The importance of the SIP

Why is the Sales Incentive Plan so important to the organization?

Firstly we need to understand what is the compensation framework for each of the role in the company. The Sales Department is the heart of an organization because without sales there is no revenue hence no budget for new hire, no increment and no expansion plan. Some might argue without the production team, there is no product and without the marketing team there is no customers. Those are necessary but at the end without sales to do the closing there is no revenue. Period.

One might argue why the Sales get the incentive, commission and other perks that others do not get. Firstly Sales are the one that spending long hours in the market attending to client's needs and servicing the clients. They are usually compensated with allowances such as phone, car, petrol and reimbursement of entertainment claim.

In addition, they are assigned with specific sales target and if they can achieve that target then they will be incentivized. There are few type of sales incentives out there which I will cover in the next post. The incentive usually is self-sustained which means it is not something extra coming out of the revenue but something that have been factor in.

For example, if someone achieve a sales target of $1mil and get $10K, that is around 1% but if they did not achieve $1mil then this $10K will not be paid out. That just means the $10K is self-sustained because it will only incurred if the sales revenue of $1mil is in. Why wouldn't a company do that because for the margin, it ranges from 5-10% (Distributors, Wholesalers or Trading house) to 20%-30% (Brand Owner) or even up to 90% (SaaS, Fintech and etc).

Usually Sales do not get Performance Bonus and the Annual Appraisals are more for their annual increment or promotion in term of their job role or grade. It should be a very healthy environment because the sales are motivated to chase after the deals and once the overall company KPI is met then there will be Performance Bonus for the rest.

If there is no incentive for the Sales, they will just be mediocre and do what is required to pass by their time until something better come along. Just to save the little from the incentive which will not help much in the overall revenue is a very dumb move. I have seen this happen in one of the top legal content company that led by incompetent leader that do not have any business acumen on sales. It is like the blind leading the blind.

If this is caused by the bad economy, slow sales and so on then the management should address and fix what is broken but definitely not to disrupt the incentive plan.

Another note is all Sales Incentive Plan or Commission should be crafted and designed by someone from Sales. It should NOT be from Finance or HR!

#salesincentive #salescommission #SIP #salesorganization #sales101

https://cheezburger.com/25190405/no-pay-no-work-ceo-informs-employees-they-will-no-longer-get-commission-on-sales-then-increases