SPIFF or SPIF or SPIV refers to a manufacturer or employer paying a small, immediate bonus for a sale or even a demo to a salesperson. These can be good for your customers if these “paid recommendations” are appropriate and truthful. A SPIFF can be cash or something the salespeople really value or think is "spiffy" like a trip, drone, virtual reality headset or other "have to have" gadget as the reward and motivator.
They can be in addition to a commission. One key difference is that a SPIFF is usually paid quicker than a commission.
What SPIFF Stands For
SPIFF or SPIF is used to increase the success of suggestive selling and can be defined as:
- 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
According to World Wide Words, the term shows up in the 1890’s in the Pall Mall Gazette about London shop girls who used these rewards to pay for the store infractions that they were charged for — being late to work, leaving their station etc. It also shows up in the furniture industry in the 1900's. Restaurant and retailers have used them for a long time. They are used heavily in the home appliance, furniture, and phone industries. It's also common practice in publicly traded companies to use SPIFFs to reduce inventory and lower carrying costs or to get rid of older merchandise.
The Good, Bad, and Ugly About Using a SPIFF
- A SPIFF program can add long-term visibility and name recognition to help a product stand out. It’s a way to encourage a salesperson to push one product more often than a non-SPIFF paid product. It can work miracles for you and cut out competitors. The best example comes from the 1990’s PC Wars days when personal computers were new and salespeople had to be encouraged to demo products. Early Apple and even the well established IBM used a SPIFF incentive to cut out Texas Instruments from potential PC sales.
- When used (as recommended) for short periods of time as incentives, it can drive sales numbers, meeting or exceeding sales goals, or for quick dollar margins. In this case, usually the SPIFF is set up by the manufacturer to reward the salesperson for certain product sales. For instance, the SPIFF could offer $10 on every baseball bat sold over a weekend. At the end of the time, the sales figures are submitted to the manufacturer who sends a check back to the salesperson. If 100 were sold, the SPIFF would be $1000. Nice money! Or it could be for multiple products and the SPIFF could vary: $10 for a bat; $15 for a glove; $20 for a uniform.
- If you're a reseller, it can be a money maker. Just like a “slotting fee” where a manufacturer pays for shelf space, you can demand a SPIFF from the manufacturer so they pay for this "employee benefit" instead of you.
- It can lower your salesperson’s prestige, be questionable or even be considered illegal. The use of a SPIFF can reinforce bad habits, poor behavior, or worse by salespeople. In 2007, the US Department of Justice labeled SPIFFs as kickbacks and illegal — at least for government purchases. The rationale? It can appear to the buyer that the salesperson is unbiased in their recommendation when they really are not. NOTE: Don’t use a SPIFF if you sell to a government or tax-exempt organization unless you want to live dangerously.
- SPIFFs are taxable. 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.
- Fraud issues using a SPIFF Incentive. You 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.
- A SPIFF can be costly. A SPIFF incentive program can add up fast so manufacturers (or the resellers) have to be able to afford the quick “commission”. Unhappy salespeople who don’t get what they are promised and in a timely way can cause real trouble. It can spill over to legal trouble as well.
- You are setting a sales policy and precedent when you use a SPIFF. You’re also showing others how you conduct business.
- You don’t want to lose your reputation and customers over a SPIFF because you can’t get those back easily.
Is a SPIFF incentive 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 not be forced into using one if any of these are true.
Before you use them, think it through. Generating sales is important but are you prepared to set them up and manage a SPIFF correctly? 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 your company and be perceived by others?
Contact the Business Success Center about our Sales Playbook Assessment to see if your business can benefit from this or other sales process improvements.