Do BD Incentives Work?
Business Development (BD) is a critical part of your strategy for growing your business and reaching new revenue levels. BD is all about creating and then converting opportunities.
But the question is, if you have people on your team with a BD component to their role - how do you incentivise them to perform better, and also, what’s the best way to remunerate them?
If you’re thinking about offering them an incentive based remuneration model, I want you to think through the whole process first and consider the pros & cons – before you offer this to them.
There are always upsides and downsides to every incentive based remuneration model, so finding the best model for incentivising your BD team is crucial. It can prevent issues and challenges down the track and more importantly prevent poor culture & loss of staff (worst case).
The main model that most would be familiar with is rewarding your BD person or team with a certain percentage of the new deals that they bring in. However, there are several flaws in this model which can lead to demotivating your BD personnel, but even more so, take a toll on your revenue and profit levels as well as leading to staff clashes, cultural issues and people leaving.
Imagine a situation where you’ve got two BD team members. One has consistent success in bringing in & closing new deals & new clients that are not of a substantial dollar value, but they get delivered really well and you keep making a good profit on them. The other team member brings in huge clients and huge deals, but delivers them poorly and you make very small profit margins on these projects, or even worse - you make a loss.
I know which I’d rather – consistently good profit on smaller projects, rather than big projects that make small margins or even a loss.
Let’s consider the remuneration of these two employees now. The BD person that is bringing in the smaller projects will get a smaller amount of money for his/her efforts. You could be making tons of profit on them, but just because the project value is not as high, this employee will be at a disadvantage.
The other BD employee that secures those high-end deals for your business that do not make the best profit, or make no profit at all, will be rewarded with larger bonuses.
I’m sure you can already see what potential problems arise from this kind of incentive model.
The first employee will slowly become less interested because they will feel they’re not compensated enough for the work they do & the profit they’re making. The second employee will be extremely motivated to keep bringing in big projects, but not incentivised at all to deliver them efficiently.
This is why the remuneration model based on revenue or project size alone is inherently flawed.
So, yes, you’d be increasing your revenue, but you wouldn’t be increasing your profits or team and business performance – and potentially creating a poor culture in the process.
That’s why I recommend considering an incentive model based on profit share. Remunerate your BD team with a percentage of the profit their projects make.
The principle is very simple - whatever profit they make from the projects they bring in and deliver, a percentage of profit goes to that person.
This model is not only fair to all your BD employees, but it also motivates them to actually deliver the projects properly. Which results in a better overall outcome for your business, your team and your clients.
So, profit share incentive models are way more effective and sustainable that an incentive model based on work won. The incentive model you choose for your BD team members has to boost and enhance team motivation & performance - not hinder it. So, make sure you choose the model that will do exactly that for you and your business.
If you’d like to learn more, please take a look at my most recent podcast episode on this exact topic:
Click here for the podcast episode.
Click here to watch the video.
Josh ‘BD Incentive Models’ Stone
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