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Intelligence / 9.4.18

What About Me, Pareto?

Posted by SITE

By Terry Manion

 

Italian economist Vilfredo Pareto was studying population and land ownership statistics in 1896 when he came up with the 80/20 rule, aka the Pareto principle. One hundred and one years later, British writer Richard Koch published The 80/20 Principle. The book, which has sold more than a million copies, was a reinterpretation of the Pareto principle and extended the idea that the top 20% in any group is likely to produce 80% of the results. That said, while the analysis is accurate the theory has holes when it comes to incentive travel.

That said, while the analysis is accurate the theory has holes when it comes to incentive travel. Let’s look a little closer at the typical breakdown of “talent” in sales organizations. Although somewhat generalized, and even a little harsh, sales professionals can often be divided into four performance categories:

Group One:   20% Pareto Principle elites

Group Two:   30% steady, reliable but not spectacular

Group Three: 30% marginal, yet active and interested

Group Four:   20% disinterested low-level

Untapped Potential = Unrealized Profit

Performers in groups two and three, which we’ll call the “Middle 60”, have great potential for growth, yet most organizations’ incentive programs leave the Middle 60 uninspired. The programs are often closed-ended and capped at the Top 50 (hey # 51 – you almost made it, sorry!). A potential cause of this type of rules structure is the attempt to create a self- liquidating incentive program; whereby the incremental sales of qualifiers generates a significant bottom line even after the cost of the trip is factored in. 

Research conducted over the last decade proves that paying more attention to the Middle 60 can have a favourable long-term impact on profits, market share, and customer retention.  Further, the mathematics of improving performance of the Middle 60 is compelling because this group is the bulk of any organization's workforce. Efforts to get the best out of these folks typically yield modest per-person gains.  But the collective impact, well that can be significant!

So, What’s the Solution?

Do you just lower the quotas so that everyone has a chance of earning a prestigious incentive travel award? Of course not. While this might be popular with the sales team, the bottom line results would be horrendous. Let’s look at the options with the goals of your incentive program in mind:

Tiered Qualification Programs

This method creates stages of qualification providing challenging yet realistic targets for participants at all sales levels.  These programs often take into account each participant’s market potential and set targets accordingly. This is perhaps the easiest way of providing the Middle 60 with a motivating target that will drive sales, yet still challenge top performers. If the goal is a program that is completely self-liquidating then the two or three-tier concept may be your best bet. However, if your goal is to gain market share that will have an impact on your bottom line long after the incentive program ends, partial liquidation of costs can be considered, and the balance is an investment with obvious pay offs down the road.

Or perhaps you want your team to focus on establishing a new product in the market. Here again full liquidation may not be necessary. The cost of awarding a travel experience to those who don’t fully liquidate the costs can be likened to marketing and advertising spend. The key difference in the case of a measured incentive program? The investment has a more defined impact on the objective. While organizations have different metrics, margins and objectives, there are many situations when full liquidation is either not necessary or it is simply unrealistic.

Understand Your Objectives

When designing a program it is important to start by defining your business objectives. Time spent upfront to establish objectives and fair targets will motivate a greater percentage of the team, and that in turn will yield success and healthier profits.

  • Are you looking to drive market share or increase sales overall, or increase sales of a specific line of products or other objectives?
  • Does the contest have to be self-liquidating or is a portion of the budget considered a necessary investment towards the desired gains?
  • What do available sales numbers tell you about your current position as it relates to the objectives?
  • How does previous performance and current market conditions t ensure that the goals required for qualification are realistic and motivating?

Obtaining buy-in is paramount to success. This is the time to have conversations with a cross-section of performers to identify real and perceived obstacles. Work through these so that a motivating, realistic and profitable target can be set for each level of performer, creating a win-win and positive environment.

With careful analysis you can design an incentive travel program that drives motivation deep into your organization.  Don’t settle on the top 20% when your real gains can come from the Middle 60!

 

About Terry Manion:

Terry Manion is Executive Vice-President, Meridican Incentive Consultants located in Ontario, Canada.  He also serves as SITE Foundation Vice-President, Finance.

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