All of us who have worked in sales function know the importance (or lack of it) of sales targets. A salesperson without a territory and target could be anyone but a salesperson. No wonder then that the majority of the sales management resources are expended in setting and managing targets! There are exceptions, of course; the organization that I served for over two decades did not have sales targets till 2002. I vividly recollect one of the meetings where the sales Director emphasized that he just wanted the team to do their best and ensure that all ethical practices are followed in the market. At an organization level, targets were considered mostly as a ‘lighthouse’ and not something that you must achieve ‘at any cost’. Later in my new avatar in a marketing academic role, I realized that the Director’s idea was so appropriate and was geared towards creating better outcomes. In a paper titled “Goal setting as a motivator of unethical behavior”, Schweitzer et al.(2004) found that – “ people with unmet goals were more likely to engage in unethical behavior than people attempting to do their best. This relationship held for goals both with and without economic incentives.” However, as mentioned in the beginning, sales targets are a way of life in sales and a very useful measure for managing business performance. Therefore, what managers need to do is to focus on the right way of setting targets which starts with an acceptance that achieving targets at any cost may not be the best thing to do for their firm’s business. Simply put, ask these three questions:
- How is the market?
Any sales planning exercise usually starts with looking at sales forecasts with the most pessimistic and most optimistic scenario building. This should answer an important question; are we in a growth market, stagnant market or declining market? It makes a lot of managerial sense to figure out the ‘stretch’ that one would want to have in their sales projections. This is the starting point – for example, would one risk a stretch in a declining market? One can argue that sales targets do not have to be correlated with the market growth; after all, one can outsmart the competition and build numbers. That is a plausible thought but to execute it one needs a good mix of marketing program elements. Are you ready to support your sales targets with marketing programs?
- What about the marketing program?
In all possible scenarios of business, irrespective of the market status i.e growth, stagnant or decline, firms need to have a set of sales objectives that would get quantified in terms of sales targets. This is the good part. What could go wrong here is the alignment of sales goals and marketing program elements. For instance, in a declining market one might take an aggressive position and build stretch in the targets without really making any significant change in the pricing or product position or even distribution strategy. That is a problematic situation because the firm is expecting a sales force to deliver something which it would find impossible to deliver. (visualize taking away competitor’s market share without any manipulation of program elements – difficult, isn’t it?)
This situation could get further complicated with a quick fix proposal – let us throw in lucrative sales incentives tied to sales targets. ‘Aggressive’ is the operative word and ‘push down below the hierarchy’ is the strategy.
- Sales incentives! Why?
Let’s tackle this – sales incentives work best when the firm has a good marketing program going or the market itself is in a growth stage. There is enough room for all brands and the more effort salespeople put in, the more sales they clock in. Sounds reasonable. Rewards are extrinsic motivation and they should work. But, what if the sales team is not intrinsically motivated? They got a job to keep and for that targets need to be met. In such a scenario ( which unfortunately is not rare), salespeople are more likely to use means that are not ethical and end up challenging the sustainability of the entire supply chain. This could be even scarier if the product category is perishable and carry some form of salvage value. In such situations, the introduction of new incentive structures could be construed as signals of tacit approval of unethical conduct.
Clearly, there is an emergent need to revisit the sales strategy and achieve better alignment with marketing programs. More importantly, firms must realize that ‘sales guys are driven by money is an outdated idea and they should be open to embracing the new reality – salespeople are actually looking for a sense of purpose! In a recently published paper titled “More than money: establishing the importance of a sense of purpose for salespeople”, Good et al.(2021) found that intrinsic motivation is more positively associated with increased salesperson effort and performance. As salesforce get more dominated by younger people, the critical role of intrinsic motivation in maintaining higher levels of effort and performance will be further strengthened. Therefore, it is important to monitor the activities of the sales force and not just the outcome performance, popularly measured as the percentage of sales target achieved.
Sales managers must worry when their team do not achieve the targets. They should worry even more if targets are achieved riding on sales incentives, for that could be an early indicator of a ‘bulge’ building up in the supply chain. If one ignores that bulge, the whole supply chain may no longer remain sustainable in the long-term.
Good, V., Hughes, D. E., & Wang, H. (2021). More than money: establishing the importance of a sense of purpose for salespeople. Journal of the Academy of Marketing Science, 1-24.
Schweitzer, M. E., Ordóñez, L., & Douma, B. (2004). Goal setting as a motivator of unethical behavior. Academy of Management Journal, 47(3), 422-432.
4 thoughts on “Sales targets, incentives and performance: Reflections through the lens of sustainable supply chain”
Very nicely put & very insightful, Sir. The effectiveness of the sales function should never be looked at in isolation because there are a lot of other macro-environmental factors at play that hugely affect the performance. Also, I believe that sales incentives are just external stimuli that may/may not elicit the desired performance, but for the people for whom it works, they will surely lose the drive to perform better once you remove the factor of incentives from the environment. Instead, salespeople should be associated with the bigger organizational purpose and should be shown how their efforts will help themselves and the organization achieve mutual growth. This sense of ownership & purpose will ensure that they are intrinsically motivated and do not trade off their ethics in exchange for sales numbers…
Definitely an important aspect to ponder upon. I completely with you here sir. Sales targets should be pre determined and based on the acheivement of it, the incentives should be offered subsequentely. This way, the salesforce will also be motivated and the organization’s goals will also be achieved.
It is something every sales manager should put some thought in. If we stretch the targets in an unrealistic fashion or plan to drive sales only by putting in incentives without giving much thought to the means being employed by the salesforce to achieve the same, there is a chance of the sales team delving into unethical means to meet their targets sir that might damage the brand image in future. To build upon this, setting a stretch in a declining market would impact the motivation of the team as well as forcing them to indulge into immoral conduct if not strengthened by marketing aspects that actually give them a leverage to elbow out chunks of competitor’s market share to add it to the company’s revenue.
I am in sync with what you said sir, intrinsic motivation is one of the key factors that should be looked into and sales managers should emphasize on the means as well as the goals while measuring performance to drive a value based sustainable business model and to ensure enhanced brand equity in the longer run.
Organisations today are in the grip of a new phenomenon called “metric fixation”. It refers to the idea of replacing professional insight (accumulated through experience) with numerical indicators of comparative performance (metrics). The outcome of this is the inclination to believe that the best way to motivate salesforce is to adopt the carrot and stick policy, i.e., award them when targets are met and penalise them otherwise. However, one of the fallouts of this could be that it could incentivise “gaming”: It would encourage the salesforce to increase sales using means that are at odds with the mission/vision of the organisation.