Are SPIFFs a good idea?

by | Sales Comp Answers

The short answer: Sometimes, and probably less often than they are used.

First, what is a SPIFF?

A SPIFF is a short-term incentive usually focused on driving a specific sales result that is needed right now. It probably started as an acronym, but there are at least five compelling answers from experts as to exactly what it stands for – usually something like Sales Performance Incentive FFund (<– that’s not a typo – it’s humor). A typical SPIFF might provide an added x% of sales for all sales in a specific product category in a specific time frame – something like: All sales of SuperNewProduct will be worth an extra 2% of the contract value for all contracts signed this quarter.

SPIFF-ing (and, yes, it’s also a verb) is a great way to get results when…

  • A sales focus priority comes up that could not have been anticipated in the sales comp plan designs
  • The need for focus is short-term (e.g., focus for a quarter or two)
  • It’s important enough to put some meaningful money behind it (maybe as much as 5% of the normal total variable pay budget)
  • It’s not important enough to change the core comp plan mid-year

Typical examples of the right time to SPIFF include

  • New product launches (when the plans are being designed and the goals set, there may not be good clarity about launch timing and total expected sales for the year)
  • Product or service focus in the face of a competitive threat
  • The first few sales of the offering of an acquiree after sales training in the new offering
  • New customer acquisition for a short period of time to change behavior and demonstrate what’s possible to the other reps
  • Targeted customer acquisition, e.g. customers in a specific industry or size category, or…
  • Teams that beat a stretch target for a period (e.g., a quarter).

But beware

Businesses that predictably provide a SPIFF most quarters may inadvertently train their reps to “wait for the SPIFF” – much as we all know to wait for the sales in January to get a better deal on substantial purchases. Your SPIFFs may be undermining your compensation plan’s intended focus, distracting your sales people, and/or creating less value than their cost if…

  • You’re running the same type and value of SPIFF most quarters at quarter-end and /or years at year-end, and have the feeling that “They won’t really turn up the sales unless we SPIFF them”
  • The opportunity for the typical person who earns from the SPIFF is not meaningful, under about 10% of their target incentive
  • The total comp delivered via SPIFFs across those eligible is so high it’s distracting, and we’d call anything over about 20% of total target incentive across the team risky to the sales accountabilities rewarded in the core plan
  • The SPIFF creates a windfall for the salespeople who would have sold the SPIFF’d offering anyway, and is out of reach for others who really don’t have the opportunity to qualify for it, adding cost and creating frustration without really changing behavior
  • You have product/service divisions or business units running their own independent SPIFFs to compete for the attention of the sales force
  • Your outside partners (leasing companies, suppliers of offerings your sales force sells, etc.) are SPIFFing your sales people “outside the plan” to draw focus to their interests without coordination and oversight from you
  • You are using SPIFF money to make up for the fact that your goals are so high that your best sales people will under-earn and you are concerned that there will be retention issues if you don’t offer a SPIFF.

Summary

SPIFFs are a valuable tool in the sales compensation toolkit, but can be mis-used to the point that the SPIFFs seem to be in charge rather than sales management. Excessive SPIFF use is a clear sign that the core comp plan is not working as it should.

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