Finding The Right Incentives
I’ve spent my life working with incentives. Knowing how they work and using them effectively has proven to be one of the most powerful forces in history. Ignoring them is catastrophic.
For me, it started early. My parents explained that if I was good, Santa would bring me presents. Unwilling to test the limits of Santa’s forgiveness, I was a pretty good kid. In school, the teachers said if I earned good grades, I would be more successful. If I didn’t study, I would pay the price and wouldn’t be able to get a good job when I got older. (You can insert your own entrepreneurial joke about being unemployable here.)
Employees are the same way. If you incentivize your sales staff with a commission on revenue, you’ll get big sales numbers, but profits are not the focus. If you don’t incentivize your sales staff with bonus for reaching their numbers, you’ll see they rarely meet their numbers. So, I’ve found that paying salespeople on gross profit rather than revenue, and additionally with a kicker when they reach their numbers, is a good thing.
If you are unclear about the value of incentives, you can run a simple test. Pick a really absurd idea and tie money to it. Tell your employees that every time they answer the phone on the second ring you’ll give them a dollar. You’ll quickly see that you’re paying money every time the phone rings, because people will quickly go where the money is. If you want people to take specific actions, give them an incentive to do so -- it doesn’t have to be money, but I’ve found it usually does the trick.
Most of you with any business experience know this. I’d even say that most people without business experience know it too.
It’s time to start using incentives to get what we want. In your own business, make sure that you use the right incentives to create the right behaviors. It’s the single best path to success -- and ignoring it is a path straight to failure.