by Finn Helmo Hansen, Founder & CEO, Stratinis
B2B Pricing managers often complain that sales people are not very good at pricing and that they must do better. While it should not stand alone, one tool to help with that is inclusion of price into bonuses.
1. As with anything that sales people are bonused on, it needs to matter. If it is either insignificant (price is one of 20 goals) or unachievable (you only get the bonus if you put through a pocket price increase of 50%) then they will of course not be motivated by it. Make it achievable and realistic, even if stretching for some of the sales team members.
2. Get senior management to support revenue/price-based bonus targets. It has the built-in advantage that price and profitability targets often go well with their own targets.
3. In pricing we often have several pricing/revenue key performance indicators, such as pocket price, pocket price increase, price index against competition, etc. While it can be tempting to include all these targets in some sort of basket of targets for the sales people to achieve, it also makes it difficult to understand and relate to in a negotiation situation. It is better for bonus purposes to have one single price KPI. You can have multiple KPIs that you communicate to the sales team, but only one should be bonus triggering (and with a discernible amount of money from it, see #1)
4. Some good KPIs for sales bonuses in B2B are:
- Pocket Price: what do we make per unit at the end of the day.
- Pocket Revenue: what do we get in at the of the day, multiplied by quantity, so not just focus on high price, low-volume items.
- Pocket profitability: Takes into account that some products are more profitable than others.
- Pocket revenue percentage change: still focuses on price and profit, but also pushes the sales people to do better.
- Price performance against target prices: measure how well the sales person is doing against a set of target prices: below, on target or above.
5. Support everything you do with information and communication. Train the sales people not only what the bonus system is about, but how they can achieve it. Then they will see the light. Even ahead of bonus goals from other departments who haven’t communicated as well about their desired goals for their department. To learn how Stratinis can help your business implement an effective pricing strategy and roll this out to your global sales teams, visit our website. Or check out our partners at RevBeam who provide a wealth of price consultancy services.