When it comes to increasing revenue with third-party salesperson incentives, the scope of what you’re trying to do is fairly narrow. In other words, your end goal is singular and straightforward: You want to increase sales of a particular product or range of products, and you need to incentivize a very specific type of personality (a salesperson) to make that happen. This means that measuring ROI is going to be relatively simple, as you’ll essentially just be looking at sales numbers to assess your incentive program. It also means that the type of incentives you’re using will almost always be cash-based (or points-to-cash) and directly connected to the act of closing a sale. It’s easy to get stuck in this revenue-based, cash incentives mindset. Sticking to this model across the board for incentives within your own organization, though, is a mistake.
Take a moment to survey your organization from the inside out. You likely have a wide range of internal departments, including accounting, finance, marketing, product development, purchasing and inventory, logistics, customer service, human resources, IT, and sales. Some of these departments could be quite large, and you might be dealing with a wide range of employees with different educational backgrounds and levels of experience.
Now, think about your company’s goals. You surely want to increase revenue, but is incentivizing your salespeople to push your products harder the only way to increase revenue? Of course not. For one thing, potentially cutting costs could mean a higher profit margin, which can sometimes outstrip the potential profit increase associated with gains in revenue. Improving customer service can increase customer loyalty, which in turn can mean better customer lifetime value and higher sales numbers. There might be some less tangible but equally important things that you want to accomplish at your organization, too. Maybe you want to encourage better cooperation between coworkers. Or, perhaps, you want to incentivize your employees to live healthier lifestyles.
We’ll discuss these and other goals in greater detail below. For now, just remember that incentives aren’t just about increasing the number of zeros on a sales report. Incentives are about changing employee behavior, which can result in any number of changes within your organization—including, but not limited to, revenue growth.
The key is understanding that different employees in different departments, with different experiential and educational backgrounds will respond differently to various types of incentives. There are tried and true approaches to incentivizing behavior that we’ve seen work consistently well at our firm, but that doesn’t mean that these are your only options. It’s important to remember that every organization is unique, as is every department.
Those same differences hold true for the desires of the employees themselves. Some people have a strong preference for cash rewards, while others might prefer to receive travel incentives such as free hotel stays. Still others might prefer to see their monthly health insurance premium decreasing, thus giving them the opportunity to reallocate those funds in their monthly budget. And of course, don’t forget extra PTO (paid time off), which technically costs nothing but can be highly valued by family-oriented workers.
The important thing is to remember that, above all else, you must know your company. Whether it’s through surveys, vast experience or common sense, you know the people in your organization’s various departments. Keep this in mind throughout the article and think about how these individuals’ intrinsic motivations can be leveraged most effectively to influence their behavior.
Incentivizing Employee Behavior
As mentioned above, there are a number of different types of behavioral changes that you might want to incentivize in your employees. These changes will be directly connected to your company’s current goals. Your company might want to achieve one of the following goals:
- Improved employee health markers
- Changes to the working environment
- Greater employee engagement in charitable work
- Better teamwork in teams
- Higher customer service ratings and greater customer satisfaction
…and the list goes on.
Let’s take a look at a few of these potential goals and see how you might incentivize employee behavioral changes in order to achieve them.
Employee Health and Health Care Costs
Year after year, health care costs continue to rise. Employers offering health insurance, as many organizations are now mandated to do, pay a large portion of these premiums. On average, employers cover about 80% of individual plan and 70% of family plan premium costs, respectively.
Even though it’s now illegal for insurance companies to discriminate based on an individual’s health history and preexisting conditions, there’s no doubt that the overall health of a group does indeed continue to affect group health insurance purchasing options and prices. According to the American Academy of Actuaries, “premiums will be higher on average whenever a “risk pool disproportionately attracts those with higher expected claims.” At the same time, the reverse is also true: Whenever a “risk pool disproportionately avoids those with higher expected claims,” or if the risk pool is able to “offset the costs of those with higher claims by enrolling a large share of lower-cost individuals,” overall premium prices for the entire group’s coverage will be lower.
Both of these points are particularly salient when you consider how health care costs and spending are often spread across individuals. According to a study from the National Business Group on Health, the average high-cost claimant logged $122,382 in annual claims, roughly 30x the claims cost of the average individual. In other words, this means that around 1% of those covered under a group insurance policy are responsible on average for roughly 31% of the health care costs associated with that group. And of these high-cost claims, more than half are associated with longstanding, chronic conditions—not acute conditions related to accidents or other unforeseeable circumstances.
So, what does all of this mean for employers? It’s simple: The healthier your employees are, the lower the risk to insurance companies and the less you’ll pay for your portion of your employees’ premiums. When your employees are engaging in healthy activities and behaviors, they’re reducing the occurrence of chronic conditions and cutting back on their use of prescription medications and trips to the doctor. The less your employees are using their benefits, the lower your group’s premium costs should be from year to year. Even if rates don’t go down, as employees reduce the reliance on health insurance, they’ll be spending less and less on deductibles, office visits, and other out-of-pocket expenses. This frees up money for other expenses, and can potentially add to increased well-being.
Simply asking your employees to engage in healthy behaviors isn’t going to cut it though. As we’ve seen, humans alter their behavior in response to incentives, and dominant thinking is short-term. You’ve got to give your employees a tangible reason to make changes. Old habits are hard to break, particularly those surrounding diet and physical activity.
Keep in mind that your incentive spending doesn’t have to be massive on a per-employee basis. A recent RAND Corporation study found that 84% of employees will participate in a wellness incentive program that costs employers as little as $5 a week, or about $250 a year.
The key is making sure you tailor incentives to the individual wants, needs, and health conditions of your employees, because one size doesn’t fit all. Consider incentivizing employees with chronic conditions to keep up with annual wellness visits. For employees with diabetes who would benefit from weight loss, you might incentivize them to take a certain number of steps each day. (And with smart watches, tracking these activities into a custom portal is easier than ever.) Next thing you know, they’re going for a walk on their lunch break. For employees experiencing pregnancy, you could incentivize adherence to a good prenatal health strategy.
Keep in mind that these kinds of health and wellness incentives don’t just reduce your annual health insurance expenditures. They can produce a synergistic effect across your entire organization. When most of your employees are eating better and moving more, fewer employees call in sick. Healthier employees can even contribute indirectly to revenue growth, as healthier workers are likely to be more productive over the course of a day, week, month, or year.
Employee health is important and neglecting it can cost you. With the right incentive programs—that is, by using the right carrot—you can slowly shift employee behavior in the right direction.
The Tampa Bay Lightning hockey team values charitable work so much that giving has become a vital aspect of each home game. During the second TV timeout, the team unveils its latest “Community Hero,” local leaders who’ve given their time, money, or resources to bettering the Tampa Bay community. Complete with a video montage on the scoreboard, the team issues a $50,000 grant to that hero’s specified charity. With tens of millions of dollars donated over several years, the fans preemptively rise to their feet in a standing ovation before the check is even presented. Not every company has the financial resources, or fan base, of the Tampa Bay Lightning. But that doesn’t mean that increasing charitable giving shouldn’t be a goal.
Employee giving and charity work has become an increasingly common part of corporate work culture, with a number of purported benefits associated with it. For one thing, it gives your employees a chance to diversify their focus and “get away from work” for a brief period—a kind of working vacation. For another, certain types of employee giving can foster team-building and worker cooperation. And, of course, allowing your employees to select their own charity gives them the satisfaction of investing their time and energy in something they genuinely care about. They’ll then link this opportunity to your company, increasing their overall affinity for your organization.
As with the health and wellness example above, the effects of properly implemented employee giving programs can be significant and synergistic. First though, you have to actually get employees to engage in them.
There’s plenty of data available that points to the various ancillary benefits of employee charity work. Some of it is particularly surprising, too. A recent study from the University of Southampton suggests that linking a charitable gift to work performance can boost productivity by as much as 13%. And when employees can choose their contribution level and recipient, that number climbs to a staggering 26%.
As with any behavioral change, though, getting your employees to take the first step can be difficult. If you’ve ever taken up exercising after a long stint of inactivity, you know exactly what we’re talking about. A couple of weeks into a new routine, you start to feel great. It becomes its own reward, and no one needs to convince you to keep doing it. But those first few sessions are tough, and a big part of you is ready to throw in the towel, skip the workout, and go grab a burger and beer instead. Once your employees start participating in some form of charitable giving, they’ll likely want to continue after experiencing its positive effects. But first, you have to give them a nudge.
Incentives for employee giving can take a variety of forms. One option involves simply matching employee gifts dollar for dollar, or at some other ratio up to a limited total. An increasingly popular incentive is the so-called “paid release day,” where employees are allotted a certain number of paid days per year to go work with a local charitable organization. While employees may not be eager to spend their Saturday pitching in with a local charity, giving them the option of working a four-day week and volunteering on Friday can be significantly more appealing.
In the same way, company-wide charity workdays can be a great way to give employees a break from the office, improve morale, and build a greater sense of cooperation. Your employees get to spend a day outside of their standard 9-to-5 environment doing something that makes them feel good—that is, giving back to the community—while interacting with their fellow workers in a new setting. This can foster new relationships and connections between employees. Rather than making the charity day a paid workday, though, you can incentivize participation in this type of an event on a non-workday with a reloadable debit card or other form of cash reward.
If you take the long view when it comes to company growth and increased revenue, customer service may be the single most important thing to focus on improving. The numbers tell the story quite clearly here. According to the Harvard Business Review,finding and acquiring new customers can be anywhere from 5 to 25 times more expensive than retaining the customers you already have, depending on what industry you’re in. Just as astoundingly, increasing customer retention by as little as 5% can increase total profits—not revenue, but profits—by up to 95%. Yes, that’s right: retaining an extra 5% of customers can in some cases actually double profits for your organization.
This makes sense when you think about it. Consider all of the expenses associated with finding new customers. Marketing costs can run into the many millions of dollars for larger ad campaigns and employing a sizeable sales force can get expensive quick. Meanwhile, retaining customers is largely a matter of providing good customer service. And while there have to be certain systems in place for quality customer service to be possible, much of what the average customer perceives to be outstanding or abysmal service ultimately comes down to one thing: the way your employees treat your customers.
When a customer calls in with an issue, their experience can go one of two ways. They could connect with an employee who’s genuinely apologetic, knowledgeable, and helpful, and who solves their problem for them quickly and efficiently—and maybe even goes the extra mile to offer them something small to compensate them for their trouble. Or they might encounter an employee who’s disinterested, irritable, lacking in understanding, and completely unhelpful.
In the former scenario, the customer’s brand affinity goes through the roof. They go from being a customer with a complaint to a lifetime advocate for your brand. In the latter, they never buy from you again—and may take the time to post a negative review or two online. And, whenever your company comes up in conversation, they’ll be sure to let everyone know just how awful you are.
It’s easy to see just how essential good customer service really is for your organization. And that’s why incentivizing improvements in customer satisfaction can be so effective for overall growth.
Customer service-based incentive programs are becoming increasingly common, and we’ve seen them work time and again. These programs don’t have to be complicated, either. Introducing one can be as simple as offering your customer service employees prepaid debit cards if they’re able to increase their customer satisfaction scores by a certain percentage, or to a certain baseline number. This kind of simple, inexpensive, easy-to-implement incentive program can send customer retention through the roof. And considering the statistics, modest spending on such an incentive program is well worth even a small increase in customer retention.
One important employee characteristic that we haven’t touched on yet is one that you’ll encounter in every successful organization or department. We’re talking about teamwork. It’s easy to roll your eyes and discount the idea of improving employee comradery. Many of us have been through entire workshops filled with ineffective, almost painfully patronizing “team building exercises.” But developing teamwork effectively is one of the most important things you can do for your company, and it’s something that you can’t afford to overlook. The question is how to do it correctly, without making your employees feel like they’re trapped in a bad situation comedy.
Just like with other employee behaviors, an improvement in both teamwork and overall comradery and mutual recognition between employees can be achieved with the proper incentives. One of the great things about focusing on a behavior like teamwork is just how synergistic it can be. When your employees start working together and mutually acknowledging one another’s contributions to both individual projects and the company as a whole, everything else at your organization will begin to function optimally. Deadlines will be met more frequently. The office atmosphere will be more enjoyable. Customer satisfaction will increase. Sales numbers will improve. And though it may be difficult to measure using a quarterly report, people will be happier.
Some time ago, our firm was contracted by a large Fortune 500 client to help improve teamwork and boost morale. Rather than sending their employees off to workshops or sending out mandatory literature on working as a team, they opted to go the incentive route.
Our client ordered a large number of $25 prepaid branded debit cards and sent them out to department heads all across the country. These department heads then informed the employees they supervised that a new program was being put into place. The way it worked was simple. If an employee noticed that a coworker was acting in a way that exemplified top teamwork, they could request a prepaid debit card for that employee and then hand it over to them. Employees would thus be directly rewarded for engaging in behavior that was conducive to team building.
The program was a huge hit. Before long, employees were going out of their way to help their colleagues and be better team players. Our client was so satisfied with the morale boost and the measurable improvements involved that they opted to order more debit cards. It was a win-win for everyone: Employees got extra spending money, the atmosphere at work was dramatically improved, and our client achieved their goal of improved teamwork and better cooperation between employees.
The best part about using incentives to modify behaviors like teamwork and cooperation is that employees don’t feel manipulated or talked down to. Sending an employee to an all-day workshop where they’re told that they need to behave differently can actually have the opposite effect of what’s desired. This is a classic carrot vs. stick example. If you’re presented with a choice between a stick and a carrot to achieve your end goal, there’s no contest: The carrot always wins.
These kinds of behavioral incentives become particularly powerful when they’re implemented together. Don’t feel like you have to choose a single behavior to incentivize. Depending on the size of your organization and the complexity of the task at hand, it may be a good idea to start with a single program and outcome before expanding. Eventually, though, it’s completely possible to run multiple incentive programs simultaneously across different departments, branches, and locations. As the saying goes, the sky’s the limit.