What is an MBO Bonus, and How Can It Improve Sales Performance?

Sales managers always search for new and innovative ways to motivate their teams. While one of the most obvious ways to incentivize salespeople is by rewarding them for reaching specific sales targets, this isn’t always the best option.

One alternative to traditional incentive plans is offering MBO bonuses. These can be particularly useful when you lack the proper data to measure sales, are trying to motivate non-sales team members, or your salespeople’s efforts won’t immediately result in increases in sales.

When you implement an MBO bonus program for your employees, you’re designing a system where they are rewarded for meeting objectives rather than specifically exceeding sales quotas.

How does an MBO bonus work, and how can it improve sales performance? Let’s take a look at everything you need to know.

What Is an MBO Bonus?

A Management By Objective (MBO) bonus is a reward system that involves rewarding salespeople for meeting specific agreed-upon objectives. While many traditional plans focus on rewarding salespeople for exceeding sales quotas, MBO bonuses are a way to incentivize individuals using measurable goals either in place of or in addition to sales quotas.

When the targets that are set fully align with organizational objectives, this can be an effective way to motivate and retain your sales force.

Setting Sales Team Objectives

With a well-designed MBO bonus program, companies can enjoy an increase in productivity, engagement, accountability, and overall performance. Salespeople are rewarded for meeting or exceeding specific goals, which can help motivate them to strive to perform at their best.

How Can MBO Bonuses Improve Sales Performance?

If you’re interested in improving the performance of your sales team, instituting an MBO bonus program could help you achieve the results you’re looking for.

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Reviewing Sales Team Performance

By creating a clear bridge between the overall goals of your organization and individual sales targets, this type of program can contribute to the overall success of both your sales team and brand.

Increasing Focus and Motivation

When your sales team is given the opportunity to earn a bonus by meeting certain objectives, you’ll find that their motivation and focus will increase. Most, if not all, of your sales team will see that there is a clear benefit for them if they work harder and keep their eye on the ball.

A Focused Team

If you feel it’s difficult to motivate your team to push beyond the bare minimum expectations, this type of program can be a game changer. Sometimes, individuals need to be given some incentives to understand why it is worth striving for higher performance levels.

Providing Goal Clarity

When you set up an MBO bonus program, it means that you are outlining clear and measurable objectives at the individual level, the team level, or both.

Outlining Measurable Sales Goals

By honing in on specific targets, such as customer acquisition, market share, or sales revenue, your sales team will clearly understand what they are trying to achieve. Not only will they fully grasp what is expected of them, but they will also be presented with a clear path they’ll need to follow to earn the bonus.

Requiring Objective Performance Measurement

Even if your sales team is made up of hardworking, driven people who are doing everything they can to perform at their best, there’s a good chance that your organization isn’t thriving as it could if you don’t outline clear, measurable objectives and goals.

The key here is measurable. Having the ability to actually track and measure progress means that managers and salespeople alike can identify areas for improvement and work to continuously move the bar higher.

Tracking and Measuring Sales Team Progress

When salespeople can see the actual numbers that reflect their performance, it can motivate them to keep moving up the ranks and give them the information they need to do so systematically.

Offering Rewards and Recognition

Your sales team can receive tangible recognition and rewards through an MBO bonus program. This gives management a clear formula for when and how to recognize and reward their sales team while also giving the team an understanding of the path they need to take to receive these rewards.

Sales Team Member Being Recognized

Job satisfaction and loyalty can increase when you offer an MBO bonus program and other incentives while also helping to foster a sense of accomplishment among your team. On top of that, it can help build a results-driven sales culture infused with a healthy amount of competitive spirit.

Encouraging Continuous Improvement

When sales teams have a clear sense of the objectives they are working to meet, it provides motivation for them to constantly work to improve their sales techniques and skills. When targets are challenging yet attainable, you’ll find that salespeople are driven to search for opportunities for growth, seek out innovative approaches, and develop new and improved strategies.

Leader Encouraging Continuous Improvement

What this means is that an MBO bonus program doesn’t just have the potential to help your organization succeed and grow in the short term. It also provides opportunities for enhanced sales performance and growth over time.

Would your team benefit from the opportunity to work together toward shared goals in order to receive a generous reward? Check out our guide to group incentive programs.

When to Use an MBO Bonus Program

MBO bonus programs can be an excellent way to motivate your sales team to reach for the stars when it comes to their performance. Beyond that, though, there are specific conditions that are particularly well-suited to this type of incentive program.

For instance, here are some of the circumstances where an MBO bonus program can be highly appropriate and effective:

  • When sales results are impacted by promotional activities such as direct-to-consumer advertising.
  • When data is insufficient or indirect, limiting the ability to accurately measure sales performance at the individual level.
  • When you are trying to incentivize employees in customer-facing, non-sales roles.
  • When the product sales cycle doesn’t conveniently fit within the quarter or even the year.

For example, let’s say a tech company is targeting enterprise customers with its first product launch. In this situation, sales aren’t going to start rolling in right away. In fact, the most likely scenario is that each customer will require multiple quarters before they complete the sales cycle.

A Sales Team

In this type of scenario, the sales team would play a significant role in the launch’s success. At the same time, a traditional incentive plan that is solely focused on sales numbers wouldn’t provide much incentive for the sales force, as their efforts would take longer to pay off than this type of program is designed for.

This is a great example of a situation where an MBO bonus program could be a great option. Salespeople can be rewarded based on achieving measurable targets that help support the growth of the customer base rather than sales numbers specifically.

How to Build a Successful MBO Program

Like any incentive program, a solid foundation is required for success. If you’re interested in building an MBO program, here are the steps you’ll want to take.

Create a Collaborative Workshop

One of the most effective ways to create a successful MBO program begins with involving the entire team. Bringing the managers together with the sales force creates an opportunity to define which objectives should be focused on. This is a great way to help ensure that the objectives meet the sales team’s and management’s needs while also helping the idea gain employee acceptance.

A Collaborative Workshop

It’s common for businesses to hold group sessions each period in order to design and review business plans. If this is already a common practice for your company, you can tack on additional meeting time to create an MBO program. You will likely find that the task of identifying comparable and fair measurements is greatly benefitted by bringing the whole team together.

Determine Which Metrics Will Drive Results

Though MBOs are an appealing option for many companies, it’s important to objectively identify whether or not it’s best for your team. For instance, it’s possible that sales simply might be the best performance measurement for your team. When the actions of sales representatives directly affect results that can clearly measure performance, there’s an argument to go with a more traditional incentive program than an MBO.

Analyzing Sales Team Data

This is because it’s important to design objectives that are as results-oriented as possible. In some cases, sales numbers will be the most measurable factor when it comes to analyzing performance.

Develop Clear and Tangible Objectives

If you’ve decided that an MBO is the right choice for your sales team, developing strong objectives is next. These need to be clear and tangible, easily understood by management and sales representatives alike.

The term objectives can sometimes be used to describe vague and aspirational goals. In the case of MBOs, strong objectives that are concise and concrete are one of the most important factors for success. You can use frameworks like SMART goal setting to help create Smart, Measurable, Attainable, Results-oriented, and Time-bound objectives.

Sales Team Developing Goals

It’s also important not to get too objective-happy when designing your MBO program. A general rule that some incentive plan designers use involves at least ten percent of the total compensation relating to each objective.

Consider Incorporating a Rating Scale

One of the frustrations that can stem from MBO programs is that managers can feel it creates an unmotivated sales team where everyone gets paid the same without enough attention given to individual performance. To help combat this problem, some choose to combine a rating scale with well-designed objectives.

Management Reviewing Sales Team Performance

This allows management to differentiate performance and offer rewards accordingly while still incorporating the previously agreed-upon objectives.

Are you wondering whether the commission system you’ve been using is the right one for your sales team? Make sure you take a look at our list of twelve types of commission structures and how they can impact revenue.

Centralize and Automate

Finally, an absolutely essential part of any incentive program is going to be centralization and automation.

An Automated Spreadsheet Program

For example, if you’re using different systems, spreadsheets, and tech to keep track of your MBO programs, there’s a good chance things will fall apart sooner rather than later. Instead, find a centralized, automated solution that ensures that your rewards programs are uniform, predictable, and reliable.

You can learn more about sales compensation software and how it works in our recent guide.

Best Practices For Offering MBO Bonuses

How successful your MBO bonus program is will depend on how it is designed.

Evaluating Sales Team Performance

Here are some best practices to keep in mind when creating yours:

  • Align the targets you set for your sales team and employees with the overall goals and vision of the organization.
  • Set objectives that are measurable and realistic, outlining clear criteria for receiving rewards and achieving success.
  • Involve your sales team and employees in the objective-setting process to help increase commitment, loyalty, and buy-in.
  • Provide coaching and regular feedback throughout the entirety of the performance cycle to help improve performance and keep your employees on track.
  • Keep the structure for receiving bonuses transparent and simple, so employees understand what they need to do in order to receive rewards, as well as how incentives are calculated.
  • Regularly evaluate the MBO program to determine whether changes need to be made to keep it aligned with the goals and objectives of the organization, in addition to continuously improving sales team and employee performance.

Designing the Right Incentive Program For Your Company

Lots of pre-designed incentive programs out there are created to be one-size-fits-most solutions. The truth is, though, that your company is unique and has needs that likely can’t be met by one of these cookie-cutter programs.

There are countless different ways you can work to motivate your sales team and employees, but not all of them are created equal. You might find that an MBO bonus program is ideal for a period of time before switching to a traditional sales quota-based plan, for example.

A Motivated Sales Team

No matter what your needs are, Level 6 is here to help. A leader in custom programs for nearly twenty years, our world-class team of dedicated professionals focuses on developing employee recognition rewards, salesperson incentives, rebate programs, and customer loyalty programs.

You don’t have to compromise with a run-of-the-mill subscription SaaS model when you work with us. Instead, you’ll be able to have exactly what your business needs using a custom web application.

We are dedicated to providing the best overall value for our full-service incentive programs. For this reason, we created a one-of-a-kind cost estimator calculator you can use to see how our programs can offer you an unbeatable ROI. No matter what your budget is, we offer custom solutions that don’t have to break the bank.

Are you ready to get started designing the perfect incentive program for your business? If so, schedule a call with us today!

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