The right incentive program is a game changer if you're looking to grow sales, drive behaviors that impact the bottom line, boost channel partner performance or improve employee engagement. But with so many options, how do you choose the approach that will inspire, motivate and engage your different audiences?
This guide explores incentive program terminology, providing clear definitions to help you choose the best approach for your organization. Think of it as your personal incentive program glossary. Understanding the types of incentives and applying them when creating a comprehensive strategy drives performance, fosters loyalty and leads to greater success.
What is an incentive?
Let’s start with the basics. An incentive is an award that motivates an individual to act or behave in a certain way.
Two different types of incentives
Incentives tend to fall into two categories: transactional and nontransactional. Regardless of type, incentives should reinforce a desired behavior to encourage its repetition. Think about your audience and the behavior you want to change when choosing which type to use.
1. Transactional incentives
These incentives focus on motivating selling behaviors, such as closing a deal, cross-selling, up-selling and increasing volume.
2. Nontransactional incentives
These incentives focus on motivating nonsales behaviors, such as presale activities, customer support KPIs and customer experience benchmarks.
Incorporating long-term and short-term incentives
By using a blend of both long-term and short-term incentives, you ensure your incentive program rewards the right behaviors at all parts of the customer experience.
Long-term incentives
- Goal-based incentives: Drive behavior toward achieving the organization’s desired results. For example, align awards with hitting sales targets. Goals can be based on metrics like dollar amounts, actions taken, satisfaction rates—anything measurable.
- Tiered incentives: Feature awards of increasing value when criteria are met at each level.
- Cumulative incentives: Reward participants for each successful action. Think promotions like: “Sell your fifth phone and start earning $X for each one after.”
- Disincentives: Discourage an action instead of motivating participants to do something. For example, participants might incur fines or lose previously earned incentives if they continue an undesired behavior.
- Do X, get Y: Offer an award each time a desired behavior or action is taken.
- Stack rank: Reward only top performers, encouraging competition to drive behavior change.
Short-term incentives
- Contests: Motivate participants to accomplish specific objectives for the chance to win prizes.
- Sweepstakes: Offer eligible participants a chance to win prizes through drawings or pre-selected numbers. Unlike a contest, sweepstakes do not require meeting any criteria to win.
- Gamification: Motivate participants to take specific action using activities. For example, offer a chance promotion that features spin-the-wheel, dart-throwing or pick-a-door activities.
- Sales performance incentive funds (SPIF or SPIFF): Pay a bounty to increase sales and meet growth goals.
- Sprints (or spurts): Use a brief campaign within a larger sales or dealer incentive program to spur interest and excitement.
Choosing the right awards
Provide a mix of awards to meet your audience’s preferences, whether it’s redeemable points, physical merchandise, exclusive event tickets, gift cards or prepaid cards.
Monetary awards
Payment for a specific behavior or sale that’s distributed in cash, check, card or direct deposit.
- Bonus: A payment above typical compensation received after achieving a goal.
- Commission: A fixed monetary payout that a salesperson knows they’ll get after a sale.
- Co-op: A cash fund earned by partners as a percent of revenue and determined by contracts.
- Market development funds (MDF): Funds partners use to leverage vendor content, messaging, branding and demand generation activities in their local markets. These are often earned through revenue levels.
- Rebate: Purchases across a specified group of products or services that are often paid out after a purchase or set period.
- Discount: Decreased cost on a bulk purchase or sale of goods and commodities.
Nonmonetary awards
Tangible awards that aren’t recognizable as cash.
- Travel: A group or individual trip for high performers to a desirable location.
- Tangible awards: Merchandise and products, often from well-known brands.
- Gift cards: A brand-specific card with a one-time value.
- Filtered cards: A card that can be used at specific retailers, restaurants and travel companies.
- Experiential activities: Firsthand experiences like concerts, subscription services, events, etc.
- Charity donations: Ability to give earnings to a chosen charity.
- Branded swag: Company-branded apparel and goods.
- Plaques and certificates: Recognition tools to mark achievement.
Now that you have a handle on basic terms, discover how to set up your program for success with the ultimate guide to creating high-return incentive programs.