Paying Out Third-Party Rewards

One of the most effective types of incentive programs that we’ve seen involves working with channel partners such as third-party dealers and distributors. Why? Well, influencing the behavior of independent sales representatives with traditional means tends to present all sorts of difficulties. They’re not your employees, and you’re not cutting their paychecks. Why should they listen to you? What reason would they have to steer potential customers toward your product rather than your competitor’s?

That’s where incentive rewards come in. With the right incentive program in place, we’ve seen companies liquidate inventory, grow sales by more than 20% per year, and more. A well-designed and properly implemented incentive program has the power to outperform virtually every other form of marketing or sales strategy out there.

But, there’s one major thing that you’ll need to address when it comes to incentivizing these independent sales reps. How do you actually issue their rewards?

That may sound like a strange question, but it’s actually of paramount importance that you consider it now. There are essentially two options here. On the one hand, you can just issue incentives to business owners or dealer principals and allow them to further distribute the rewards to employees individually. Alternatively, you can issue the rewards directly to each of the third-party salespeople on your own. Both approaches come with their own advantages and disadvantages. Let’s take a look at each of them in turn.

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Paying Incentives to Business Owners or Dealer Principals

Your first option involves issuing rewards directly to the owner of the business, or to the dealer principal in charge of a number of individual locations.

The advantage here is primarily logistical. Rather than having to deal with dozens (or thousands) of individual sales reps on your own, you can simply issue rewards to the person in charge of supervising those individual salespeople. This can cut down on some hassle on your end, as it means that you can likely reduce the number of individual customer support inquiries you receive. You may also be able to simplify the amount of paperwork that you have to process, although that depends on the bookkeeping practices of the dealer in question and how helpful they are when it comes to coordinating.

While this may sound attractive, there’s a major disadvantage that can spell disaster for your whole incentive program. Simply put, what happens if the people in charge never actually distribute those rewards to their employees?

This isn’t purely a question of conscience. Sure, it’s possible that the dealer principal or business owner might opt to keep the rewards for themselves. But it doesn’t have to be as nefarious as that. People are busy, and there’s a chance that the business owner in question might forget to distribute the rewards in question. Or, maybe they’ll make a mistake and fail to issue some of them. Maybe an employee will only get a fraction of what they were owed.

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The specifics aren’t that important here. More relevant for our purposes is the end result, which is ultimately the same in every case. At the end of the day, paying out incentive rewards to a dealer principal or business owner could potentially result in independent salespeople failing to receive them. And if that happens, the effectiveness of your incentive program is going to be severely limited.

Issuing Rewards Directly to Salespeople

Rather than running the risk outlined above, a much safer option is to issue rewards directly to the salespeople who have earned them. When you do this, you completely bypass the dealer principal or business owner. That means that there’s no risk of the salespeople missing out on the rewards they deserve.

The only real disadvantage to this approach is the added logistical complications that are involved. As outlined in the previous  article on incentives and taxes, you’ll likely have to issue 1099-MISC forms to independent salespeople when they earn rewards. This involves the collection, processing, and storage of a lot of data, not to mention a ton of extra paperwork. If you’re working with a good incentive provider, that shouldn’t be a problem. If you’re trying to handle everything on your own, though, it’s worth considering the extra work that will come along with taking this approach.

On the flip side, the advantage of paying out incentives directly to salespeople actually goes beyond simply guaranteeing that they receive their rewards. Consider the fact that by issuing rewards to dealer principals or business owners, you’re potentially missing out on the opportunity to create brand affinity in the salesperson recipient. If they’re getting their reward from their employer, there’s a good chance that they’ll simply associate all of the positive things about that reward with their employer rather than with your company. When you issue rewards directly to salespeople, though, they make the connection right away between the reward and your brand. And considering that they’re on the front line, dealing directly with customers each and every day, creating brand affinity with independent salespeople is extremely valuable to your long-term sales goals.

Recipient Conflict

Let’s assume that you attempt to pay salespeople cash rewards directly, as described above. Unfortunately, you may occasionally face backlash from some of the business owners at your channel partners. Why? Well, they may look at your incentive program as a means to interfering with their standard compensation plan. If you’re incentivizing their salespeople, you’re swaying their behavior (by design) and impacting the products they sell. It’s possible your program may interfere with an owner’s goals. You’re also allowing them to earn more money, which strangely enough can offend certain business owners.

When and if this backlash occurs, we normally recommend the following methods to overcome these objections. First, explain calmly that your incentive program is 100% optional. Nobody is forcing anybody to participate. (Your opt-in forms should clearly state the optional nature of the program as well). If this doesn’t work, and the backlash becomes more widespread, create a one-time dealership opt-in form for each location. This includes a physical or digital signature of the business owner, and affirms their approval for their reps to participate. The communication also should reiterate that these funds will not be dispersed in any other fashion, no discounts, rebates to the dealer, etc. From experience, even when business owners occasionally object, they’ll ultimately relent and allow their team to participate, especially when it’s clearly stated that the funds aren’t available in any alternative forms.


With this  detail accounted for, it’s time to think about launching your first incentive program. In the Program Launch & Rollout article, we’ll touch on some of the most important things you’ll need to consider when it comes time for rollout.



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