What is the right percent of revenue to allocate for sales incentives?
Posted by www.makanasolutions.com Admin on Thu, Feb 19, 2009 @ 03:36 PM
This question has come up repeatedly lately. I wish there was a magic answer because I know everyone really wants me to say x% and be done. Unfortunately, like so many other comp questions, the answer tends to end up "it depends." So I've decided to write about how to figure it out for your company.
For starters, I am actually talking about the total amount of incentive costs for all positions including overlays such as managers and supporting roles. It is important to include all job roles on incentive as way too many companies end up with a major unexpected expense when they don't examine the full cost.
With this understanding as a backdrop, at a high-level, it is a balance between what you can afford and what you need to pay to attract and retain talent. What you can afford will sort itself out in the company budgeting process and depends on the general profitability of your products. You need to attract and retain talent depends on the market from which you draw talent. This information is best found through a variety of sources of benchmark data. (See my last blog for more information on this topic.)
Meanwhile, just to see how variable it is for small businesses we are working with, we recently performed a survey and here are the results. So, when I usually say "On average, it's about 10%" I can point to some real supporting data.
In the interest of getting it right, what is the % of revenue you allocate for sales incentives?