You might hear your sales leader ask for a budget to run a SPIFF. Or perhaps you are looking for a way to motivate a sluggish sales team during a slow month.
SPIFF stands for Sales Performance Incentive Fund. Some people also refer to it as a Sales Performance Incentive Formula. Regardless of the exact wording, the concept remains the same.
It is a short-term, immediate financial bonus paid to salespeople for selling a specific product, service, or feature.
In a startup environment, you are often building the plane while flying it. Your compensation plans might not be perfect yet. A SPIFF allows you to inject energy into the team without permanently restructuring your commission model.
It is a tactical lever. It is not a strategy.
The Mechanics of the Incentive
#A SPIFF is designed to drive a very specific behavior over a short period.
Most sales compensation is annualized or quarterly. It rewards consistent performance. A SPIFF rewards a sprint.
The reward is usually cash. However, it can also be:
- Gift cards
- Physical prizes
- Experiences or trips
- Paid time off
The key is immediacy. The sales rep closes the deal for the specific item on Tuesday and sees the extra money or prize shortly thereafter. This creates a tight feedback loop between the action and the reward.
Comparing SPIFFs to Commission
#Founders often confuse these two concepts. It is vital to keep them distinct in your financial planning and culture.
Commission is part of the employee’s core compensation package. It is contractual, predictable, and tied to overall revenue generation. It is the marathon pace your team runs every day to hit the annual revenue target.
SPIFFs are temporary. They are tied to a campaign.
Think of it this way:
- Commission ensures the rep hits their quota.
- SPIFFs ensure the rep focuses on what the business needs right now.
If you have a new feature that customers are ignoring, commission might not be enough to get reps to pitch it. It takes time to learn a new pitch. It is easier to sell the old stuff. A SPIFF pays them for the extra effort of learning and pitching the new feature.
When to Deploy and the Risks Involved
#You should not run SPIFFs all the time. If everything is special, nothing is special.
Common scenarios for startups include:
- Product Launches: To incentivize the team to learn and pitch a new SKU.
- Clearing Inventory: If you hold physical stock, you might pay a bonus to move older units.
- Short-term Cash Flow: If the company needs to close cash quickly before a fundraising round or quarter end.
However, you must consider the unintended consequences.
Does a SPIFF encourage your team to sell a product to a customer who does not need it?
If you pay a high bonus for a specific software add-on, will your reps force that add-on into deals where it provides no value, leading to churn later?
There is also the risk of conditioning. If you run a SPIFF at the end of every quarter, your sales team may sandbag deals. They might hold back signed contracts until the bonus is announced.
You have to ask yourself if the short-term lift in metrics is worth the potential distortion of your sales culture.