If you’ve been in the sales industry for more than five minutes, then you’ve heard the term “SPIF,” or Special Purpose Incentive Fund. SPIFs are a commonly used incentive that can help engage and motivate reps around a specific initiative over a short period of time. However, it can be difficult to determine when and how to use them effectively.
Sales plans are often created up to six months in advance of a new year. There is a large amount of information that is missing when designing these sales plans, including the all-important end-of-year numbers. Ideally, you would have this forecasted accurately, but plans made off of incomplete information will have gaps where expected product, territory, and rep performance will be different than expected. SPIFs are excellent at filling in these gaps by redirecting attention toward goals the sales plan originally anticipated. However, SPIFs will lose effectiveness if used incorrectly. So to help you get the most out of this incentive, here is everything you need to know to use SPIFs successfully.
When is the best time to use a SPIF?
SPIFs are intended to be used as a short-term incentive tool that supplements areas not adequately covered in the core sales compensation plan. For example, you might use a SPIF to motivate reps to sell to new customers or product types that might require a larger time investment.
However, if SPIFs are used too often or for too long, they can easily distract from the core compensation plan. SPIFs work best when they are implemented for less than a full plan year. If they are longer, they can be confused and perceived as if part of the main incentive plan and draw focus away from your overarching strategic initiatives. This is especially dangerous if departments other than sales are implementing the SPIF and can unintentionally create a situation where sales priorities are shifted because incentives are driving the wrong behaviors.
It's also important to consider the reason for creating a SPIF. Our Xactly Strategic Services team is not new to helping customers design SPIFs, and we've heard several different ideas around using them, including:
- “We are light in the midwest. It looks like we should have a SPIF."
- “What will our spring SPIF look like?”
- And my favorite...“We need a SPIF to get the reps motivated.”
In all of these cases, a SPIF is not the solution. Merely aiming to have a fast start to Q1 sales or boost performance in general should not be addressed with a SPIF. Rather, if you're consistently seeing low performance, it could indicate your incentives are driving the wrong sales behaviors or another underlying problem with your core compensation plan. In that case, having an outside expert like the Xactly Strategic Services team examine your plans can be helpful.
To use SPIFs effectively, you should have a specific short-term goal in mind that is not part of your existing plan. For example, wanting to increase user event registrations, drive sales during a new product launch, or increase sales of product X to customer type of A in timeframe Y would be an ideal situation to implement a SPIF.
SPIF Best Practices
There are several factors that play into the success of a SPIF. First and foremost, timing of SPIFs is critical, and fewer targeted SPIFs with shorter durations are more effective than several in place at once for a long period of time. Here are some SPIF best practices to consider during your planning. Ultimately a strategic SPIF should:
- Not Push Reps Away From Your Overarching Plan: A SPIF should not distract from your main sales compensation plan, which was designed to drive the overall strategy of the company. Therefore, no more than 10% of a rep’s total pay should be derived from a SPIF. In general, no core plan measure should pay below 15% to 20% of total pay, so a SPIF will have a lower overall emphasis.
- Focus on Simplicity: The strongest SPIFs are short-term and simple. The higher the level of simplicity, the more effective they are. Do not over-engineer the design. As a result, this will reduce the administrative complexity as well.
- Be Clear and Concise: The more targeted a SPIF is and the less duplicative it is of other incentives, the more effective it will be. A SPIF should fill a gap that is not covered in the core plan.
- Consider the ROI: Finally, a well-designed SPIF will have a good rate of return. The sales generated from it should be valuable enough for everyone in your organization to want to earn it. Therefore, something like a ‘winner takes all’ mechanic is not appropriate.
4 SPIFs Mistakes to Avoid
While SPIFs are an effective incentive, they need to be implemented correctly in order to be successful. Aside from distracting from the core comp plan, here are some common SPIF mistakes you should avoid as well as some personal examples where I've seen SPIFs go wrong:
1. Using SPIFs Too Frequently (and Predictably)
If you use SPIFs frequently and around the same time each quarter or year, reps will pick up on the pattern. In the worst case scenario, reps will expect them and start ‘timing’ sales to take advantage of the opportunity for extra earnings. We recently worked with a manufacturing company where both reps and customers knew that contests would come during the lighter summer period. While reps may not have much influence to speed deals up, they can be olympic athletes at slowing them down. Reps and customers would time deals every year when they knew the contests would run as customers knew they would get the best pricing, and reps knew that they would get the highest payouts.
2. Not Cross-referencing Your Core Compensation Plan
Too many SPIFs will increase the cost of sales, as all too often the company ends up paying more for sales than they would have gotten anyway. When I ran the Sales Operations team for a large multi-national enterprise, I would receive requests to approve SPIFs that would simply pay more for sales covered by the core compensation plan (e.g., all Q1 sales pay X% more). I would always ask, “will the reps suddenly choose to put in more sales effort because we are throwing more money at them? What were they doing before that core plan wasn’t motivating enough?” All too often, when SPIFs are designed like this, the company is simply paying more for sales they would have already gotten.
3. Implementing Too Many SPIFs
Reps can become indifferent to SPIFs if there are too many of them. In interviews with the sales reps at a company we recently worked with, we consistently heard that salespeople who missed payouts under one SPIF program fully expected to receive a SPIF payout under a forthcoming program. This attitude completely hindered SPIF effectiveness and created the expectation of higher payouts than the core plan offered.
4. Not Briefing Your Compensation Team First
Finally, too many SPIFs are an administrative burden. They are often designed to include some reps after a minimum level is achieved or if a combination of products are sold. These complex rules are often needed due to budgetary restraints or the need to establish a high ROI to get approval. However, this increases the level of complexity in administration, which was designed for the core comp plan and not for alternative rules often put in place for the SPIFs.
Drive More Success with Your Sales Compensation Plans
Ultimately, no sales incentive plan survives intact through the first quarter. Realistically, you should be continuously analyzing and optimizing planning so you can make strategic decisions and pivot before problems arise. As part of your compensation, SPIFs are a valuable tool to adjust sales behavior and can provide a boost in performance at the opportune moment. Leveraging best practices will make them more effective and ultimately, generate better results.
Interested in learning more ways to improve your sales compensation planning? Download our "Ultimate Guide to Sales Compensation Planning."