How to Calculate Incentive Award Program ROI

Do It Yourself Incentive Programs

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How to Calculate Return on Investment (ROI) – The Numbers Game

Regardless of the quality of your incentive award program or plan, there is a key element that must be carefully considered and mapped out – the return on investment (ROI). Certainly the improved morale, increased level of competition, and overall employee or customer goodwill are all direct benefits of any incentive award program. But how can you ensure that the program will not end up costing you more than its worth?

The answer? A properly planned and structured campaign that accounts for not only what you’ll gain from the program, but also what you’ll need to spend to implement the program. If you can clearly define your return on investment - delineating costs, results, and benefits - then you will have successfully accomplished a major portion of your plan.

How Does ROI Work?

Essentially, you’ll be dealing with one of two types of programs – measurable or immeasurable. Once you determine which type of program you’ll be implementing, you can easily calculate the return on investment.

Measurable

These programs are funded from bottom line cost savings or incremental sales that are generated by the incentive award program. On average, most companies strive to invest 5-10% of incremental sales, or bottom line cost savings, to cover the total cost of the incentive award program. Total costs include; communication, administration, and of course, the awards. The key is to allocate a large portion of this budget on the awards (75-80%) then divide the remaining portion for administration and communication.

Immeasurable

You may have come up with a great incentive program but the ROI is difficult to determine with concrete numbers. A good example of this type of program is a “years of service” award as well as any program not involving sales. And since you won’t be generating revenue or measurable cost savings through a program like this, the mathematics become a little more ambiguous.

The formula to follow in this type of scenario is to divide the participant’s/recipient’s annual salary by the number of months the program is running. Then determine your payout rate based on the following suggested percentages:

6-8% of participant income for shorter programs (1-5 months)

3-5% of participant income for longer programs (6-24 months)

Coming up with clear, concise figures will go a long way in selling your incentive award program and garnering approval from the executive element in your company.

Incentives Marketplace is a performance improvement company devoted to providing clients with a single source for high quality, affordable incentives designed to achieve business goals.

Contact us today with your specific needs and put our incentive programs and experienced staff to work for you! Call 800-934-5474 or send e-mail to: Info@IncentivesMarketplace.com.