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“Show us the ROI!” … C-level demands and finance follow saying that based on current sales trends, there’s no additional budget or investment this year.
Or maybe procurement is involved in the decision process of a new initiative. Their view is it’s an expenditure or saving comes first, not value or potential benefit. This is the new dynamic seen across businesses in any industry, where companies need to make every dollar accountable.
The question is how do you go about proving ROI before rolling out the incentive strategy you believe will drive the desired results?
The answer: build your B2B incentive and reward program on the foundation of a solid ROI process.
Two things to consider to set up an incentive ROI case
There are various ways to determine ROI. One is revenue vs total program budget. Another way is margin vs reward budget. Alternatively, you can use volume vs last year’s results represented in dollars. Whichever calculation is used, it is important to define first how ROI is going to be measured.
However, don’t fall into the trap of being too simplistic. For example, it’s easy to measure ROI only as incremental gain over incremental cost. This since most reward and incentive programs focus on driving sales,. That is, any sales bump is compared to the cost of the program. The problem is that, since it is very easy to measure, this method only considers direct costs. For example, the incentive trip or merchandise rewards, all program communications, program platform technology, management, and administration fees.
Say you are at the races. You put $200 towards the winning horse, and you make $400 back. You doubled your money and your ROI is 2:1. Every dollar you’ve put in has returned two times. However, this only accounts for the direct cost of your investment. What about $25 in petrol, $35 parking fee, lunch of $45 and $85 drinks? Plus all other expenses you incurred in the lead up to the races? You basically may have just broken even – zero ROI.
Whilst an incremental gain over incremental cost approach is easy for managers planning a program, collaborating with business analysts and finance managers to define a more accurate ROI should be viewed as a great opportunity to justify a program and perhaps enhance the incentive and rewards budget before C-Level approval.
Providing an actual ROI test result along with the methodology used to calculate it has two benefits. It will demonstrate the incentive strategy will influence sales through rewards, and it will also help in testing the strategy you’re proposing and optimising it before you seek approval.
To do so, define what you’re going to test and define a small sample in your sales distribution channel.
For example, you may want to test what reward value will entice someone to achieve your goals. I.e. pick 6% of your partners that have similar sales contribution to your business and divide them into 3 groups where each group receives a different reward.
Once you have your results you will have a robust case, however, the most important thing is that you will have a reliable and objective measurement of achievement. A methodology on how to measure ROI and having tested it will provide direction, an expectation and a benchmark that you can modify and improve to achieve your goals.
If you have been involved in any incentive or reward initiatives, you have probably come across anecdotal feedback and criticism that these initiatives don’t provide an effective ROI.
Starting with these two steps will set the direction for any sales and marketing teams to approach the approval of an incentive budget with the backing of an ROI to prove its performance.