Can SPIFFS generate sales? Yes, but. They may be somewhat questionable ethically since it can appear to a potential customer that a salesperson is unbiased in their recommendation when they really are not.
SPIFF or SPIF or SPIV refers to the practice of paying a small, immediate bonus for a sale to a salesperson. It’s a way to encourage a salesperson to push one product more often than a non-SPIFF paid product. It’s usually paid to the employee by the manufacturer whose products are recommended or by their employer.
Good & Bad SPIFFs
SPIFFs are common practice in publicly traded companies to reduce inventory and lower carrying costs or to get rid of older merchandise. It’s often used as part of a “suggestive selling” program which does increase sales. SPIFF programs are used heavily in the home appliance, furniture, and phone industry. It’s also a common restaurant and retail practice. Customers can benefit too when these recommendations are appropriate.
They can be good for business but they can also be questionable or even illegal. In 2007, the US Department of Justice labeled SPIFFs as kickbacks and illegal — at least for government purchases.
History of SPIFFs
SPIFFs were used very successfully in the early days of personal computers when there were computer stores. They helped launch Apple to the general public and kept IBM going strong. These companies gave salespeople SPIFF incentives to demo their computers. The lack of an incentive (other than product quality) certainly had a negative impact on the well-engineered but short-lived TI personal computer.
The term may have originated in the furniture industry in the 1900’s. The origin of the name SPIFF or SPIF is unclear but the letters may stand for:
- 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 Best Practices
You are setting a sales policy and precedent that others will use to judge how you do business.
When using SPIFFS, top recommendations are to use them for short periods of time as incentives to drive units or quick dollar margins. Then, 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. Be prepared to track and report them.
Fraud & SPIFFs
You do also have to watch out for fraud or misuse of the 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.
Are they right for your business? They may be common practice in your industry. The use of SPIFFs 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 your SPIFF programs correctly? The Business Success Center has a Sales Playbook Assessment you might want to complete to see if you’re ready for this complex sales technique.
(This article is from the ebook, Sales to Go, part of the BOSS (Business Ownership Success System) series. Available currently as a pdf only. Please contact us about purchasing your copy.)