Wednesday, February 4, 2015

The Magnificent SPIFF

Have you ever wondered about the impact of a SPIFF? (That’s a Sales Performance Incentive Ffund) . Does it really make a material difference to sales performance? Should pre-sales engineers participate in a SPIFF? What happens if you reverse a SPIFF and exclude Sales?

Well – this may not answer all of those questions – but it will lead you to some interesting conclusions. Here are the long-term results of a SPIFF program, paid out by an enterprise software company, over a 7 year period.

Bottom Line Up Front - Here is the Data

SPIFF Design
Product Pull Through
Sales only
1.5x quota credit
Sales only
Sell 500k , get 25k bonus
Sales + SEs
5k/sale ; split 75/25
SE’s only
2.5k / sale
SE’s only
1.25x quota credit
Sales only
1.5x quota credit

 Here is the Background
Every year (from 2007 through 2012) the company had a 2nd quarter special where they incented part or all of the sales team to upgrade existing customers to the latest release – and potentially cross-sell them an additional module. They measured the amount of additional product sold as “product pullthrough” – the last column. As I cannot reveal financials it is expressed as a % of the installed base which is in direct proportion to revenue because of their business model.

There were also three different combinations who had differing opinions about the efficiency and structure of SPIFFs. Those are the three shaded areas.

And The Analysis
By dividing the program into three different periods some factors emerge.

1.       Reps are more motivated by quota credit than a bonus (2007 and 2012 vs 2008)

2.       As soon as you add SE’s to the SPIFF, performance rises quite dramatically from approx. 22% to 35%). That’s comparing 2007/8 to 2009-11.

3.       With just SE’s receiving a SPIFF you get better performance than just Reps, but not as good as the 2009 team-based SPIFF which yielded a 41% pull through.

4.       SPIFFS in general made a difference raising an average 13% pull through with no incentive to 31% with an incentive.

Now you can argue that the product upgrade or module additions may have been better in some years than others, the economy changed, personnel changed – and even that this was an upgrade into an installed base, rather than net new logo sales. All perfectly valid points which are difficult to prove or disprove, but unless you have something better and data to back it up you are arguing emotion versus facts.

And my ultimate point – if you practice team-based selling then you should practice team-based compensation and share the SPIFF. That’s where the revenue is!