Part one of a two-article series focused on strategic channel incentives explores the benefits, including better outcomes and increased revenue, of moving beyond a flat SPIFF program.
The practice of balancing profit and incentive payouts can be a tricky business, requiring regular fine tuning. The goal is to motivate program participants to sell more by making the action or behavior of doing so worth the effort, while maintaining a certain profit level on each unit sold.
Situations where a blanket promotion is applied to everyone and every product for a short period of time is the most common scenario we see when clients come to us. In essence, a SPIFF—or a bounty paid out—to increase sales and meet growth goals.
On the surface, a blanket SPIFF promotion often does its job. More units are sold within the budgeted expenses for the promotion.
What many program administrators can’t see so easily is the lost opportunity cost or the wasted dollars. Having experts on staff or contracted in to shed light on blind spots can make all the difference in optimizing spend and performance.
Growing Sales With Fixed Demand
It’s often missed that brands and units sold generally have a fixed demand, unless something drastic is happening in the market. A fixed demand means the only way to sell more is to shift the current amount sold to you.
Selling more to—or shifting brands inside—longtime customers can be a big ask; especially, with an independent audience who can sell a variety of options (that also come with competing incentives rolling out). The request often prompts a question to clients, “How much is it worth to steal market share away from competitors? How much would you pay?”
Below is one example that demonstrates how leaning on the experts in incentive management and rule structures would net an even greater outcome, as well as a new way to think about incentive investments.
Focusing Your Measurements on What Matters
The first thing to do with any incentive review is look at the way the promotion was measured. Historically, promotions are measured by:
- Expense to run the promotion
- Promotion payouts
- Revenue from sold products
Quantitative metrics are easier to measure and track, measuring performance based on data that can be put into numbers. These measures tend to be more related to the end goals of the company, not how those goals will be achieved.
While the above metrics certainly demand attention, ITA Group analysts also like to pay particular attention to:
- Lost opportunity
These measures can highlight specified procedures and touchpoints to abide by during sales, as opposed to just focusing on the results.
Additionally, ample attention should be focused on the behavior happening behind the SPIFF and units sold. When peeling back the data layer to see the people behind the model, start asking questions like:
- Is a widespread product SPIFF going to create the most increase in sales?
- Will the SPIFF motivate everyone? My top performers? My bottom tier? The middle players?
- Am I just paying people more for the same product they would have sold for the normal payout amount?
- Is the increase in payment enough to make a difference and drive increased unit sales? (A cash increase is often a big conversation because it’s so easy to measure the ask against the payout.)
- Will increasing the payment to a higher amount for a short time create behavior change? (Doing so could have an adverse effect by causing a dip in performance when the higher payment returns to normal.)
The power of thinking through incentives to optimize spend, outcome and behavioral elements can lead to better outcomes and increased revenue, while also reflecting an even better ROI on your partner efforts. Something every channel leader and program administrator wants.
Ensuring Your Incentive Program Is Designed With the Future in Mind
It’s unrealistic to think program administrators or channel leaders have the time and capacity to run analysis and optimize each incentive they are operating.
When time and availability are limited, working with a third-party incentive expert can be supremely valuable. Offload program optimization and rule structures to the professionals. Come to the table with goals, metrics and needs, and let us help work the magic behind the scenes to get your objectives accomplished.
Improve overall channel performance (with proof to take back to your team and executives) and secure a happy indirect channel in return.
In the meantime, dive into more channel-related posts and market impacts we’ve seen drastically affect channel programs and their participants. Are you feeling the same realities?