The pros and cons of sales targets and incentives

The pros and cons of sales targets and incentives

I happen to be working on a project with a company that is very sales-driven, and all the staff have targets, and there are weekly team meetings where the performance against sales targets are reviewed, and the ‘winners’ publicly feted and congratulated.

Not sure what happens to the people at the bottom of the leader board – perhaps a bit like Strictly, they erode them at the rate of one a week!

Anyway, this has driven me to think about the pros and cons of using targets to incentivise your staff, and primarily whether those targets should be individual or departmental.

Although many businesses may feel that they don’t have targets and don’t need them, in fact most will use them.  Any sales budget is a target, really, and hopefully you have a sales budget!  There is always going to be a sum of money that represents the revenue that you need to earn – at the very simplest, that’s your target, and you need to regularly review whether you are on track to hit it.

This is where the target-setting process can help, because it’s a process that you can engage with and it forces you to review the numbers on a regular basis.  Although my client goes for weekly meetings, they are in a very sales-driven and competitive business, so you are likely to find monthly meetings will suffice.

So if you are thinking of targets in your business, decide whether you are going to set them for individuals or for teams.  The advantages of individual target-setting include:

  • A high degree of transparency of performance – no place to hide!
  • People can easily see what’s expected of them
  • Encourages a competitive environment

On the other hand, a competitive environment can lead to back-stabbing and selfish behaviour, and you are potentially open to service problems and internal arguments over ownership of leads and orders.

If you decide on a team-based approach, you will find that the plus points include:

  • Plenty of collaboration between team members
  • More customer focus, and less of “I’m afraid I can’t help you, you need to speak to Bill”
  • No issues over who did what

Again, this last point has one big downside, which is that there will inevitably be high performers, and less capable people riding their coat-tails.  This can foster resentment after a while, and the team-based approach can prevent you, as the manager, from seeing who is good and who is not so good.

So – no easy answers, but sales targets are likely to be very important for certain businesses, so it’s worth giving these points some serious consideration.

One Comment
  1. Nice article David

    As you pointed out, there are different pros and cons when considering team or individual incentives. I think it is also important to be mindful of inadvertent consequences of the metrics being used to calculate incentives – for example incentivising on sales, could lead to discounting or sales to customers who are very slow to pay. This can largely be handled by having appropriate ground rules and checks in place -although arguably choosing metrics that align to the business’s goals is a way forward.

    Another potential pitfall is where the people incentivised can manipulate the data used to calculate the bonus. An extreme example is Pacific Gas and Electric Co in the States which had a safety system that involved bonuses being paid to supervisors of the crews that reported the fewest leaks. An internal audit found that the reports produced were inaccurate and that in reality there were more leaks. It took a considerable time to make the extra repairs and in 2010 8 people were killed in an explosion on a line that had not yet been repaired.

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