How to Calculate a Sales Incentive
When planned carefully, sales incentives are good for a company and good for its sales force. Return on investment (ROI) is the deciding factor for the company. For the sales force, the motivation for participating in a sales incentive program depends upon perceived value of the incentive and the effort required for participation. Calculating the value of a sales incentive program for the sales force requires placing a dollar value on time and additional expenses that will be incurred and subtracting these amounts from the projected additional income. Calculating sales incentives is more complicated for the company.
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Instructions
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Write a sales incentive plan. Start with your goal, such as "sell more widgets."
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Define costs clearly. Costs will include such items as cost of the product, advertising and promotional products, outsourcing and additional staff.
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Project the increase in sales expected. Use history and research data to determine the realistic increase in sales you can expect.
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Subtract the projected costs of sales from the projected revenue from sales. This is the return on investment (ROI) you can expect.
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Determine your sales incentive based upon the portion of the projected ROI you are willing to offer your sales force for their efforts. Sales incentives often include esoteric awards rather than or in addition to monetary reward. For instance, plaques, recognition at banquets, letters from the president and other demonstrations of appreciation are often more motivating than money.
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Tips & Warnings
If you plan to award plaques and other forms of recognition to sales force participants in your incentive program, make certain to include these costs in your sales incentive plan.
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