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Incentive award programs can help increase profits for companies according to a new independent research study, "Assessing the Impact of Sales Incentive Programs: A Business Process Perspective." The study funded by the Incentive Federation and conducted by Srinath Gopalakrishna, associate professor of marketing at the University of Missouri-Columbia focused specifically on the impact of one incentive program developed for a client by The Business Group, Inc. in Rocklin, California.
"This study adopts a business process view of sales incentive programs noting that their impact can extend well beyond the sales function to other parts of the organization," says Gopalakrishna.
Analysis of three years of data shows that the "Built to Last" incentive program of a hand tool manufacturer yielded 84 percent ROI, compared to an expected negative 92 percent ROI if the program had not been implemented. Before the program was introduced, the hand tool manufacturer faced several challenges including flat sales growth and shrinking market share as a result of larger competitors' lower pricing models. In the end, the company experienced increases in total sales, total gross profit and total net income as a result of the incentive initiative.
Bob Dawson, director of The Business Group agrees that an incentive program can have far reaching effects for an organization. "Increasing sales certainly gets attention but make no mistake about it that increase has to be supported by other areas. In this program, the awards were earned by internal company sales staff, distributor ownership and distributor sales staff based on objectives. But a real key was the involvement and buy-in from the non-incentive participants," he says. "Internal employees, in departments such as accounting, purchasing, marketing and operations were involved in determining the value of an increase in product sales to their department and helped identify the projected incremental expenses and any incremental benefit that could be derived from this incentive program. These considerations were incorporated into both the incentive program rules as well as the projected budget used to calculate the bottom line true ROI."
On what others can take away from the University of Missouri incentive research, Gopalakrishna suggests the need for a better understanding of strategy and structure. "It is critical to establish benchmarks to assess performance gains that are directly attributable to a sales incentive program and the process depends heavily on the availability of historical data on important variables."
According to Dawson, from an investment viewpoint, these types of programs (ROI based on a financial model that addresses key financial indicators) prove to be the lowest risk investment that produces the highest possible return for any business. "It is not a question of whether or not these programs work. It is more of a question of how well they would work in a given situation."
More information is available on www.businessgroupinc.com.
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