Our sales team recently worked on a channel sales opportunity that highlighted the importance of program design – specifically balancing the program budget and participant expectations. The key to success in this process is to understand and reconcile the following factors:
- the value of expected incentive earnings that will be meaningful to the program participant, and
- how attainable the program’s key performance indicators (KPIs) are for the program participant, which determines the expected level of achievement for each KPI.
Using our opportunity as a starting point, this post gives an example of how these elements of program design fit together in a correctly designed program.
But before doing that, it’s important to assume that the KPIs established by the client are the right ones – i.e., the client will achieve the program business objective if the KPI goals are met. This is no small assumption, I know. But developing KPIs is a topic worthy of another complete blog post. So, let’s make this necessary assumption and concentrate on the relationship between participant expectations and program budget.
Let’s say that “sales growth” is the program’s only KPI, calculated by comparing one month’s sales to the prior month’s sales. The participant will earn an award for that month if he or she meets or exceeds a minimum threshold for that KPI. The questions that need to be answered are:
- how much that award should be, and
- how that amount impacts the program budget.
From a participant perspective, the monthly award for meeting the KPI threshold should be an amount that is meaningful. That can be determined by evaluating whether the individual award contributes materially to the accumulation of an award balance necessary to achieve a desirable reward.
For example, if the monthly award for meeting the KPI described above is 5,000 points, and the participant realistically expects to achieve the award every month, the expected total award for the year would be 60,000 points. If 60,000 points allows the participant to redeem for a meaningful reward, e.g., a domestic airline ticket, then the award would be perceived as meaningful (at least for most participants).
Determining “meaningfulness” can be a complex discussion, and is affected by a number of program design factors. Most notable among those factors is the demographic make-up of the participant group (i.e., average earnings level, tenure, etc.). And while the discussion can be involved, it is important to examine the topic of award value meaningfulness carefully. It is essential to capturing the attention and mind share of the participant group.
Next, we need to evaluate how difficult (or easy) it will be for the participant to meet the KPI threshold – and earn an award. Clearly, client input is required for this step. Let’s say that the client feels that 70% of the program participants should meet the KPI award threshold each month. If, in this example, there are 300 participants, then 210 of them would earn the monthly award of 5,000 points. The total monthly award, from the client’s perspective, would then be 1,050,000 points [210 x 5,000].
Using the program’s economic model (e.g., Bill on Redemption, Bill on Issuance), the client can now quickly determine the expected monthly program investment. That expected monthly investment can then be annualized and compared to the client’s budget expectations.
We have seen a number of reactions following this process, not the least common of which is “that is more than we had planned to spend.” In that case, adjustments can be made to address budget limitations:
- the monthly award value can be reduced, and/or
- the KPI threshold can be raised.
Each of these adjustments has implications that need to be critically evaluated. If the monthly award value is reduced too much, it may no longer be meaningful to the participant. If the KPI threshold is raised too much, it may seem unattainable, with a negative impact on participant motivation. Different amounts of these two adjustments need to be modeled to arrive at the combination most likely to be successful. And the process is iterative – it’s just luck if the right combination is determined on the first try.
I’m sure some readers have by now concluded that what I’ve presented is pretty obvious – and important to effective program design. But you would be surprised how many programs get implemented without going through the reconciliation process I’ve described. And when that happens, one or more of the parties with a vested interest (i.e., the client and the participant) is usually disappointed in the results.
So, if you are contemplating a channel or sales incentive program, we encourage you to contact us to help you through this very important process. Your program will be much stronger for having done so.