Sales SPIFs: Everything You Need to Know
If you’ve just started in sales or sales operations, you’ve probably heard the word “spiff” or “spif” thrown around and wondered what it means.
This blog post will explore what it means to have a sales SPIF and why sales leaders use them.
What does SPIF stand for in sales?
So, what does SPIF mean?
“SPIF” is a backronym for “Sales Performance Incentive Fund.” A Sales Performance Incentive Fund is a short-term incentive or bonus for a sale that companies use to improve sales performance. These could be cash bonuses, prizes, gift cards, or a boost to regular commission payments.
Where does the word SPIFF come from?
“SPIF” derives from the acronym “Sales Performance Improvement Fund.” You may have seen it with an additional “F,” and some people have even devised funny ways to make that “F” fit. These are all “backronyms,” where the words are made to fit the letters.
There is a real word — spiffs — that is associated with SPIFs.
According to an article on Wikipedia, the acronym originates back to a term used to describe “The percentage allowed by drapers to their young men when they affect the sale of old fashioned or undesirable stock.”
In a mid-19th century copy of the Pall Mall Gazette, an article mentions that spiffs were a secret code used on labels that told sales reps to push underperforming products on customers as the “most fashionable (spiffy)” accessory.
The next reference to ‘spiffs’ is in a London newspaper forty years later, where it is again used to indicate a tactic used for clearing stock.
Why do sales leaders use SPIFs?
Sales leaders create a sales SPIFs strategy to motivate sales reps. These incentives can come in various forms, such as an immediate reward for completing a sales objective or something general for the team to provide motivation and fun during a sales lull. There are numerous reasons to use SPIFs:
1. Spiffs incentivize engagement
Employee disengagement is a genuine concern for many businesses. Keeping employees invested and efficient can be difficult, but SPIFs are one way to address this issue.
2. Increase market visibility and brand recognition
A SPIF program is a great way to keep a specific product or product line at the forefront of salespeople’s minds and outshine competitors.
“Sales Performance Incentive Fund” is the modern term born out of Dell’s program to cut out competitors. Back in the 1990s, Apple and IBM used SPIFs to cut each other out from potential PC customers.
3. To push sales or contract renewals forward
SPIFs are helpful to motivate reps to push deals down the pipeline and make progress when a quarterly or annual deadline is nearing and even during the off-season when sales take a yearly slump.
4. To support a new product or service launch
Creating a successful launch for a new product or service is critical. SPIFs can encourage sales reps to offer customers new products or services they may not have done otherwise.
5. To boost poor sales figures
SPIFs are most often implemented to help push meet or exceed flagging sales goals; a last-ditch attempt to reach the numbers, often regardless of cost.
However, adequately planned SPIFs are a great way to push your sales team’s performance by incorporating short-term incentives into their long-term compensation plan.
Why Most Sales SPIFs Fail
Every experienced sales manager has a couple of ‘secret sauce’ sales SPIFs in their back pocket for when numbers take a dip.
The logic is sound. More cash = more motivated reps = more sales. Unfortunately, real life isn’t that simple. When closely analyzed, short-term sales incentive programs often show poor returns and significant missed revenue opportunities.
These are the problems that reduce the impact of most sales SPIFs.
1. SPIFs are (almost) always planned reactively
Naturally, most SPIFs are introduced in reaction to unforeseen dynamics in the marketplace or within the organization. But when SPIFs are reactive, they’re less likely to be well thought through and often have a negative long-term effect.
With little time to plan and organize, you risk implementing a SPIF that does more harm than good.
Mistiming sales incentive programs or poorly planning their execution could drive the wrong outcomes, or worse, distract your team from the bigger picture. What’s meant to improve your team’s performance may end up driving behaviors that go against the goals of your primary incentive plan.
The best time for an organization to plan SPIFs is during the planning phase of the budgeting process. That allows you to use data from past years to create relevant incentives that motivate your sales representatives.
Look back on previous SPIFs to identify any that are seasonal or periodic and could be planned. Introduce those SPIFs into annual compensation planning and budget.
If you must be reactive, establish a repeatable process for introducing the SPIFs to mitigate the risks of moving fast.
2. Most SPIFs are poorly implemented
The reactive nature of most SPIFs means these tools often get calculated outside the core sales compensation processes, which adds an element of financial risk and “analysis blindness.”
Most organizations are so busy with day-to-day operations that they don’t have the time to plan SPIFs and integrate them into the broader compensation solution.When sales SPIFs are implemented with spreadsheets, the result is a vague commission problem that's difficult to administer and analyze. #sales #spiffs #incentives Click To Tweet
Moreover, most sales compensation platforms aren’t up to the task of SPIFs. They don’t give you the ability to quickly and easily create a customized plan for your sales team. That’s why many companies end up planning SPIFs in spreadsheets — even if they have an established sales compensation solution.
When SPIFs are implemented using spreadsheets, they are often not integrated into the sales compensation plan. The result is a vague bonus program that’s difficult to administer and analyze.
The best companies will have a sales performance and incentive compensation platform that has the power to quickly create customized SPIF plans with built-in compliance and control features.
3. Limited visibility limits the impact of SPIFs
Managing your SPIFs in spreadsheets can make or break how effectively it can motivate your sales team.
When reps can’t easily see how they’re progressing toward the SPIF bonus, they won’t be continuously motivated to pursue it. Since SPIFs are typically paid out at the end of a set period, most reps won’t find out how much progress they’ve made toward the goal until the end of the promotion.
Of course, a SPIF program without visibility results in sales reps spending time creating their own spreadsheets to track progress (shadow accounting) instead of pursuing leads and closing deals.
4. It’s hard to prevent them from being abused
There are other dangers to executing SPIFs in spreadsheets, primarily the lack of oversight that could potentially invite fraud.
One Florida case involved the use of pre-paid debit cards for a so-called “Sales Person’s Incentive For Fun” program (these acronyms are getting out of control). The employee in question was able to change the billing address and PINs of employees’ cards.If your sales reps can't see, track, or keep tabs on a SPIF, was it ever worth creating in the first place? #sales #spif Click To Tweet
5. ROI can’t be attributed
To accurately measure the ROI of SPIFs, you would need at least two control groups: one with SPIFs and another without SPIFs that are very similar in terms of geography, demographics, and product mix.
If, for example, your company has been struggling with sales and you introduce a short-term incentive to motivate the team in one region of the country but not another in similar economic conditions, it could be difficult to determine what caused the change.
If there is only one control group, then it’s possible to calculate ROI. However, ROI could be attributed to several factors that affect sales volume across time or geographic regions.
- competition from other brands
- localized economic cycles
- laws and regulations
- changing consumer preferences
- a competitor’s new product
That makes it almost impossible to measure the ROI of SPIFs accurately, meaning companies struggle to understand what works and what doesn’t. That’s where the experience and gut feeling of sales managers come into play.
Now, technology has evolved, and we can perform incredibly complex tests on cross-sections of a large employee base, to truly determine what drives sales. To find out more about how we do that, speak to one of our sales compensation experts.
“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
How to Plan Sales SPIFs That Work Every Time
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.
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.
Before we start, we should mention these three SPIF best practices:
- Allocate 3-7% of the total incentive budget to SPIFs.
- Plan to run two to three SPIFs per year.
- Ensure that they do not confuse your reps or divert attention away from the strategic objectives of the core compensation plan.
The importance of ensuring you are following those three best practices at all times cannot be understated.
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.
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.
“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
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.
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.
The questions we want to be able to ask are: Was the SPIF worth it? Did it produce better results than no SPIF at all? How many reps took advantage of the SPIF and increased their earnings?
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.
7. Record outcomes and template best-performing SPIFs
Although it’s hard to predict which products will miss sales targets, a framework for SPIFs can be created based on past offers and pre-built into the ICM. Historical SPIFs can be used to model the potential impact of the SPIF using the most current data.
To save time, create a library of successful SPIFs, particularly seasonal ones that repeat, instead of rewriting the book every year. Include frameworks and best practices that can be customized as needed, as well as other important information related to SPIF management. This way, you can quickly launch SPIFs throughout the year when needed.
Build out the more common and successful SPIFs while giving yourself the flexibility to change and build on them throughout the year.
8. Standardize and systematize SPIF rollouts
Planning for the rollout and execution of your SPIFs is as important as building out a library of SPIF templates. Standardize the structure of your rollouts and assess the needs of the business with sales leadership and top performers. Gather qualitative and quantitative feedback from reps to coach them on how to take advantage of SPIFs and ensure the whole team benefits.
The Secret to Creating SPIFs That Work
This isn’t 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 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 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 experts here.