In any profitable business, sales contests are part of the strategic planning process requiring the establishment, communication, and analysis of the sales contest’s return on investment (ROI).
To assess the ROI – and adjust future sales processes, you must calculate the ROI in a volatile sales climate using proper key performance indicators (KPIs).
Obvious sales contest results
Sales contests succeed in many ways. Employee morale improves. Competition increases sales. Customer complaints decline. And, revenue goes up. Any sales manager can follow key performance indicators (KPIs) on a spreadsheet.
You cannot plan sales contests until you delineate these “obvious” metrics, calculate results, and measure benefits.
- Record employee complaints and turnover.
- Benchmark sales at the start and finish.
- Chart the trajectory of customer complaints.
- Report volatility in reported revenue.
Sales contests Return On Investment done simply
Return on Investment measures profitability, indicating where the company has been and where it is going. It convinces others to invest and share.
ROI divides Investment by Annual Return.
- Investment = Total cost of sales contest campaign, including time, incentives, communications, advertising promotion, labor burden, and any expenditure related to sales contest.
- Annual Return = revenue increase directly attributable to sales contest.
You can use such key performance indicators (KPIs) to measure any investment you make.
Return On Investment calculation complicated
Once you put $X-amount into a strategic sales process and want $Y-amount in return, your calculations become complicated. After all, your total investment in a sales contest includes less easily measured key performance indicators (KPIs): incentives, communication, and administration.
Strangely enough, while you must justify the ROI on any sales contest to your management, 74% of those using incentive programs value their impact, only half factor in the Return on Investment. This is usually because the Sales Leadership thinks of incentives as a carrot and stick approach without full understanding of the key performance indicators (KPIs) or the importance of justifying the events.
Plan sales contests strategically
#1 – Without planning, sales contests proceed without goal or measure. Awards are made, and winners celebrate, but there is no ROI without a plan.
- Invite contestants into the plan design. Let them explain what motivates them and what they consider fair.
- Build targets, methodology, and recognition around that input.
- Budget awards in terms of their perceived value.
#2 – Price strategic communication to keep sales contests front and center.
- Start the noise well ahead of the kick-off.
- Use every communication channel – signage, email, newsletters, and business-wide conversation.
- Recognize incremental benchmarks continuously on a community leaderboard.
#3 – Select awards to synch employee and management goals.
When you solicit employee preferences on regarding incentives, their choice may not match management’s. Employees may want cash, but cash presents a number of problems for management because employees come to perceive cash awards as compensation.
It makes more sense for management to focus on middle performers, presenting tangible incentives frequently and widely to make it a win-win for everyone, distributing awards from certificates to gift cards to travel awards.
#4 – Identify the total cost of the sales contests.
A study published by Incentive Marketplace details the campaign costs incurred in specific case studies. It recommends two approaches:
- Post-Hoc Measurement uses the numbers from the previous campaign(s) as the hypothetical cost of the current campaign.
- Outcome-Based Measurement integrates outcomes, such as accounts receivable, advertising and promotional costs, an inventory levels. Such numbers outcomes are dynamic and volatile, and require tracking “before, during, and after” the sales contest.
Now, calculation reflects the expenses and outcomes of a specific sales contest. The ROI is specific to that contest. Nonetheless, as data accumulates with each campaign, it presents a model to justify the need and spending on future campaigns and to measure the outcomes of given sales contest. Even this remains slightly fluid because of variables like increasing advertising costs, variable pricing, and improved or reduced marketing conditions – everything from weather to economic downturns.
Sales contests are not business as usual. The owner/manager who rolls sales contests out – because the business has always done it that way – misses the whole point. If sales contests are to produce and add value, hey need planning, and ROI leads the business success strategy.
How To Calculate Basic Sales ROI by Sam Miller
How to Calculate Return on Investment (ROI) – The Numbers Game Incentives Marketplace
Post-Hoc Measurement and Outcome-Based Measures – Measuring the ROI of Sales Incentive Programs published by Incentive Research Foundation
Making The Case For Sales Incentives To The Tune Of 10% ROI Marketing Innovators International Whitepaper
How to Calculate the Return on investment of Sales Promotions by Tivi Jones, Demand Media
Image courtesy of Stuart Miles / FreeDigitalPhotos.net