What are sales kickers?
Benefits of deploying Sales kickers
- Increased Motivation: Sales kickers provide additional incentives beyond regular variable compensation, creating a sense of urgency and motivation among sales professionals. They serve as powerful tools to drive higher levels of engagement and effort, encouraging salespeople to go the extra mile in achieving sales targets.
- Improved Performance: By linking sales kickers to specific kpis or milestones, salespeople are incentivized to focus their efforts on activities that drive revenue growth and customer acquisition. This leads to improved sales performance, increased productivity, and a greater likelihood of meeting or exceeding sales targets.
- Revenue Growth: Sales kickers can have a direct impact on revenue growth. By offering incentives for achieving specific sales goals or closing larger deals, they encourage sales professionals to pursue opportunities with higher revenue potential, resulting in increased revenue generation for the organization.
- Customer Expansion: Sales kickers can be designed to incentivize upselling or cross-selling to existing customers. By rewarding salespeople for expanding customer relationships and driving additional revenue from existing accounts, organizations can promote customer loyalty and increase customer lifetime value.
- Sales Team Retention and Attraction: Including sales kickers in a compensation plan helps attract and retain top sales talent. Sales professionals are drawn to organizations that offer competitive and rewarding compensation packages. Sales kickers demonstrate the organization's commitment to recognizing and rewarding exceptional sales performance, creating a positive work environment and increasing sales team satisfaction.
Types of Sales Kickers
- Up Front Cash Kickers: Up front cash kickers are incentives provided to salespeople for securing deals with immediate cash payments or upfront commitments.
- Example: A salesperson earns $10,000 in sales commissions for closing a deal where the customer signs a three-year SaaS subscription contract with a total contract value of $100,000. The customer is required to pay 50% of the contract value upfront upon signing, resulting in an immediate cash payment of $50,000 to the company.
- Contract Length Kickers: Contract length kickers reward salespeople for securing longer-term contracts with customers. These incentives can take the form of increased commission rates or bonuses added to incentive plans.
- Example: A salesperson receives a 5% increase in commission for securing a SaaS subscription contract with a minimum duration of three years. For example, if the salesperson closes a deal with a total contract value of $200,000 and a three-year term, their commission rate increases from 10% to 15%, resulting in an additional commission of $10,000.
- Inflation Kickers: Inflation kickers are designed to account for inflationary changes over time. They ensure that salespeople are compensated for maintaining the value of their sales deals despite potential decreases in purchasing power due to inflation.
- Example: Salespeople are eligible for an annual bonus equal to the percentage increase in the Consumer Price Index (CPI) to account for inflationary changes on their recurring revenue streams. If the CPI increases by 2% in a given year, a salesperson with $500,000 in recurring revenue would receive an inflation kicker bonus of $10,000 (2% of $500,000).
- Churn Kickers: Churn kickers incentivize salespeople to focus on reducing customer churn or attrition rates. Salespeople may receive bonuses or increased commission rates for successfully retaining customers over a specified period.
- Example: Salespeople earn a bonus equivalent to 15% of the recurring revenue for each customer they retain for a minimum of two years. For example, if a salesperson retains a customer with an annual recurring revenue (ARR) of $100,000 for two years, they would receive a churn kicker bonus of $30,000 ($100,000 15% 2 years).
- Reverse Kickers: Reverse kickers are penalties or reductions in compensation imposed on salespeople for certain undesirable outcomes. For example, if a salesperson fails to meet the minimum sales target, they might have a percentage of their commission reduced as a reverse kicker. Reverse kickers serve as disincentives to prevent underperformance or poor sales outcomes.
- Example: If a salesperson fails to meet their quarterly sales target, their commission rate is reduced by 10% for that period as a penalty. For instance, if a salesperson's quarterly target is $250,000 and they achieve only $200,000 in sales, their commission rate for that quarter is reduced by 10%, resulting in a lower commission payout.
- Clause Kickers: Clause kickers are specific provisions or conditions within a sales contract that trigger additional incentives or penalties.
- Example: A sales contract includes a clause kicker that states if the salesperson exceeds $1 million in additional revenue within the first year, they will receive a bonus of 5% of the additional revenue achieved. If the salesperson successfully generates an additional $1.5 million in revenue within the specified timeframe, they would earn a clause kicker bonus of $75,000 (5% of $1.5 million).
Drawbacks of implementing kickers as part of compensation plans
While sales kickers can provide numerous benefits, there are some potential drawbacks that organizations should consider when implementing them as part of their compensation plans. These drawbacks include:
- Short-Term Focus: Sales kickers can sometimes encourage sales reps to prioritize short-term gains over long-term relationship-building and customer satisfaction. Sales professionals may be more inclined to chase deals solely to earn the incentives, potentially neglecting the strategic goals of the organization or compromising the quality of the sales process.
- Competitive Environment: The introduction of sales kickers can create a highly competitive environment among sales team members. While healthy competition can drive performance, excessive competition can lead to a lack of collaboration, information hoarding, and a negative team dynamic. It's essential to foster a balanced and supportive sales culture to mitigate these challenges.
- Incentive Misalignment: There is a risk of misalignment between the desired behaviors or outcomes and the specific metrics or criteria used for sales kickers. If the kickers are not carefully designed and aligned with the organization's business goals, sales professionals may focus solely on meeting the criteria to earn the incentives, rather than on broader organizational goals or customer satisfaction.
- Unintended Consequences: Sales kickers can unintentionally incentivize behaviors that are not in the best interest of the organization or customers. For example, if the kickers are solely focused on revenue generation, salespeople may neglect factors like profit margins or customer retention, potentially compromising the long-term sustainability and profitability of the business.
- Administrative Complexity: Managing and administering sales kickers can be administratively complex and time-consuming. Tracking, calculating, and verifying eligibility for various incentives can create additional administrative burden for sales operations and compensation teams. This requires careful planning and robust systems to ensure accurate and efficient implementation.
- Overemphasis on Individual Performance: Sales kickers may disproportionately emphasize individual sales performance rather than recognizing the collective efforts of teams or other support functions. This can lead to a lack of collaboration or recognition for non-sales roles that contribute to the sales process, such as marketing, customer success, or product development.
To mitigate these drawbacks, organizations should carefully design and monitor sales kickers, align them with overall strategic goals and compensation strategy, foster a balanced sales culture, and regularly evaluate the effectiveness and unintended consequences of the incentive structure. Communication, training, and ongoing feedback can also play a crucial role in ensuring that sales kickers drive the desired behaviors and outcomes while maintaining a long-term perspective.