SPIFFs are silly.
Nobody could explain the second ‘F’ to us, so we’re dropping it.
SPIFs are what happens when sales management throws money at dipping revenue and failing product lines. They ‘work’ in pretty much the same way that reducing SKUs to wholesale prices works to clear out the warehouse. They shift products, but do they make any money?
When designed and executed correctly, SPIFs go from a “Hail Mary” based on a hunch to a reliable tool for combating seasonable variability and unfavorable market conditions.
Here’s how we help our Fortune 500 partners create SPIFs that work any time and every time.
The Problem with SPIFs
You’re probably here because you realize that SPIFs don’t quite work, but to best understand how to make them work for you, it’s helpful to define the problems first.
1. They’re planned reactively
More often than not, SPIFs are a knee-jerk reaction to changing dynamics within the organization or marketplace. They’re a formalized way to throw money at a general sales problem (not enough sales) in the hope of achieving a general outcome (more sales).SPIF(F)s are a knee-jerk reaction to changing marketplace dynamics. They're a formalized way to throw money at a general sales problem. #sales #spiffs #strategy Click To Tweet
Reactivity is risky by nature. The financial dangers of mistiming or mis-planning a SPIF are genuine. A poorly planned SPIF could result in over or under-indexing the intended result, driving the wrong outcomes; or worse, distracting and detracting from the behaviors your core incentive plan is supposed to be driving.
2. Most SPIFs are poorly implemented
Their reactive nature means SPIFs are often calculated outside of core sales compensation processes — adding financial risk and ‘analysis blindness’ to the mix.
You need weeks — not days — to plan, execute and implement SPIF into most ICM solutions. Most organizations simply don’t have the time to do it on top of day-to-day operations. That’s why SPIFs are administered using spreadsheets, even when the organization has sales compensation “automation” software.
3. Limited visibility limits their impact
Executing SPIFs on spreadsheets is the accounting equivalent of flying blind, inviting bad sales habits, and even fraud.
“SPIFs have a significantly greater impact when sales reps can track their performance in real-time and see clearly what they must do next to earn more.”Kyle Webster, VP Customer Ops. — Forma.ai
Worse, it affects the impact the SPIF incentives have on your sales teams. Most SPIFs are paid out at the end of the promotion, and until then, the sales representatives have almost no idea how much they’ve made from it. That’s a huge missed opportunity to motivate sales reps.
4. They can’t be audited or analyzed afterward
Unsurprisingly, when you’re calculating the payout for a few hundred employees on a spreadsheet, you don’t have much room for error. There typically isn’t time for auditing and analysis either.
It’s challenging enough to administer the SPIF, let alone analyze its impact and tie it into fixed compensation plan results in anything more than a cursory way.
The limitations of technology are often to blame for the disconnected and reactive nature of SPIFs. But technology has evolved, and so should your SPIF program.
How to Design a SPIF Program That Works
Forma.ai loves sparkling clean, harmonious data for a reason: it makes designing complex, overlapping, pre-emptive and reactive incentive plans possible.
We use the following model to regularly drive significant (and measurable) ROI for our enterprise partners’ SPIF programs.
1. Validate and analyze historical data
The first step is to ensure your data is valid and aligned across departments. When you can get clean, accurate data about your cyclical sales periods and SPIFs that are proven to work, you can use short-term incentives to drive predictable, measurable increases in sales on specific product lines.
2. Proactively plan SPIFs
Failure to plan is planning to fail. SPIFs that can be designed in advance should be — in detail — during annual planning and forecasting.
“The design of SPIFs needs to be done with the same care and attention as the overall compensation plan.”Justin Lane, VP Professional Services — Forma.ai
Run multiple SPIFs throughout the year. Think of your SPIF program as an incentive promotions roadmap that corresponds to critical milestones, seasonal variability, or market opportunities throughout the year.
3. Align SPIFs to wider organizational goals
SPIFs are a great way to reinforce broader sales organization initiatives, such as supporting a promotional pricing period for a critical product.
When you have transactional data you can rely on, it’s even possible to accurately forecast how much revenue SPIFs for new products will create.
4. Allocate a specific budget relative to the overall compensation budget
Miscalculating the cost of a SPIF can quickly leave you without enough funds to support the intended outcomes.
An organization’s annual SPIF budget shouldn’t exceed 5% of its incentive program budget
Source: Forma.ai (2021)
The benefit of an integrated SPIF planning process is that you identify most of the SPIFs that will be rolled out during the year and can allocate the budget and model accruals forecasts accordingly.
5. Always assess the impact
Once the SPIF is over, assess how well the SPIF performed against objectives. This seems like an obvious step but, as mentioned earlier, most SPIFs are implemented with a mess of manual calculations that are haphazardly analyzed and audited.
6. Test and experiment
As your organization becomes more advanced at handling its sales data and predicting the impact even of reactive SPIFs, you can begin to experiment with different SPIF incentives and scenarios.
The Secret to Creating SPIFs That Work
It’s not so much a secret as a challenge. Before you start, you need aligned data sources and clean data. From there, you need to implement processes and software that can handle both styles of SPIFs: proactive and spontaneous.
Most large organizations struggle because of ‘dirty’ data and the limits of their sales compensation automation software.
Forma.ai has spent years perfecting the data processing and automation of incentive compensation precisely because we know that most contemporary compensation solutions aren’t up to the task of a truly modern, agile, high-octane sales organization.
To learn more about how to create SPIFs that work, download our free SPIFs guide below or book a call with one of our sales compensation specialists here.