players. As team leads assumed roles of responsibility for groups of sales reps, more peer pressure was applied and the sales group grew more cohesive as a whole. Managing required less effort and hiring and on boarding of new reps became more of a focus and the sales team was able to grow and scale at a much more predictable pace.

Conclusion
While daily bonuses and spiffs remain an important part of compensating and driving production with many companies, their long term effectiveness don’t always justify their expense or their continued use. There is a better way. Think about the attitude and attention of your current inside sales team and ask yourself: Are they more in it for themselves or are they truly invested in your company’s goals and long term growth? If you find that their attention and focus is not aligned with yours, then you should consider making some of the changes we’ve outlined here.

But please be aware that both of these changes involve detailed planning and forethought. The elimination of the daily bonus and spiff program has to be handled carefully and the design and roll out of the monthly bonus program must ensure it will motivate all members of the team. Obviously the development and roll out of the management advancement plan involves many elements including skill development, identification of duties and responsibilities and compensation structure. Never make these kinds of changes without careful consideration of the ramifications and long term consequences, and always design them with your long term grow goals in mind.

Advice To My Peers
One thing I’ve learned in my own business is that getting help from someone outside my direct industry has been invaluable in saving me both time and money, and in helping me implement changes more successfully. During the development and implantation of any new project, there is often a large amount of time and effort required, and I’ve always been happier when I’ve enlisted the help of an experienced consultant, contractor or vendor to help me handle the initial work load of a new project.

Another reason to leverage outside help is to access the new perspective they bring from outside your industry. Also, if changes involve getting buy in from others within your company, it’s much easier for them to accept them if they come at the suggestion of an outside, unbiased professional. The new perspectives, ideas and experience they bring to you and your team really help promote out of the box thinking and lead to solutions you may never have come up with on your own.

In regards to making any changes to sales procedures or policies, make sure that the people working on the project have a sales background and preferably experience selling your product or service. This experience will be especially useful in the roll out of the project. Sales reps are always thinking, “What’s in it for me,” and if you approach them with this in mind, you’ll be more likely to get their buy in. Remember to show them how this and any other new plan benefits them.

I wish you success in designing and rolling out a new bonus plan. I know that once you take the focus off short term goals and put it on the overall production and growth of your company, you and your team will be aligned and in a position to achieving the vision you have.