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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 Budgeting
A 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.