The choice of incentive compensation and performance indicators is essential to effectively translate your business strategy. They must be quantifiable, available in your information system and reliable. Focus on the five main families of variable pay compensation indicators that can be used as a basis for calculating the incentive compensation of your teams.
1. BUSINESS VOLUME (A LITTLE MORE THAN TURNOVER)
The business volume of a business is the aggregate of its sales and service flows during a performance period that may be monthly, quarterly, or annually. Three indicators measure or evaluate it:
- The quantity, expressed in terms of units of products sold or services provided
- The turnover (TO) invoiced, which is equal to the sum of the amounts of products sold or services rendered
- The ordered turnover, equal to the sum the amounts of products ordered.
The volume of business (or its indicators) is the primary support for calculating and determining commissioning or the bonus on purpose.
It is therefore important that you have a well-designed evaluation grid that allows you to take stock, at the end of each week, month or quarter of sales, of the figures obtained by each of your sales representatives. You will then vary their variable incentive compensation according to the results they have obtained with a multiplier defined in advance or via a pay curve that is materialized by a scale.
2. PROFITABILITY AND MARGIN RATE
Profitability includes a family of index to determine the profit from each euro included in the turnover of a company. There are several, but the most commonly used ones are as shown below:
- Gross or net profit volume
- The gross or net profit rate
- The average selling price
- Average shopping basket per customer
The calculation on the achieved margin is often used for salesmen or managers in order to limit the temptations to lower the prices of sales and discounts to optimize the turnover. Indeed, it allows to push the employee to be compliant with the company profitability objectives.
3. EVOLUTION AGAINST COMPETITION
What market share did your sales staff gain during the last fiscal year? Have they faced strong pressure from your competitors? Have they been able to convince customers easily and get a better positioning for your products and services? The answer to these questions can be found in the various indicators or indices of evaluation of competition.
- Market share in terms of positioning
- The gain in market share
- The turnover ratio of the turnover relative to the evolution of the market share
- Sales growth compared to a direct competitor
Obviously, by manipulating this type of particular indicator, you will need very accurate market data. Indeed, these data must be available at the lowest level of your sales force and be consistent. Do not hesitate to get closer to the marketing department to obtain this data and judged its reliability. These indicators will therefore often be used on collective compensation criteria, but will be less motivating.
4. PROSPECTION EFFORT AND CUSTOMER MONITORING
Your salespeople look for prospects on a daily basis so that they become loyal customers of your company. In order to evaluate their performance in this fundamental area of the commercial function, you will be able to serve:
- The customer portfolio renewal rate
- Lead conversion times (ratios)
- The success rate of responses to calls for tenders
These indicators can be applied to calculate the incentive compensation of any commercial agent who is in direct contact with customers in the field, or via his communication network.
5. CUSTOMER SATISFACTION
Customer satisfaction is essential to ensure the conquest of new market shares and the increase of your sales figures. Measuring or evaluating it may at first glance seem rather delicate, because it is a qualitative and not a quantitative concept, as in the case of the four families of performance indicators mentioned above.
However, there are simple indicators to get there without difficulty. It is in particular:
- Average order frequency
- NPS (the Net Promoter Score, to measure customer satisfaction with a single question and even to identify its client ambassadors)
- Ratings assigned to each product (or service achieved) through opinion surveys and questionnaires adressed to clients
- By a social share of voice analysis tool (its positive or negative evolution) on your brand
