Communications and high-tech companies rely heavily on incentives, promotions, rebates, and other pricing mechanisms to shape demand, drive channel partner loyalty, and gain market share. Creating these plans is fairly easy. However, measuring and interpreting incentive performance is a whole different ballgame.
Few companies own all of the tools or examine all the metrics necessary to quantitatively and repeatedly measure the success of an incentives program. Without knowing the parameters of an incentive and collecting a broad measure of its impact and performance, organizations can't determine their incentive program's true return on investment. To get a comprehensive sense of your incentives' impact, employ three traditional metric approaches as well as one approach that looks beyond the typical markers of success.
Traditional approaches to measuring incentive performance include a combination of the following:
- Activity-based metrics: These metrics look for program activity, such as number of claims submitted, number of partners who opted into the incentive program, total volume of incentive claims submitted, and so on.
- Efficiency-based metrics: Efficiency metrics look at how well the company performed in terms of executing the incentive. Many well-designed incentives never deliver on their promise due to poor execution in terms of time to respond to claims, total time from submission to payout, number of escalations, amount accrued, and unclaimed funds.
- Performance-based metrics: While these metrics are the most difficult to measure, some basic performance numbers can be collected, including total number of leads generated, cost per inquiry or lead, total program cost, and more. Isolating the incremental revenue generated outside of all other activities (and market behavior) takes advanced financial modeling that is too difficult, costly, and time-consuming for most organizations.
However, there is one more category that should be considered: supply chain metrics. This metric takes a slightly different spin on the efficiency metrics, in that it looks at the impact of the incentive on both the demand and supply plans. Did the incentive create demand in the expected area or in a different area? Did it create unanticipated inventory buildup? Did your organization incur any operational-related costs that were not part of the initial plan? In calculating the truly burdened cost of an incentive program, many marketing and sales executives fail to account for supply chain-related costs, some of which can dramatically shift an incentive from being a winner to a dud.
Unfortunately, most organizations lack the integrated systems and closed loop processes necessary to create, execute, validate, and analyze incentives in a consistent and quantitative manner. Incentives are often created in one department, executed in another, and analyzed and reported by a third. Worse yet, this silo-based approach is often supported by nothing more than dated spreadsheet-based models that lack the scalability, control, and accuracy to help most organizations.
Instead, best-in-class companies implement a true incentive and revenue management platform that can quickly and accurately collect all incentive-related activity, and reconcile the results against the original offer and deal terms, as well as constraints and forecasts. In this way, these organizations can capture incentive metrics in a consistent manner and use them as the foundation for the creation of future deals, offers, and incentives.