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Forget About the 80/20 Rule

Written by: Dave Smith
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Many of today's large corporations are still designing their incentive programs around the outdated 80/20 notion: that 80 percent of their overall sales are generated from the top 20 percent of their sales force.

 

 

 

Motivate average salespeople

Overview

At BI WORLDWIDE Canada, we use the principles of behavioural economics to create the best engagement strategies on the planet. We work with expert academics who advise us on the latest research on human behaviour, engagement and decision-making. We use non-cash rewards and recognition to engage and motivate employees and sales teams.

 In the early 1900s, Italian economist Vilfredo Pareto asserted that 80 percent of societal wealth was controlled by the top 20 percent of the population. Somehow, this specific theory (and its exact 80/20 ratio) was mistakenly adopted by the creators of sales incentive programs. As a result, many companies are still cutting the bottom 80 percent of their salespeople out of any real chance to earn rewards and out of any legitimate incentive to increase sales results.

In 2010, BI WORLDWIDE conducted a study using sales results gathered during non-incentive periods from 150 companies and more than 50,000 salespeople. The study found:

• Only one instance of a true 80/20 distribution of sales — making the "rule" nonexistent.

• 80 percent of sales actually come from the top 46 percent of sales people.

• More net lift is available from the bottom 80 percent than the top 20.

• Any incentive program aimed at the top 20 percent eliminates more than half of the top producers.

Based on these results, we've proven it makes better sense to design incentive programs that are much more inclusive than the outdated "top dog" approach. It pays to engage performance levels from top to bottom and create lift from every sector of the performance bell curve. However, that can rarely be done with an exact set of rules applying to both your top sales reps and your new hires.

Fortunately, BI WORLDWIDE Canada's unique GoalQuest® incentive structure addresses this dilemma by employing two key techniques: audience segmentation and baseline-related goals.

1 Audience Segmentation:

By segmenting an audience into groups of participants with similar sales results, GoalQuest creates program goals that make motivational sense for all participants within the grouping. Three to five sales segments are created in any typical analysis, though the number of segments depends on the variation between sales reps' performance.

2 Baseline-related Goals:

Even after segmentation, sales results may still vary between participants within the segments to the degree that some inequities or dis-incentives still remain. These differences are addressed by using individual baseline-defined goals. Ideally, any participant's program baseline (personal run rate) represents the results he or she would achieve during the upcoming incentive period if there were no incentive program in place.

Since this is an estimation of a future period, there is no exact measure available. By using the most similar historical period actual results, adjusted up or down

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