Why Daily Bonuses & Contests Don’t Work

While daily bonuses remain an important part of compensating and driving production with many companies, their long-term effectiveness doesn’t always justify their expense or their continued use. There is a better way.

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After you’ve chosen the best compensation plan for your inside sales team – either straight salary or commission or a combination of the two – the next step is to determine how best to keep them motivated and focused on making their daily and monthly revenue goals.

Many business owners and managers choose daily bonus programmes or contests to develop or keep sales momentum going, but how effective are these initiatives?

The Pros & Cons of Daily bonuses

Most sales reps and managers have experience with handing out or receiving cash, vouchers or other gifts for the first deal on the board or for the achievement of sales goals. The reason these daily bonuses are still around is because they work on some level.

There is no denying that sales reps will work harder if there is a bonus attached. As long as the bonus is achievable by all sales staff, some will temporarily try harder to earn the additional bonus.

The keywords here though are percentage and temporarily. Again, although many managers can attest to the increase in effort and sometimes production, in the end the consensus is that after a while the bonus programmes lose effectiveness.

Related: Sales Incentives: Based on Profit or Revenue?

A better solution

Some of the inherent problems with daily bonuses and contests are a perception by some of the sales team that no matter how hard they try, the better reps will still win the awards. It is true that top reps are often in the position to win with better pipelines, higher quality leads and better selling and prospecting techniques. Because of this, half the sales team tends to check out and ignore the contests and can even become de-motivated by them.

A more practical problem with daily bonus programmes is that they tend to become more expensive as each month’s R2 500 overall bonus often needs to become bigger to achieve the same result.

Sales reps get jaded easily and the top reps are quick to voice their disappointment at the same low bonus paid out for all the extra work they feel they do. “Is that all you’ve got?” is their reaction to next month’s bonus. So up goes the investment on management’s side, and the results often go in the opposite direction.

At the end of the year, many business owners and managers look back at all the additional money they paid out in daily bonuses and contests and come to the same conclusion – the investment wasn’t worth the outcomes.

According to CSOinsights.com, 48% of inside sales teams still fail to reach their monthly production goals, despite the incentives offered. Fortunately, there is a better way.

A Better Way to Compensate & Motivate

A better model for driving and compensating production begins by focusing on and rewarding overall production. Rather than focusing on short-term effort or daily or weekly goals, companies benefit more by focusing on monthly and quarterly production numbers and getting sales reps to think in alignment with the company’s goals.

Here’s a case in point:

Recently we consulted with a company selling healthcare products over the phone. The sales team consisted of a seasoned group of about twelve reps, and we added three new reps during a 90 day period. There were many issues to be addressed, but coming up with a new compensation plan was at the top of the list. This company had relied on the daily bonus programme for years and the team was spoiled, unmotivated and ultimately unproductive. To get them motivated again, we made two primary changes.

The first was to discontinue all daily bonuses and cash bonuses and replace them with a controlled monthly bonus programme that was based on goal attainment. In other words, if you didn’t hit your monthly revenue goal, you didn’t qualify for any of three new bonuses. The immediate result was to take the rep’s focus off the daily “what’s in it for me?” attitude and refocus them on the company’s goal of overall monthly revenue attainment.

Related: Creating Inventive Sales Incentives

Aligning the rep with the company’s focus changed everything

First, the reps were no longer focused on a series of short-term goals, but rather, on one month at a time. This had the immediate benefit of keeping them motivated during the entire month.

Secondly, by not rewarding them for achievement of incidental benchmarks, reps had to work harder and stay focused longer to achieve the one goal that mattered – their overall monthly production.

As reps remained more alert to their overall production goal, managing them became easier. Rather than deal with the daily bonus programmes and the attitudes that came with them, the frontline managers could focus on  monthly revenue goal attainment.

Once the focus on bottom line numbers was renewed, managers could get back to the basics of sales management. This meant less time babysitting attitudes and more time driving pipelines and sales. With management and reps more evenly aligned, production steadily rose. And the elimination of daily bonuses saved the company money.

The second change was to give the sales reps an internal advancement plan based on their production and goal attainment. In taking a page from larger, often public companies, we find that people are more motivated when there is an opportunity for growth within their own company. Employees will work harder, stay longer, experience more job satisfaction and be more productive if they feel their work and efforts are appreciated and rewarded.

Because this company wanted to scale their sales team and grow market share, it was easy to develop an internal management advancement programme. If a sales rep hit their numbers for six consecutive months, they became eligible to be a team leader.

A team leader in this company would manage up to four reps and receive a small direct compensation based on production and other factors. In addition to this, a team leader who hit their team numbers for 10 consecutive months became eligible to be a unit manager, with a larger team and additional compensation. Once this level was attained, further advancement was possible as a sales manager and sales director.

Just because the advancement plan was there didn’t mean that all who attained their production levels were automatically moved into positions of team leads or managers. It was based on company need and availability of positions. As the company grew and production progressed, eligible candidates were promoted.

The result of having the management advancement plan was a measureable change in attitude and effort from every member of the sales team. Top producers took their jobs more seriously and became more active team players. As team leads assumed roles of responsibility for groups of sales reps, more peer pressure was applied and the sales group grew more cohesive. Managing required less effort and hiring and onboarding of new reps became more of a focus and the sales team was able to grow and scale at a more predictable pace.

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