Incentives to drive sales in difficult times

Bill Schuh examines ways to spur on channel sales staff in a downturn

Schuh: Salespeople must align themselves with customer desires

Sales are a channel company’s lifeblood. However, the downturn is here. IDC recently predicted that global IT spending will be down by $35bn (£24.5bn) in 2009.

The effect is that margins will be squeezed further for vendors and channel partners.

Offerings of incentives to sales staff by both vendors and channel companies is proven to drive performance.

Yet most companies lack a solid understanding of how to make incentives work and are far from having a rigorous management of incentive and sales schemes.

In a recession, this can mean death by a thousand cuts as there are multiple potential points of profit leakage for IT companies, through a lack of visibility of minor issues.

The combination of direct sales, distributors, partner sales, resellers and retail sales mean it is difficult to obtain visibility of the overall sales process.

In a downturn it is easy for salespeople to sell low-margin but high-volume products to make their numbers. More complex products and services that have higher margins but a longer sales lifecycle may be neglected.

Vendors need to ensure they are working with their channel to avoid short-term promotions that simply transfer inventory to partners.

That kind of practice may deliver one great quarter but over-stocking can bring down margins and alienate the channel.

Furthermore, in desperate times the channel needs to guard against desperation selling. Cutting prices to the bone hits margins while mis-selling may lead to non-compliance with legislation and result in court action.

Vendors and channel partners need to know what is being sold and why.

There may also be a lack of strategy. Many commission schemes are poorly designed and thought-out.

If so, salespeople will be offered incentives to push the wrong products to the wrong audiences, leading to demotivation, falling sales and a loss of market share.

Cumbersome sales order systems will make it difficult to enter sales or claim commissions.

Salespeople are then likely to take the path of least resistance and sell only the products that promise faster and more accurate payments.

When executed correctly, incentives become critical motivators and performance drivers for employees. They give companies focus.

A business should enact a system that focuses sales forces on higher-margin products, rather than selling high-volume, low-margin products.

That should align sales execution better with corporate objectives. High-margin sales with new customer relationships can help sales of add-on services and support as new products are launched.

For a sales performance management system to be effective, a business must be aware of best practice. The system and incentives must suit the specific salespeople involved, their career objectives and the evolving product portfolio.

Businesses also need to choose a variable, performance-based employee compensation plan.

A well-thought-out bonus scheme can help salespeople concentrate on their primary role of closing deals and serving customers.

As technology matures, prices tend to fall and customers become smarter about sourcing products and services.

Salespeople need to think like their customers. It is not so much about getting customers as creating fans for the business or its products by delivering exactly what the customers want.

We think channel salespeople must become more customer-focused. In-depth knowledge of customer businesses and the overall market will help them to align the customer’s objectives with their own products and consultancy services.

This can create a long-term partnership across the customer organisation – as opposed to the traditional adversarial sales-based relationship.

Offering incentives to workers effectively, with total bonus transparency across the business, is the first step to tackling a tough year.

Combine this with looking hard at customer-oriented selling and your business will be in excellent stead for when the economy picks up and loyal customers look to increase their IT spend.

Bill Schuh is European vice president of Callidus Software