Are SPIFFs the Right Sales Tool for Your Business

July 25, 2013

SPIFF or SPIF or SPIV refers to the practice of paying a small, immediate bonus for a sale to a salesperson. It's usually paid by a manufacturer or employer. It’s a way to encourage a salesperson to push one product more often than a non-SPIFF paid product.

It can be good for business but it can also be questionable or even illegal because it can appear that the salesperson is unbiased in their recommendation when they really are not. In 2007, the US Department of Justice labeled SPIFFs as kickbacks and illegal — at least for government purchases.

What SPIFF Stands For

SPIFF or SPIF is used to mean any one of a number of concepts:

  • Sales Performance Incentive Funding Formula
  • Sales Performance Incentive Fund
  • Special Performance Incentive Fund
  • Specific Price Incentive For Final Sale
  • Special Pay Incentives For Fast Sales
  • Sales Persons Incentive For Fun

SPIFF History & Current Industry Usage

The term may have originated in the furniture industry in the 1900's. SPIFFs were used very successfully in the early days of personal computers when there were computer stores. Incentives given by the manufacturers launched Apple, increased sales for IBM and the lack of SPIFFs hastened the demise of the short-lived, but well engineered TI personal computer.

SPIFFs are often used as part of “suggestive selling” programs which do increase sales and provide a monetary incentive to the salesperson. Restaurant and retailers use them, too. They are used heavily in the home appliance, furniture, and phone industries. It's common practice in publicly traded companies to use SPIFFs to reduce inventory and lower carrying costs or to get rid of older merchandise.

How to Use SPIFFs Effectively

Customers can benefit too if these recommendations are appropriate.

When using SPIFFS, top recommendations are to use them for short periods of time as incentives to drive units or quick dollar margins and use cash or something the salespeople really value or think is "spiffy" like an iphone or "have to have" gadget as the reward.

If you're a reseller, you can demand them from the manufacturer and let them pay for this "employee benefit" instead of you. The IRS considers them incentive pay so they do fall under the rules for 1099 MISC Commission. You have to be prepared to track and report them.

You are setting a sales policy and precedent. You’re also showing others how you conduct business. You don’t want to lose your reputation over SPIFFs because you can’t get that back.

SPIFFs and Fraud

You do also have to watch out for fraud or misuse of your SPIFF program. One case in Florida involved the use of pre-paid debit cards that had been given to employees as a "Sales Persons Incentive for Fun". This employee took possession of cards of former employees, altered their pin numbers, and changed the billing addresses so that debit card statements would be sent to her home address. She then made hundreds of on-line transfer payments from the company's bank accounts to numerous debit cards that she used to make personal expenditures.

Worth Checking Out

These come from Wikipedia:

  • Andris A. Zoltners, Prabhakant Sinha, Sally E. Lorimer (2008) The Complete Guide to Sales Force Incentive Compensation, Amacom ISBN 0814473245
  • F. Caldierero & A. T. Coughlan (2007) Marketing Science 26 (1) pp 31-51 "Spiffed-up channels: The role of spiffs in hierarchical selling organizations"

Be Prepared

Are SPIFFs right for your business? They may be common practice in your industry. The use of a SPIFF program may even be the accepted way of doing business in countries you sell to or want to sell to. It can be hard to prevent it happening when any of these are true. In the end, unless you're in government contracting, it's a matter of ethics and perception. How do you want your salespeople to perceive you and be perceived by others?

Before you use them, think it through. Generating sales is important but are you prepared to set them up and manage SPIFFs correctly? Contact the Business Success Center about our Sales Playbook Assessment you might want to complete to see if you’re ready for this complex sales technique.

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Topics: Sales & Marketing, Content Type

Jan Triplett

Business Success Center

Jan Triplett, Ph.D. is the CEO of the Business Success Center (BSC), a City of Austin certified green business, that provides sales and financial growth strategies, planning, and implementation. She is also a professor in Business and Professional Skills for the online MBA program at Mary Baldwin University. Triplett is a national and international speaker, author of A Networker’s Guide to Success and co-author of Thinking Big, Staying Small and Easy to be Green. She published The Networker ” magazine for over ten years and moderated KUT radio’s nationally syndicated program, “The Next 200 Years”. She was co-creator of the award-winning “City Management Academy” and the “Owners MBA” and co-founded the Entrepreneurs’ Association Hatchery incubator and accelerator. She is a small business activist. She served as a White House Conference on Small Business and Congressional Summit delegate, served on the Mayor’s Task Force on International Infrastructure, initiated the Northcross IBIZ District and recommended portions of Austin’s Big Box Ordinance. She was a founder of the Women’s Chamber of Commerce of Texas and the Greater Austin International Coalition. The SBA honored her as Texas’ Small Business Advocate. She has also earned her CBTAC and Director credentials. Her company received a Small Business Administration (SBA) five-star national award and the Austin Business Journal named it a top 20 management consulting firm.
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