How to move from SPIFFs to incremental sales incentives

When it comes to designing a sales incentive program that uses motivation to encourage positive behavior, a one-size-fits-all approach is impossible. Instead, it’s important to define objectives up front and determine which incentive structures will achieve the best results.

Establishing the baseline scenario

As a starting point, imagine a standard program where sales reps are paid $1 SPIFFs per unit. We refer to this as a base payout. The chart below shows the payouts to expect at different sales unit levels for a single salesperson.

Using a classic “bonus” SPIFF

One of the most common promotions is a “bonus” SPIFF, a straight increase of the base SPIFF.

Let’s say the company in the previous example now decides to pay $2 SPIFFs per unit (an increase of $1) for a set time to drive additional sales. Compare the results below.

With the added $1 SPIFF payout, a salesperson who historically sells 100 units now gets paid $200.

When behavioral analysis is applied:

• Every person is paid $1 more for each unit
• No increased discretionary effort is noted (same performance from most participants)
• Essentially channel partners sell the same number of units for twice the compensation 

When comparing historical product sales with SPIFF sales performance, the data is likely to show the amount spent is greater for the same behavior. Paying more for the same result will not drive desired behaviors or help improve units sold. 

Deciphering the lost opportunity cost is the next step.

Adopting expert recommended incentive structures

Our expert incentive analysts recommend a goal-based incentive structure. Using this structure, the new promotion would look something like this: 

The salesperson sold 100 units last year. Let’s continue the $1 baseline SPIFF and, as an incentive, triple their SPIFF for every additional unit they sell over their historical performance. Instead of $1, add another $2, bringing them all the way up to $3 per unit for everything over 100 units. Now look at the graph.

With the added incentive, the salesperson who historically sold 100 units, now sells 125 units, gets paid $175 and saves you $25 for the additional 25 units. 

When extrapolated across an entire salesforce, a goal-based sales incentive program helps maintain current unit sales while encouraging sales reps to shift demand to your brand. Even if most participants don’t sell more, no additional dollars are wasted to get the desired sales lift.

Let’s examine the investment and incremental units generated at a few different levels (assuming a salesperson normally sells 100 units).

1. 75 units

• Bonus SPIFF structure: Paid $75 in additional SPIFFs, received 25 fewer units compared to prior year
• Goal-based incentive structure: Paid $0 in additional SPIFFs, received 25 fewer units compared to prior year

2. 100 units

• Bonus SPIFF structure: Paid $100 in additional SPIFFs, received the same number of units compared to prior year
• Goal-based incentive structure: Paid $0 in additional SPIFFs, received the same number of units compared to prior year

3. 150 units

• Bonus SPIFF structure: Paid $150 in additional SPIFFs, received 50 additional units compared to prior year
• Goal-based incentive structure: Paid $100 in additional SPIFFs, received 50 additional units compared to prior year

4. 200 units

• Bonus SPIFF structure: Paid $200 in additional SPIFFs, received 100 additional units compared to prior year
• Goal-based incentive structure: Paid $200 in additional SPIFFs, received 100 additional units compared to prior year

The payout style on additional units sold, based on past historical performance, creates excitement and desire to achieve. And that’s the behavior you want to drive.

Every time a salesperson sells an additional unit, they’re rewarded with a “premium,” which makes them want to sell as many additional units as they can while the promotion lasts.

Design principles paired with savvy forecasting and rule setting can help you optimize the investment in your program.

Related: Learn how to put incremental sales incentives in place by focusing on advanced segmentation and adding personalization.

Planning for the best worst-case scenario

Don’t forget to address escalating payments. We must think through what happens if channel reps sell above and beyond a historical number and exceed even reasonable projections. (It’s happened!)

While ROI could go down, the benefit would be increased market share. 

Revisit the idea that demand is fixed in most cases. If the channel sold three times what it normally does—because the goal-based incentive structure created the behavior of selling more units to meet growth metrics—then you just got a ton of sales you didn’t have before. 

How much is it worth to take away those sales from your competitors? To gain mindshare with your partners? 

It still will be a positive ROI—the incentive structure accommodates that. You’ll significantly increase sales and base the budget incrementally off additional profit.

Learn how to build a high-return incentive program that drives desired behaviors in channel partners.

Note: This article is part of a two-part series on strategic channel incentives and moving beyond a flat SPIFF program. Read the first part here.