Expert verified Giving incentives to sales employees is an age-old practice in the retail industry. But the question is to know if the incentive mechanism is really driving up sales for the retailer. If it isn’t, the incentive is a cost burden with fewer or no benefits.
In usual incentive systems, a certain percentage of sales is given as an incentive to the person who sold that item. This system is not necessarily the best – it has several drawbacks:
- It may not align with the overall sales targets set for the business – employee-wise targets need to be fixed based on the overall growth desired by the company.
- The product focus of the company is not reflected in the incentive Policy.
Here are a few things that need to be considered while devising sales incentive policies:
1. Additional incentive systems can be set up to drive sales of the desired high margin products.
For instance, for a business which has higher margins on the accessory products, the extra incentives can be given if the accessories sales value is more than 20% of the total invoice value. This encourages active cross-selling – when a primary product is purchased by a customer, there is an incentive to co-sell the higher margin product categories resulting in an increased bottom line for the company overall.
1.1 Target incentives can be designed to push basket sizes and daily sale volume upward.
For instance, if total sales of an employee for a day exceeds Rs.2,00,000 additional incentives of two per cent will be given.
2. Incentive system should also consider qualitative factors such as pro- activeness in replenishment, customer experience, etc. It can measure 4-6 KPIs on a monthly/quarterly basis and give incentives based on performance.
