Over the past 15 years, I have worked with many plumbing, HVAC and electrical distribution industry clients, helping them design effective performance based incentive programs. With all of these programs, the ultimate goal was capturing market share from competitive distributors. One important element to designing an effective growth oriented strategy, in which customers must achieve a certain growth benchmark before being rewarded, is knowing how high to set the bar. Obviously, if you set an unachievable goal, your intent to motivate a customer can quickly turn into a dis-incentive, creating “bad will” instead of “good will.”
One simple rule of thumb I follow is to set customer growth objectives to the point where the award investment calculation ranges from 25% to 45% of the incremental gross profit dollars. In my experience, this range has proven to be an effective baseline for knowing how high to set the bar. Many people have the perspective that running an incentive program is an added cost, and are hesitant to spend money rewarding customers or employees. What they often don’t realize is that the costs associated with running an incentive program are off-set by the normally high returns that come from increased sales as a result of the program. Setting the right objectives for a rewards program can be tricky at times, but by figuring out the right incremental growth percentages, ROI can reach and even exceed growth potential.
Stay tuned later this week for the second installment of Setting Achievable Goals!