Middle Ground

It is a common incentive program strategy to assign a percentage growth target as an objective for a distribution channel or sales person.  It's easy to do and is simple math anyone can do.

If you did 100 units and your stretch is 10% you need to sell 110 units to hit your goal.  Simple and quick.

And flawed.

The math isn't flawed but the application is.  Percentages are funny things.  They let us compare and contrast changes and allow us to "normalize" various pieces of data to draw conclusions.  But they also cause some very important errors.  Specifically as it relates to goal setting and incentive programs.

If you think about the distribution of Sales People, Distributors or Dealers - typically there is a some sort of 80/20 rule or 70/30 rule or some place in the middle.  The novice would think that assigning percentage goals would normalize the incentive and make it equal for all.  But it doesn't.

As an example let's look at three Dealers and their sales.  It would be tempting to use a 10% stretch factor for all, with the goals as show in the table below.

As you see, the goals are represent a 10% increase, but the unit change between Dealers is quite different.  Dealer C has to sell 15 times as many units to hit his/her goal as Dealer A.  Doesn't seem fair does it.  Many, many programs use this type of structure in order to give the appearance of fairness.  The truth is if you're a top Dealer this is probably the most unfair structure possible.

In effect you are penalizing those Dealers who have been consistently giving your product/service the time and attention it deserves.

The Middle Ground

When developing your incentive program understand that those at the top of your performance distribution are probably your most important and loyal business partners.  They are probably doing their best on a regular basis and giving them an objective, equal on a percentage basis, as a lower performing Dealer, is inherently unfair.  Your top performers have little room for growth but represent a substantial portion of your sales.  You need to keep them.  Retention is your goal for this group.

But if your overall goal is long-term growth - that will come from the middle of the pack.  Typically, those in the middle have the most room for growth and with proper incentives - will demonstrate that growth. 

Structure your program to provide recognition to your top performers and incentives for you middle performers.

Think of it this way...performance is like boiling water.  From room temperature to boiling is a span of about 140 degrees of change.  But once water is boiling no amount of additional heat will raise the temperature above 212 degrees F.

Focus on where additional heat will have some impact.

Side Benefit...

One of the things you might also see is that some of your middle performers may increase sales to a degree that puts them in the same category as your top performers.  This typically means they are shifting their purchases from one supplier to another based on the incentive offered.  In this case the incentive was a great way to identify which of your Dealers you should be targeting for the future.  Too many times companies assume because someone isn't performing it's because they can't.  Sometimes it is because they are performing for someone else.