Unsurprisingly, the first thing people want to know about starting up an incentive program is this: how much does it cost? The short answer is, “it all depends.” The long answer? Well, consider this article the long answer. We can’t tell you exactly how to establish your incentive program budget until we spend a little time researching your business needs, but we can lead you to having a better idea of how you should create and manage your incentive program budget by providing this six-step, pre-game plan.

1. Make sure goals are dictating your incentive program budget.

Incentives are all about goals, and different goals have different costs. Would you expect to give your toddler a $500 reward for eating his peas? No, but you might offer a reward of that value to your teenager for working hard to make the honor roll at the end of the year. But even if you have a big, ambitious goal in mind, you can save yourself from overspending by being very specific about those goals. Know exactly what you want to accomplish in advance, so you know exactly where to invest your money.

2. Analyze your incentive program audience.

Your participant audience can have a big influence over your incentive program budget. After all, incentive rewards won’t work if you don’t offer participants something that lights a fire under them.

Is your participant base large and diverse? Then you should probably considering offering rewards—online merchandise rewards or debit or gift cards, for example—that can please everyone without losing their novelty.

Do you have a young, trendy participant base who’d be dazzled by merchandise or travel rewards, or would they prefer to receive something more pragmatic, like debit and gift card rewards? The type of performers or customers in your participant audience is important.

Today’s online reward program technology allows you to segment your participant groups so you can invest more in top performers and your most loyal customers, while still keeping your middle-majority performers motivated with different rewards and incentive plans.If you have a specific idea of who you’re rewarding and how, you’ll develop a better understanding of how to budget for your incentive program.

3. Identify the type and purpose of your incentive program.

The program’s purpose should play a large role in your incentive program budget. Here are three examples of common incentive program types:

• Short-Term Sales Incentives
  Do you want to want to quickly push out sales of a new, improved or little-known product? Then you want a reward system that encourages immediacy. Easy-to-earn pay-outs like debit and gift card rewards or “low hanging fruit” online merchandise rewards (such as movie tickets, Redbox, books, music, etc.) can earn ROI quickly. If you brand your card rewards, you get the added benefit of brand reinforcement and recognition.
• Sales Employee Motivation and Engagement
  For a sales motivation program that builds a better company culture, more engaged salespeople and more efficient practices over time, you can take inspiration from employee engagement programs—organizations budget an average of 2% of payroll budget on these programs, according to WorldatWork research. The results are slower than short-term sales promotion incentives, but they can have a big impact in the long-term.
• VIP Sales Performers and B2B Customers
  You’ll invest more time and money in bigger incentive rewards like group travel incentives, but the pay-off is a higher, long-tail ROI. Participants of a travel incentive program will become more motivated, top salespeople and/or more loyal sales channel It’s smart to invest a little more in a larger incentive program aimed at your VIP salespeople or most loyal B2B customers. As reported by Harvard Business Review, “Acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”

4. Choose the best incentives cost plan and billing model for your needs.

The costs included in your incentive program budget are:

• The cost of rewards
  You can expect to pay for travel incentives as well as debit and gift card rewards upfront, but what about points based online rewards programs, where participants collect digital points then redeem them for items in an online rewards catalog?When you pay for pay points based online rewards, some incentive companies offer the option of paying for points as they’re issued (ie., you pay for points as you issue them to participants) or redemption (ie., you pay for points only when participants spend them). The big draw of issuance billing is that you pay for rewards all at once, up front. With redemption billing, you don’t have to worry about the liability of unredeemed points. If points aren’t redeemed, you don’t pay for them.
• The cost of incentive technology and setup
  When it comes to paying for the incentive platform you use, there are typically two options: fixed cost or variable. Fixed-cost means you pay for all the technology and tools you need up-front.Often, incentive companies require variable billing, in which they pay programmers or technology companies to custom code your program, which can get costly but will result in a platform that has everything you need.Pre-programmed, “out of the box” incentive software is another option, but you could end up with just the basics and not enough customizable or personalization features to entice your participants.Some companies, like Incentive Solutions, offer their own unique costing. You pay a fixed cost for a basic package, which includes everything you need to reward, communicate with, and market to participants, along with program-enhancing modules with pre-programmed features you can add as needed.
• The monthly cost of incentive program maintenance and/or services
  Monthly incentive program services costs include services like reward fulfillment, customer support and creative/marketing work. Usually, the more people there are in your participant base, the more you can expect to pay for these services. That’s why many incentive companies—Extu included—offer subscription-based monthly costs based on participant group size. In other words, incentive programs with fewer participants pay less than those with more participants.As you budget for your incentive program and choose the right incentives provider, keep all the above billing options in mind, as choosing the right billing model will allow you to pay as little upfront as possible, only spending on your program when it’s successful.

5. Find out if you can get buy-in for your channel incentives.

Don’t forget incentive programs are often, essentially, marketing tools. If you’re in a sales channel, you have a great opportunity to work with your vendors who might help sponsor your incentive program. Ultimately, you all have the same goal of selling more products. Offer vendors special promotions for joining the program—for example, customers earn 2XS the online reward points if they purchase a select brand or product.

Think about others who could stand to benefit from your incentive program’s success, not just your customers, sales employees or channel sales partners. Think outside the box! You could join or develop a coalition, partner with non-competing and/or complementary companies or brands, for example. Don’t be afraid of inviting them to buy in. This could shrink your incentive program costs even while the program gains higher ROI due to greater participation!

6. Study your incentive program reports and analytics.

You’ll learn something new about your business and its goals every time you run an incentive program of any kind. Maybe the people you thought were your worst performers have a lot of potential and room to grow if you just invest in them with a few training incentives. Or maybe your top distributors work with you much more closely and cooperatively after you attend a group travel incentive trip to an Ireland golf resort together.

Keep your goals specific so you can track them easily and accurately. By setting aside time to study analytics and reports from your incentive program, you can better understand your KPIs so that. Over time, you’ll invest only in the incentive ideas and strategies that work best for your business. That means your program will be more lucrative, but your spending on it will decrease.

At the end of the day, incentive programs are like most business endeavors: you get out of them what you put in. If you spend time and effort planning for your program, your incentive program budget will take up less time and resources.

Still have questions about your incentive program budget? Fill out our contact form or call us at 866.567.7432 and let us know how we can help!