Feature Article - May/June 2017

From Here to ROI

Long-Term Goals, Sound Program Design Are Essential

By Deborah L. Vence

Designing a Profitable Program

The first step in designing a profitable incentive program should be accurate and realistic forecasting, while taking into consideration market conditions.

"Based on history, it becomes possible to estimate the expected increase in sales without the program," Adams said.

Challenging but attainable goals should be set to inspire extra effort, and the resulting anticipated increase in revenue gives you a program budget.

"The program structure and rules will help to contain any risk. For example, an open-ended program rewards all eligible participants who reach a goal, while a closed-ended program rewards just a certain percentage of top performers," she said.

Choosing a program structure that will keep the entire force motivated through the life of the program is key to success.

The first step in designing a profitable incentive program should be accurate and realistic forecasting, while taking into consideration market conditions.

"Choosing meaningful and desirable rewards also is essential to motivating program participants and reaching goals," Adams said, adding that joint research from 2015 by the Incentive Research Foundation and the Incentive Marketing Association showed that program participants are highly unique in their recognition and reward preferences.

"For higher budget incentives, group or individual travel is proven to be the most desirable award," she added. "When the budget is not as large, providing winners with a choice of merchandise or gift card rewards can be an important way to engage their personal hopes and aspirations."

Wenthe said that "Surprisingly, many companies don't have a good handle on profitability by product/solution. What can be found as a possible cause? For example, did the sales reps with higher levels of training sell more of your product through the program? Were those that were active in the program more likely to seek training?"

All of the pieces of your programs are interrelated and pave the path to a positive ROI and increased profitability for your company.

"Prep work is the key. Know what you're trying to accomplish and how you can measure it before you even ask for the money to make it happen," Wenthe said.

Many factors go into designing a program that is profitable. And, from a high level, there are a few areas that Siewert noted:

  • Program rules dictate what specific actions are going to get rewarded (obviously, the value of those actions leads us to the value of the reward)—the rules need to be concise and easily understood to have a profitable program.
  • Accurately reporting and measuring the results (by participant and in total) is critical to operating a program that is profitable. If there are changes that need to be made to make the program more profitable, the reporting and measuring will allow you to make an informed decision.
  • Effective communications and promotions are a must for a program to be profitable.
  • Having an awards catalog full of choice allows your program to touch all generational groups. This leads to better motivation and profitability.
  • Managing all program costs through an ROI-based managerial mindset allows for the best chance for a profitable program.

Measuring ROI

The first measure of ROI is whether or not forecasted gains were achieved.

"A well-designed program should always pay for itself, out of the incremental increase in revenue generated by the program," Adams said. "It is easy to forget that incentive programs are also about sales and channel partner engagement."

Meanwhile, other measures of ROI can include adoption rates of the program, increased awareness of products and services, and sales rep satisfaction with their relationship to the organization.

"A company offering exciting and effective incentive programs should not only see a lift in revenue, but also a lift in the behaviors associated with an engaged workforce, at least among eligible employees," Adams said. "Incentive programs keep sales forces motivated, connected to the brand and provide important recognition for these valued teammates."

Wenthe said there is a standard formula that most companies use. "ROI = (gains-cost)/cost," she said.

"You can use this formula to get an idea. How much did it cost to implement your program? Based on the objective you set, did you meet or exceed your goals? By how much? However, it isn't as cut and dried as it sounds. How did you measure the 'gain'? Are you able to accurately track the increase in sales (for example) based on the program? If not, you need to look at the other reasons your program succeeded," Wenthe said.

"What else did you gain by making this investment? (increased market awareness/presence, increase in channel loyalty)," she added.

Siewert noted the usefulness of the ROI Institute's methodology to measure ROI, a systematic approach to evaluating all types of programs and projects. The five levels of evaluation are: Level 1, Reaction and Planned Action; Level 2, Learning; Level 3, Application and Implementation; Level 4, Impact (Tangibles and Intangibles); and Level 5, Return on Investment.

"When one has an accurate picture of a project or program's ROI, there are five key ongoing benefits," he added. "Improve projects with knowledge of the ROI; demonstrate value; secure funding; forecast ROI; and align with the business."