In sales, the best incentives do more than just incentivize. They motivate, catalyze, spur your sales team into action. They ignite a hungry fire within each sales rep that cannot be doused until the target — whatever it may be — has been achieved.
Spiffs are one such type of incentive … but only when used correctly.
In this post, we'll talk about what spiffs are, what makes them so incredibly useful, how you can plan one yourself, and some common but avoidable spiff-related pitfalls.
What is the definition of SPIFF incentive?
A SPIFF (Sales Performance Incentive Fund), also called spif — is an ad hoc sales incentive that is used to generate quick, short-term results. It is similar to a bonus, except that spiffs are usually planned with a specific sales-related goal in mind.
For example, you're a SaaS company with a sales target of 500 subscriptions per quarter. So far in Q1, you've sold 300 subscriptions and have 20 days to sell the remaining 200. An uphill task to say the least. What's worse, your sales team isn't feeling particularly peppy at the moment. Solution? You announce a $1000 cash prize (aka a spiff) for the entire team if the target is met.
As the Business Bank of Texas puts it: A SPIFF can be cash or something the salespeople really value or think is “spiffy" — like a trip, drone, virtual reality headset or other "have to have" gadget as the reward and motivator.
Is a SPIFF a bonus or commission?
A SPIFF is generally a bonus, but it can be an additional commission based on how you structure it. For instance, a company can give a fixed bonus (let's say $2000) for exceeding sales targets. Or a company can give a 5% additional commission for exceeding sales targets.
Read: SPIFF vs. commission - a comparison
Should you budget for SPIFFs?
Spiffs are motivation magnets. Based on your business predictions and previous performance, if you think a SPIFF can come in handy, we suggest allotting a portion of your budget for spiffs. It is a small price to pay to achieve your sales goals
From pushing new products to boosting customer engagement, from shifting product focus to reducing customer churn, a spiff can be just the tool you need when you want something done … and you want it done pronto.
What are the usages of a SPIFF incentive?
Here's how sales managers commonly use SPIFF incentives to reach their sales targets:
Helps you promote new products and services
Launching a new product is always difficult. Most sales reps will desist from selling a new product, especially when their current line is performing well. This is where using a spiff to nudge your sales team towards the new product can prove very effective.
In the same vein, spiffs can also be used to shift product focus. Let's say your company has pivoted to a specific product line and wants to increase sales of that product. Enter spiffs.
Fulfill short-term sales needs
Spiffs are, by nature, designed to help businesses reach sales targets in a short time. A well-designed spiff can be just the way to go if your company wants reps to fulfill their sales quotas for quick pleasure.
A moneymaker for resellers
Spiffs aren't just useful for employee-employer relationships. If yours is a reseller firm, you can demand manufacturers pay spiffs to employees who make the most sales for their products — similar to a slotting fee. This could be a smart idea since you end up saving a ton of money on staff incentives and prizes.
"If you sell through a two tier model, as many vendors do, don't forget to incentivise your distributors as well. In many cases, they hold far closer relationships to your channel partners than your own Channel Business Managers who tend to be aligned to the Tier 1 partners and Rising Starts. If you run a SPIFF for your disties that is aligned to the same goals as the partner SPIFF it will be far more successful" says Sam Rudland, Founder, The Essential Agency
No compromise on your core commission structure
It's never a good idea to tinker with your core commission structure in the middle of the year. One of the best things about spiffs is that you don't need to restructure or tamper with your existing commission plan.
These are just some of the reasons that make spiffs great. As your company grows and you face new challenges, rest assured you will find new and inventive ways to use spiffs.
How to plan spiffs ‘spiffily'
Spiffs take less effort and time than other incentives, but they should be done correctly. When properly designed and managed, spiffs can be extremely useful in improving sales. Below are some steps you can take to build a good spiff program.
Determine your primary objective
Start with deciding what your spiff reward will be used for.
While revenue growth is the ultimate goal, your Spiff incentive will serve one of these three purposes:
- Encourage the selling of a new product or strategy
- Assist in its go-to-market strategy.
- Aim for more success with an existing product.
As we said earlier, there are various other reasons to use spiffs, but the above three are the most common.
Determining the incentives and exact amount
What are the goals your salespeople are aiming for? Money? A paid holiday? A 4-day work week for the next 3 months? Or maybe a gift card?
You need to figure out what reward will really motivate your team. If they are not too excited about the spiff, or unclear about it in the first place, they may not put in the effort you need — and expect — from them.
Ensure easy participation
Determine who is eligible to participate in the SPIFF program.
For the people eligible your spiff program should be easily accessible regardless of bias. You can also have keep your Spiff program completely open for anyone to participate.
Also, do not make it overly complex. For instance, asking for hard copies of sales invoices, making your reps go through multiple approvals to claim rewards, etc., can make life difficult for your reps. You lose motivation points for these roadblocks.
Keep your rewards lucrative. Make your team an offer they can't refuse. That way, even if the claim process is long, there will be no lack of participation.
Decide a timeline
You need to decide your program’s runtime.
Ideally, spiffs work well in shorter periods. They're designed to promote sales in the near term. That said, you and your sales team must be on the same page regarding what "short-term" means in your case.
For instance, if you want your reps to each bring in 75 leads in Q4, choose that quarter as your timeframe and communicate it to them.
Measure success and pay
You must have a clear strategy in place to determine whether the spiff program was successful. For this, it's best to have well-defined KPIs at the outset and measure sales quota attainment. Pick metrics that best meet your sales objectives and use them as a guide for future spiffs. These should be specific, measurable, achievable, relevant, and time-bound (SMART).
For example, you plan to announce $1700 to anyone who brings in 60 leads. Here, you should first measure a rep's performance who has already brought in 60 leads, and refer to his stats before announcing the spiff.
Read: Types of team incentive plans
Potential challenges with spiffs (and their solutions)
Here are some things you should look out for when including SPIFFs in your sales budget.
Insincerity from your sales team
Sometimes, if your sales reps know a spiff will be announced beforehand, they may decide to wait until the program begins to close deals that could have been closed sooner.
An easy solution? Don't let them know about it. That's the only way you can stop them from manipulating the system and intentionally delaying deals.
Too many spiffs can exhaust your budget
Introducing spiffs frequently can have negative effects on profits and cash flow, especially if your business is small. Use spiffs only when you need to grow sales to a level where the cost and returns are balanced.
Toxic work conditions
Spiffs can create a toxic work environment. Since spiffs usually go to one winner, employees who are convinced of their loss might withdraw from the competition as a whole. This type of "all or nothing" mentality causes conflict within the sales team, causing you to lose out on revenue in the bargain.
One way to solve this is to have a prize pool. It doesn't matter who wins, everyone gets something. Only the winner gets the most. For instance, you announced a prize pool of $10,000 to reps who close the most deals. The top 3 will get $1000, $700, and $300, respectively. The remaining amount can be distributed equally among the other reps.
Spiff up your incentive game
In conclusion, spiffs can be a fun side activity while your salespeople compete for the top spot on the leaderboard. As long as spiffs are used wisely, they will have a visible impact on overall sales.
If you think bringing spiffs to the team will help increase employee engagement and sales, make sure you plan ahead of time to address the potential issues we discussed above.
Surprise your reps by not disclosing there is a spiff in play. Hand it out when they least expect it. Then sit back and watch the magic unfold.
Frequently asked questions on SPIFFs
1. Do you pay taxes on Spiff?
Yes, like variable pay or bonus, you should pay tax on Spiffs according to 1099 - MISC.
2. Are SPIFFs illegal?
SPIFFs are legal in the United States of America. SPIFFs should be fully disclosed to all relevant parties. Employers must ensure that SPIFFs comply with federal, state, and local employment laws.
