Defining the Types of Incentives

By: ITA Group
collage of incentive terminology

With all the terms regularly referenced when talking incentives, figuring out what to use when and what it’s called can seem daunting.

How do you define incentive?

An incentive is an award that motivates or drives an individual to do something or behave in a certain way.

What are different types of incentives?

We created a glossary of terms to help get you up to speed. 

Behavior-Based: reinforces a desired behavior with a positive award to increase the frequency of the behavior. It can be a powerful tool for achieving broader business objectives like good work habits, process changes and key sales activities.

Bonus: rewards with a payment above typical compensation after achieving a goal, such as new customer acquisition, team-based achievement, annual performance, earning above goals, etc.

Commission: rewards with a fixed monetary payout a salesperson knows they’ll get after a sale. The award helps break routine and push participants to go beyond their norm; in some industries, commission is the main compensation.

Contest: motivates participants to accomplish specific objectives for the chance to win prizes. Competitions are often time sensitive to impact short-term goals. (It is important that a clear and complete description of the winner criteria is available to all participants.)

Cumulative: repeatedly rewards referrers for each successful referral (e.g., “Get $10 for every friend you refer!” or “Sell your 5th phone and start earning $X for each one after.”).

Dealer: uses a handful of strategies geared towards offering discounts on products. Discount options include a reduced price, cash payment, cash incentive or rebate to the dealer or customer.

Disincentive: discourages an action instead of motivating participants to try a new action. For example, incurring fines for not meeting SLAs, reducing payments based on margin levels, losing previously earned incentives if behavior isn’t continued. While disincentives are not commonly used, they can be compelling in the right situations.

Embedded Headcount: establishes a full-time employee in a partner’s organization to train and promote your product across the partner’s business. Incentives are often earned through reaching revenue levels.

Employee: aims to increase an employee's overall performance, reduce turnover, increase retention and drive performance daily.

Extrinsic Motivation: moves individuals to perform an activity because of the potential for an external outcome (e.g., merchandise, gift cards, cash—a physical thing).

Game: motivates participants to a specific action using activities. For example, offering a chance promotion that features spin-the-wheel, dart throwing or pick-a-door.

Goal: helps drive behavior toward the company’s desired results. Goals can be based on money, actions, satisfaction rates—anything you can measure.

Intrinsic Motivation: moves individuals to perform an activity because the potential outcome is personally rewarding (e.g., achieving knowledge, earning a badge, ability to share something).

Market Development Funds (MDF): help partners leverage vendor content, messaging, branding and demand generation activities in their local markets, which is critical to driving a winning customer experience. MDFs are often earned through revenue levels.

Monetary Award: gives cash for a specific behavior or sale.

Non-Monetary Award: gives gift cards, certificates, merchandise, travel and experiential activities, charity donations or branded swag.

Related: Learn how to transition from a cash-based award program to tangible award incentive program and why it’s a beneficial way of building momentum.

Points-Based: collects and redeems points for behaviors, sales and other KPIs (loyalty programs are examples of points-based incentive programs but are certainly not the only one). Points-based incentives give flexibility in award types and earning opportunities. They also can be pooled in most cases to offer greater earning potential.

Pro-Social: rewards both the referrer and the referee (e.g., friends, businesses, colleagues, peers, etc.). Pro-social incentives motivate the referrer to share with interested parties and motivate the referee to make a purchase (e.g., $25 for you, $25 for your friends).

Related: Learn how to build a successful referral program in seven steps.

Rebate: encourages purchases across a specified group of products or services. Rebates can be seen in all areas and industries, B2B, B2B2C, B2C, D2C and are often paid out after a purchase or set period.

Referral Program: motivates participants (e.g., partners, customers, employees) to promote your goods or services. They are often rewarded with discounts, gift cards, free products, branded swag, store credits and cash if they refer a successful sale to your business.

Related: Check out how ITA Group reignited channel loyalty with a reinvented referral incentive to help a leading telecom organization stay ahead of the curve.

Sales: drives sales, reduces sales costs, enhances margins and develops new territories. A classic “do X, get Y” incentive in many cases.

Sales Performance Incentive Fund (SPIFF or SPIF): pays a bounty to increase sales and meet growth goals. A SPIFF is often used in short time frames to stimulate increased activity.

Sprint (or spurt): uses a brief campaign within a longer sales or dealer incentive program to maintain interest and excitement. Sprints are sometimes used to combat seasonal lulls, drive interest in new products, or meet specific monthly or quarterly goals.

Sweepstakes: offer a chance to win prizes through drawings or pre-selected numbers, and (unlike a contest) do not require meeting any criteria to win. (Sweepstakes rules need to have a clear explanation of who is eligible to enter, how the winner will be determined, how many times an eligible person can enter, etc.)

Travel: reward salespeople, dealers, employees or support roles with a group or individual trip, meant to reward, retain and drive loyalty with high performers. Incentive travel typically includes a training at an exotic destination.

Tiered: features awards increasing in value with the criteria met in each tier. The awards a program participant can earn change based on the level of activity made (sales, referrals, trainings, etc.).

Volume Rebates: offer discounts on bulk purchase or sale of goods and commodities.



Now that you’re up to speed on the common terms, look at some predictions and trends our experts prioritized this year.

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