Why you should stop the use of sales bonuses in your company if you are CEO or board member
I have been working with B2B sales in the IT industry for over 20 years, as well as serving on several boards and advisory boards. I have always been fascinated with motivation and creating great results.
Motivation of sales teams is an interesting topic. Sales bonuses and sales competitions is a common practice in many sales organizations to create motivation, but there is a lot of misunderstandings of how to create a motivated sales team that delivers the results you really want.
In summary money does work to motivate your sales team, but they can have some really bad side effects, that will hurt your company and your customers.
Over the years I have come to understand, that you should stop using sales bonuses!
Let me explain why.
7 deadly flaws of carrot and sticks
Using sales bonus for motivation is like using carrot and sticks for motivation. These techniques can be highly effective for motivation and productivity. BUT only for rutine tasks. And B2B sales is not a rutine tasks. According to the latest study by CEB the average number of buying groups involved in a B2B purchase is 6,8, which means that sales is a complex team effort.
If you use carrot and sticks like sales bonuses for non rutine tasks like B2B sales they can have some highly undesirable side effects as described in the book Drive by Daniel Pink.
- They can extinguish intrinsic motivation
- They can diminish performance
- They can crush creativity
- They can crowd out good behavior
- They can encourage cheating, shortcuts, and unethical behavior
- They can become addictive
- They can foster short-term thinking
These are highly unwanted behaviors and not in line with why companies typically uses sales bonuses in the first place.
I love this video that illustrates the impact on creativity and problem solving.
That sales bonuses can actually diminish performance will come as a surprise to many people, but the research shows this is actually the case.
Similarly, sales bonuses can crush creativity, and B2B sales requires creativity. So if you want your sales team to deliver value to your customers and help solve their problems, then don't use sales bonuses.
When can sales bonus still be relevant
I often wonder why it is so common to have high sales bonuses and agresive sales competitions. There is so much research that shows that money is not a good tool for motivation. The main reason is of course that money does not, and people overlook the bad side effects and that sales bonuses becomes addictive, so the people at the top don't want to stop the use of sales bonuses as it might hurt them self.
I have found there is the following common reasons that sales bonuses:
1. Attract the right talent
There is a fight for the best talent in the market. And a common way to attract the right talent is to offer a high salary.
2. Keep salary costs down
You want to attract the right talent with a high salary, but you still want to keep the salary costs down. So instead of paying a high fixed salary sales bonuses can be used to keep the fixed costs down.
How to design a better bonus plan
The 2 reasons above are common and valid reasons for considering a sales bonus. But as an alternative to an individual sales bonus I would recommend the following:
- Offer a fair and competitive base salary
- The best way is to offer a good base salary, that satisfies the employees needs and requirements, and that allows you to attract the right talent
- Consider if you really need and want the sales people that is only attracted by the agressive bonus plan. Remember to get the right people on the bus - the people that is self motivated and motivated by your companys purpose
- Offer a team bonus or company profit sharing
- You might still feel you can not offer the salary you want unless there is a element that is tied to the results.
- Then consider offering a team bonus or company profit sharing. This focuses more on the whole company or team collaboration.
- And do use this to motivate, but to acknowledge that when there is profit you also wants share this profit with the employees
- Offer alternative recognitions or celebrations
- Another way to attract the right talent and keep them happy is to offer alternative recognitions and celebrations. The right recognitions and celebrations can depend very much on your company culture.
- If you have a company of young people you might want to have a big party or lavish kick off if certain goals are reached, and if you have an company with many senior people they might be more interested in additional free time, events that include family or dinners including spouses
How to create a motivated sales team
Instead of using sales bonuses to motivate your sales team you should help your sales team find their intrinsic motivation, but using:
You can get detailed advice on how to motivate your sales team in this blog post:
I hope you found my input useful and I would love to get your feedback and comments.