Is a SPIFF Incentive Program Right for Your Business?

by Nichole Gunn VP of Marketing

A SPIFF (Sales Performance Incentive Fund Formula) is a type of promotion strategy in which one party (typically a product manufacturer) offers a small, instant bonus to salespeople to increase sales, usually of a specific product. SPIFFs can help you move products through your sales channel, yes, but you should use them mindfully due to the ethical questions associated with them. Because they carry the risk of appearing as bribes, you should take careful measures to ensure your SPIFs encourage salespeople to recommend your products based on quality and trust, not merely the desire to earn perks. You should also be aware of tax laws and potential abuse associated with SPIF programs.

Before you leap head-first into a SPIFFs initiative, take some time to weigh the advantages and disadvantages. Consult the advice of incentive companies that specialize in incentives for sales channel and supply chain businesses. These experts can help you devise the best incentive-based B2B sales strategies for your company.

In this article, we’ll take a look at both the benefits and possible downsides of SPIFF incentives. First, let’s start with the positive:

Sales Success with SPIFFs

SPIFFs are usually given out by manufacturers as a way of decreasing inventory, lowering carrying costs or getting rid of old merchandise to make room for newer products. The practice also benefits B2B partners like distributors and contractors, giving them an extra bonus for their efforts. Buyers, too, appreciate being informed about SPIFF products and services when those products and services suit their needs.

The personal computer industry is a good example of a business that benefited greatly from SPIFF selling techniques. Because Apple and IBM offered salespeople SPIFF incentives to demo their products, salespeople were motivated to sell and ultimately Apple and IBM PCs caught on with the general public. Comparatively, the Texas Instruments (TI) personal computer line—which did not incorporate SPIFs in their sales—failed despite having notable features, such as being the first computer with a 16-bit processor. Although SPIFFs may seem like a minor sales technique with little impact, they can make a big difference in overall sales when used correctly.

Best Practices to Avoid SPIFF Pitfalls

Now let’s look at the potential downsides of using SPIF sales methods.

Remember that, when you instate a SPIFFs incentive, it sets a precedent for your brand and how you do business. Competitors and B2B partners alike will judge you based on your sales policies, so make sure you’re receiving good advice from industry experts.

Use Only for a Limited Time

It is recommended that SPIFFs be used only in short bursts to quickly move specific products or cause a spike in profit margins. Afterward, use an accumulative, long term incentive plan such as an online reward program in which salespeople can earn points, then exchange those points for non-cash rewards. You don’t want to earn a reputation as the company who consistently pays salespeople to push out your brand, as it can seem like salespeople are promoting you because of perks, not because your products and services are high-quality.

Be Aware of Tax Laws

As a manufacturer, be aware that resellers can prompt you for SPIFF incentives, which you pay for as an “employee benefit.” According to the IRS, SPIFFs are incentive pay, which falls under the rules for 1099 MISC Commission, so you should take care to track and report all SPIFFs to avoid any tax-related penalties or fraud.

Look Out for Misuse of SPIFFs

Abuse of your SPIFF incentives is, unfortunately, always a possibility. For instance, a Florida woman was able to access former employees’ pre-paid debit cards in her company’s SPIFF program. She changed the pin numbers and address of each card to route billing statements to her own address, then made online transfer payments from her company’s bank accounts to the debit cards, which she used for numerous personal purchases. Make sure you have a trustworthy auditing system in place. Incentive Solutions, for instance, offers a Performance Tracking module that can audit sales claims data based on product type, serial numbers, date of delivery, and host of other verification variables.

You stand to gain quick profits from SPIFFs. They are useful as brief energizers for stale, slow sales. You must take measures to combat the negative impact SPIFFs can have, though. Ask yourself if you can set up SPIFF incentives in a way that reflects positively on your brand and your sales policies. Do your research, solicit input from your salespeople and B2B partners and consult incentive experts to find out if SPIFFs are right for your company.