Walk into any sales office, and you’ll probably find a sales manager running some sort of contest to motivate their team to increase productivity.
You probably won’t find any two sales contests exactly the same, either.
No problem: Regardless of how they work, the point is, they work. Sales contests are always fun, rewarding, a good change of pace from the everyday routine, and they always make money, right?
Before you jump in with your checkbook wide open, understand this: Not all sales contests motivate, and not all are profitable.
In fact, if not designed properly, contests can do more harm than good.
Here are the top 4 sales contest mistakes, plus tips for fixing them, so your sales contests will always work.
What Are the Top Sales Contest Mistakes?
Keep reading to learn why you need to avoid them at all costs and sales contest tips to fix them.
Sales Contest Mistake #1: Winner Takes It All
The biggest mistake you can make as a sales manager is to design a contest that only has a single winner.
The “winner takes it all” qualification — where you set a target and whoever reaches it first wins — is a lose-lose, no matter how you slice it. I’ve experienced these contests both as a direct sales rep and as part of a management team. I’ve been a multiple winner myself. But I’ve never seen them work.
The reason? These contests tend to be won by the same sales rep time after time. The feeling on the team then becomes, “Why should I put the extra effort in? Sam always wins anyway.”
Even if the contest is more competitive with different representatives having a chance to win, if someone gets off to an early lead, others will stop competing if they think the lead is insurmountable.
Either way, the contest that was supposed to create fun and increase motivation has actually done the complete opposite.
Some managers have tried to alleviate this problem by having contests where the top three to five sales representatives all win. In reality, wherever you draw the line, the same issues exist. In this case, you may have created motivation among your top representatives to compete with one another, but what about the rest of your team?
The best contests are those designed to motivate all of your representatives to compete while creating a financial benefit for the company.
Sales Contest Tip #1
Again, speaking from experience, the most motivating and productive sales contests (by a wide margin) are those where everyone on the team can qualify and win.
Here, we’re talking about a qualification target system.
Not only does this keep everyone engaged in the contest longer, it actually produces more sales overall.
Your top producers often end up coaching the other reps on your team, helping to bring your 80% producers to 90%, and your 90% producers to 100%, all while continuing to exceed sales qualification standards themselves.
Impressive, right? But it doesn’t end there. After several sales contests run like this, I’ve seen whole teams begin to sell more on average, even when they’re not running a sales contest.
You may be thinking because you have both senior and junior sales people on your team, a qualification target system like this will not work in your situation.
It’s true that your top producers should have to stretch to reach higher targets than those who are new to the team. However, the system can still work.
All you need is a handicapping system so that qualification is fair for everyone. In fact, you probably already have such a system. It’s called a sales quota.
If your sales quotas are already adjusted based on territory opportunity, experience, or previous sales results, then all you have to do is make qualification a percentage of quota.
For example, everyone who reaches 110% of their quota wins.
If your quotas are the same for everyone, then perhaps your sales contest doesn’t need to be handicapped in the first place.
If you believe your contest must be handicapped to account for the different experience levels on your team, be creative.
Your contest can be based on actual sales for your senior reps, and on the daily sales activities required to generate sales for your junior reps.
You can set targets for a certain number of prospecting calls or fact finding appointments within a given time frame, or you can set a specified number of new customers a salesperson needs to acquire as a qualification.
Remember, where there’s a will, there’s a way.
Sales Contest Mistake #2: Failing for the Win
The second biggest sales contest mistake is not setting the bar high enough — the company actually loses money when a prize is awarded.
The goal of any contest is to make the qualification targets high enough that sales reps have to stretch to reach them, yet low enough that they are both attainable and profitable. But it can be challenging to find that sweet spot.
But you need to remember…
If you haven’t set the qualification bar high enough for you to realize your desired profit, net of all variable expenses, including the cost of goods, sales commissions and the incentive prize, then your sales contest will fail.
After doing the math, you need to have a profit, not a loss:
Desired Profit > Cost of Goods + Sales Commissions + Incentive Prizes
Sales Contest Tip #2
It is worth noting, there is no prize too outrageous or too expensive to offer the winners. The key is to factor in the appropriate profit to make the prize cost effective.
The Sales Contest Target Quota Calculation Worksheet is the automated sales management tool I created to help you do that. (You can find it here.)
In the example shown below, the sales contest prize costs $100,000 per representative. The cost, however, is completely irrelevant as long as the increase in sales produced justifies the expense.
If the sales target is set high enough to pay the cost of the prize, as well as the cost of the goods sold and the resulting commissions, the contest will be profitable.
In this case, if the incremental sales generated is higher than the break-even sales level of $312,500, the contest will have been worth while.
You may be thinking that offering an expensive sales contest prize of $100,000 or more is absurd, but if you work the numbers, these contests do produce results.
For example, I know one business owner who, after calculating the costs and adding a healthy profit for the company, launched a sales contest where he offered a Porsche to anyone on his team who hit their assigned targets.
Did it work?
Five out of the six sales representatives on the team drove away from the sales meeting the following year in their new sports cars!
Another example speaks to a sales manager who, after making his profit and qualification target calculations, offered all-expenses-paid family vacations as the incentive prize for his sales contest.
In this case, not only did every member of the sales team end up soaking up the Caribbean sun in the middle of a Canadian winter (we really enjoyed ourselves too), but the company also made more profits than if they had only offered one prize to one winner.
You may have noticed the Sales Contest Target Quota Calculation Worksheet assumes you know your commission rate as a percentage of your gross margin.
My recommendation has always been to base all compensation paid to sales staff on gross profit — whether it’s their regular pay or a sales contest.
This is especially true for organizations where salespeople are allowed to discount the price of their products.
I have seen it happen on more than one occasion: A salesperson gives a customer such a big discount, the company loses money when they win the sale! Compensating sales representatives on gross profit avoids this. And it ensures you only pay compensation on profitable sales.
Having said that, even though your sales compensation should be based on gross profit, sometimes it’s not desirable to show your gross profit to your sales team. Or perhaps it will be easier, for administration purposes, to show the overall compensation as a percentage of sales.
If this is the case in your situation, and you only know your commission rate as a percentage of sales when designing your sales contest, the Gross Profit Compensation Conversion Worksheet shown below (which is also included in the Sales Contest Target Quota Calculation Tool mentioned earlier) will calculate this for you.
Sales Contest Mistake #3: The Booby Prize Goes To…
The third mistake sales managers often make when creating their sales contest are the prizes themselves. Not the cost of the prizes as discussed earlier, but the actual prize.
The bottom line is if your sales team doesn’t want to win the prize, it doesn’t matter how expensive it is, they won’t push to win it.
Sales Contest Tip #3
When choosing prizes, think about the things that motivate your team.
In our examples, fancy sports cars worked for young singles in a big city, and vacations worked for families with small children. Reverse the two, however, and both sales contests would fail.
Remember, it’s not a matter of the prize that you want to give. It’s a matter of the prize your team wants to earn.
Sometimes a big effort doesn’t require a bigger carrot, just a sweeter one.
I can personally remember pushing hard for that one last sale when it meant my sales manager was going to barbecue us a steak dinner. The same goes for having lunch with the president of the company if we hit our target each month.
When it’s a prize we want, we’ll put in the extra effort to win it.
Sales Contest Mistake #4: A Broken Feedback Loop
The fourth mistake sales managers make when designing their sales contest is they forget to consistently publish the results.
If you only make a big deal about your content when you launch it, but forget to mention it while it’s running, it won’t be as successful as it could be.
In other words, just as the prize is important, so is the way you communicate a representative’s progress towards winning it.
Sales Contest Tip #4
Throughout your contest, publish the results and the progress of everyone on the team, and do so on a set schedule. Put up posters and send out email updates regularly.
One sales manager mailed sunglasses with a handwritten note to the representatives’ spouses when they were getting close to qualifying for that family vacation.
Talk about motivating!
And that’s the point. The more excitement you can generate, the better. In fact, many managers believe that how you communicate about the contest is more important than the prize itself.
When publishing the results, don’t just report how much has been sold so far, but also how much more needs to be sold to qualify.
For example, if a sales representative still needs to sell $21,000 over the next 3 months to qualify for an annual incentive, let him know that he needs to produce an average of $7,000 per month to qualify.
When you break down a large goal into smaller objectives that cover shorter time frames, it is far more likely that the sales representative will achieve them. After all, isn’t that the whole point of your sales incentive contest in the first place?
When a representative does qualify, make a very public announcement about it. Ring a bell in the office, put their picture up on the bulletin board, or send out a company-wide announcement.
It is very motivating to others on the team when they hear of someone who has won. As my sales mentor always reminded me, salespeople often work harder for recognition than they do compensation.
The Bottom Line for Successful Sales Incentive Contests
Sales incentive contests have been, and will continue to be, effective ongoing management tools for the sales managers who run them.
Whatever prize or qualification requirement you decide on for your contest…
- if you make it motivating
- if you make it profitable
- if you communicate the results
… You will have made it successful.