Engagement
Making Dollars and Sense Out of Incentive Travel Budgets
By Colin Higgins
November 12, 2012
Most executives agree that a properly planned and
delivered incentive program will inspire improved performance by their employees, clients, and customers. Those same executives
will also say that budgeting, especially in these challenging economic times, can be an obstacle to implementing such a
program.
At Performance Enhancement Incentives, we have seen a number of
strategies over the years, and have found that there are a few
basic structures that can be utilized to support and properly
fund an effective incentive travel program. Here are just a few examples.
1. Self-Liquidating Programs
A "self-funded" or "self-liquidating" program essentially pays
for itself and is the method used for most programs. If a
participant qualifies, he should have generated enough extra profit to pay
for his own award and provide extra profit for the company.
Here is an example of this:
Assume that an average salesperson is expected to sell 1,000
widgets at $400 each, generating $400,000 in revenue. The profit margin is 20 percent
or $80,000. The goal to earn the reward is to sell an
additional 150 widgets (15 percent more) at $400 each,
generating an additional $60,000. In most cases, the sale of
additional product generates higher profit margins, since fixed
costs have already been covered by the sale of the first 1,000
widgets. Therefore, for the purposes of this example, let's say
the profit on the extra sales is 50 percent, or $30,000. If 50 percent of this additional profit is spent to provide an effective incentive program, that would equal $15,000. The
company has earned an additional $15,000 in profit, and the
salesperson will receive the benefit of an incentive reward
program that cost the company only $15,000.
If a participant doesn't hit her sales goal, she doesn't secure
the reward, and the only cost to the company would be any
expenses associated with the design and promotion of the
program. The company still gets the profit benefit from any
extra sales that are secured in pursuit of the reward.
2. Line-Item BudgetingA second funding option is to plan for the
program in the marketing budget. This is useful when securing additional sales is unlikely to happen,
but a business wants to maintain relationships or promote
loyalty among its employees or customers. Building it into the
budget still promotes extra effort to achieve advanced goals
but the funding is not dependent on additional sales.
3. Buy-In Programs
This structure allows a sponsor company to extend the
opportunity to a wider group of customers by creating levels in
the awards whereby Level A performers who achieve the entire
goal qualify for the Level A reward. Level B performers who
achieve something less than the entire goal qualify for the
Level B reward. However, employees can also "buy-in" in order
to receive the Level A reward. Offering various levels of rewards opens up the program, enabling more
of your employees or customers to participate, not just the top
performers.
4. A Hybrid Structure
Another option is a hybrid of two or all of the aforementioned
funding mechanisms. A portion of the incentive program expense
is in the budget and additional sales are encouraged to earn
additional benefits. This could also incorporate award levels, thus expanding the
participation of more employees and/or customers in the
effort.
Colin Higgins is founder and partner of Performance Enhancement Incentives, a boutique meeting and incentive travel company specializing in creative and innovative solutions for companies seeking to inspire production and loyalty in employees, clients, and customers. For more information, call 978-287-9500 or visit www.peincentives.com.
This page is protected by Copyright laws. Do Not Copy