How to incentivize distributors: what works in medical devices.

Start from the behaviour, not the budget

Write down the three things you need from the distributor this year. Usually a mix of new accounts, more procedures or tests per account, a rep who knows your product, tender wins, and stock where hospitals need it. Then choose incentives that pay for those three things and nothing else.

Volume bonuses alone pay for whatever happened, including orders that would have come anyway. And incentives sit on top of margin. If the base margin does not pay for the work, no bonus fixes it, so get the margin and price right first.

The incentive menu

Do not pay for stock loading

The classic failure: a quarter-end volume bonus, three months of orders in the last week, a bonus paid, and an empty next quarter. Four rules stop it.

• Sell-out data first. Monthly, by account and product. No data, no incentive.
• Pay on sell-out. Rebates and tiers count what reached a customer, not what left your warehouse.
• True up each quarter. Stock above the agreed weeks of cover does not count until it sells.
• Watch stock cover monthly. It belongs on the distributor scorecard.

Rep-level focus, within the rules

A distributor's reps carry many lines, and their week follows their own commission plan, not your contract. Ask how they are paid for your line. Where it fits, fund a time-limited launch bonus for them, paid through the distributor with its agreement. Give demo kits, shared leads and case support only to reps who passed your product training.

Then the limits. Nothing may pass to healthcare professionals: no gifts, no trips, no share of a rebate. Write that into the agreement.

• Anti-bribery laws reach payments made through third parties. The UK Bribery Act says it does not matter whether an advantage is given directly or through a third party. US authorities have treated staff of state-owned hospitals as foreign officials under the Foreign Corrupt Practices Act.
• For US sales, the federal Anti-Kickback Statute makes it a crime to knowingly and wilfully pay anything of value to induce or reward purchases of items paid for by federal health care programmes such as Medicare and Medicaid.
• MedTech Europe expects its members' dealings with distributors and other intermediaries to meet standards equivalent to its Code of Ethical Business Practice. Name the code that applies to you in the agreement.

General information, not legal advice. Local law varies; take local counsel before you launch an incentive programme.

Levers that cost little

Distributors rank principals partly by how easy they are to work with. Fast answers on price approvals and tender documents. Marketing material in the local language. Loaners and spare parts on time. Territory protection you actually enforce. A named contact who calls every week. These often move more than a bonus.

A one-page incentive plan

1. Base: price list and margin, agreed and fixed for the year.
2. Three behaviours, each with one measure.
3. One incentive per behaviour: rate, cap and when it is paid.
4. Data: sell-out by account, every month.
5. Conditions: compliance clause, nothing to healthcare professionals, true-up rule.
6. Your commitments: demo stock, training dates, response times.
7. Review: results and payouts in every quarterly business review.

Worked example: a dental implant system

A maker of dental implants signs a distributor in Israel, where the Index lists 119 independent distributors with dental devices on record. The figures are an example, not a benchmark.

Its three behaviours are new clinics, implants per clinic, and certified reps. The plan pays a fixed bonus for each new clinic that places a second order within 90 days, so a trial box does not count. A growth rebate pays on sell-out above target, settled quarterly after the stock true-up. Demo kits and website leads go only to reps who pass the product test. The maker pays nothing for orders the distributor would have won anyway.

Common mistakes

• Paying on sell-in.
• Changing the scheme every quarter, until reps stop believing it.
• Rebates too complex to work out. If the distributor cannot calculate its rebate on a napkin, it will not change what it does.
• Using a bonus to cover a margin that is too thin.
• No compliance clause, and no idea where the money ends up.

If incentives have not moved a distributor in two or three quarters, the problem is usually fit, not money: see replacing an underperforming distributor.