Part one of this two-article series on strategic channel incentives explores the limitations of flat SPIFF programs and what questions to ask as you evaluate moving to strategic channel incentives. Part two dives deeper into the benefits of strategic channel incentives and how they generate stronger ROI.
Balancing profit and incentive payouts can be a tricky business, requiring regular evaluation and fine tuning. When looking for a blanket promotion for every product over a short time frame to temporarily boost sales, many organizations turn to sales performance incentive funds, or SPIFFs.
In essence, a SPIFF is a bounty paid out to increase sales and meet growth goals. But SPIFFs have limitations on how effective they can be and may not get the results you’re looking for.
Related: Defining the types of incentives
Why SPIFF programs need an upgrade
A blanket SPIFF promotion often appears to do 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 a third-party expert shed light on blind spots can make all the difference when optimizing spend and performance.
Another significant challenge is that most brands and product lines operate within a fixed demand. This means that increasing sales through SPIFFs often just shifts market share from competitors rather than growing the overall market volume.
In highly competitive environments, persuading loyal customers or independent sellers to choose your products—especially when multiple incentives are available—becomes even more difficult. This leads to important questions: What is the true value of gaining market share from competitors, and how much investment is justified to achieve it?
How to optimize your SPIFF program results
Start your incentive review by looking at how the promotion was measured. Historically, metrics include:
- Expense to run the promotion
- Promotion payouts
- Revenue from sold products
- Profit
- Units
Quantitative metrics are easier to track because they measure 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 pay particular attention to:
- Units
- Goals
- Growth
- Lost opportunity
These measures can highlight specified procedures and touchpoints to abide by during sales, as opposed to just focusing on the results.
Frequently asked questions for evaluating SPIFFs
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, ask 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.
Related: Examples of best-in-class channel incentive programs
Why strategic channel incentives are the better alternative to flat SPIFF promotions
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 valuable. Offload program optimization and rule structures to the professionals. Provide your goals, metrics and needs, and we'll share insights you might have otherwise missed to help you reduce costs and achieve your objectives.
Improve overall channel performance (with proof to take back to your team and executives) and secure a happy channel in return.
Want to explore the benefits of shifting to strategic channel incentives? Read part 2 to learn how to move from SPIFFs to incremental sales incentives.