How Much Should You Invest In Channel Rewards?
If your company has never tried channel incentive programs, you may have several questions about the logistics—and especially the cost of such an initiative. But if you’re already thinking of such programs as investments rather than expenses, you’re well on the way to success.
With smart planning and execution, the system of using monetary and other rewards to get channel partners to sell more can produce a very favorable ROI, whether your target metrics involve revenues in general, sales of specific products, add-on sales, repeat sales, better market share or other goals. Even better, your investment will be low risk, since the majority won’t be paid out until you’ve realized the goals you wish to attain.
Research has repeatedly shown that such programs work. In one recent WorkStride study, 80 percent of North American manufacturers surveyed were seeing a positive ROI on their channel incentives programs all or most of the time, and 18 percent reported significant increases over year-to-year sales.
“Getting the most out of your sales team is essential for staying ahead in a competitive business environment,” advises Greg Kriza on IncentiveMag.com. “If you give a highly reward-motivated employee multiple hoops to jump through to earn rewards worth $5,000 to $10,000 more, they will learn how to jump through those hoops.”
How can you estimate how much to invest—and/or present those numbers to your C-suite or accounting department—when you’ve never tried running a multi-layered channel incentive program, or have been running them on an ad hoc basis on spreadsheets? Here are some guidelines for coming up with a reasonable financial plan.
- Evaluate your firm’s current revenue, growth targets, gross profit margins and marketing plan and consider how channel rewards will fit in. Will they be a major or minor element of your overall strategy? How else will you drive sales increases, and how well do you expect those programs to perform in comparison? Based on those factors, determine a level of investment that makes sense in light of the fact most money set aside won’t be spent until the program works.
- As part of your evaluation, look at similar incentives being provided by your competitors. How much do they seem to be spending, and do their programs seem effective? You might use their programs as a starting template. It may be helpful to know that, in general, companies in North America budget an average 2 percent of their payrolls to engage their sales personnel.
- Establish sales goals that are challenging, but not so lofty as to discourage participants from even trying. Their salary and commission levels can help you determine the dollar or value amounts likely to motivate them. While every industry is different, a rule of thumb might be to establish minimum-level rewards equal to 5 percent of the normal compensation participants would receive from their employers over the life of your campaign.
- Setting tiered levels of achievement (i.e., better rewards at higher sales thresholds) can generate loyalty, limit money spent on mediocre performers and spur enthusiasm over longer-term campaigns. “It saves your business thousands of dollars by not rewarding ordinary behavior, so you can spend those dollars on the performers who truly deserve it,” Kriza explains.
- When in doubt, launch a promotion for a small segment of partners so you can test the waters, gather data, gauge partner responses and make changes that will help you achieve even greater results in your next campaign.
WorkStride can help you custom-design an affordable channel rewards system that produces excellent ROI no matter which metrics you’re trying to achieve. For more information about putting together an effective program, download A Guide to Building Your Channel Incentive Strategy.