The Unspoken Difference Between a SPIFF & Sales Commission

August 22, 2022
Diya Mathur
Diya Mathur
Diya Mathur
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There is a difference in the way companies approach short-term goals and long-term goals!

Especially while determining incentives, the time duration of the targets has a major impact on it. The simple reason is that the purpose of it is different.

Organizations apply different variable pay for different purposes. That's why there are bonuses, SPIFF, commissions, and many more. 

These play unique and effective roles in the salesperson’s job, motivation, focus, and satisfaction. 

Let's understand how with the purpose and time duration of the goals, incentive calculation also varies. 

Scroll down for me. 

What is a SPIF

SPIF in sales stands for special performance incentive fund. It is a short-term incentive that is spontaneously rewarded to sales reps to ensure their competent performance in a short period of time. 

What is a Sales Commission

Sales commissions are the long-term incentive program that is rewarded only on a quarterly or monthly basis upon achieving the sales quotas. 

It follows a proper incentive program structure where an amount is kept aside in the budget for sales compensation, sales quotas, and incentive compensation plan according to the company objectives, and the sales reps are expected to achieve their quota to become eligible for sales commissions. 

Sales Commission: Advantages and Disadvantages

The fundamental distinctions between sales commissions and SPIFs have now been demonstrated. Starting with the advantages and disadvantages of sales commission, let's think about them in further depth.

The following are some benefits of sales commissions:

Encourages performance

Performance is encouraged by sales commissions. To put it another way, you will pay your reps according to their performance. Therefore, you won't overpay sales representatives who don't generate any revenue and will only compensate those who perform successfully.

Better Morale

You'll raise the general morale of your sales teams when your sales reps are aware of what they will be able to earn and that their work is valued. This in turn has a big effect on their motivation and performance.

Retain top talent

Implementing a commission-only sales reps model can further amplify the benefits of a competitive commission structure. By offering sales professionals the opportunity to earn directly based on their performance, businesses can attract highly motivated individuals who thrive on the potential for unlimited earnings. This approach not only aligns the interests of salespeople with the company's revenue goals but also fosters a driven and results-oriented sales team that is not only more likely to achieve quotas but also contribute to a culture of excellence and retention of top talent.

Simplifies the management of costs

If you use a commission-based compensation structure, you may only pay your salespeople when they generate sales and achieve their goals. You'll also cut back on the costs of the salespeople who don't perform well. Sales commission, therefore, makes it simpler for you to control your payroll costs.

Improves performance and motivation

Your salespeople will work harder when you implement a sales commission-based pay plan because they will be motivated by the potential earnings they will receive for exceeding their quotas. As a result, you'll inspire workers and boost their output, which directly affects your bottom line.

And here are a few drawbacks to the sales commission, including:

Competition

Although competition might help your salespeople be more motivated and perform better, unhealthily competitive environments can have the opposite impact. As a result, it could create a toxic workplace that lowers motivation and productivity. Fortunately, this may be minimized with a thoughtful compensation strategy.

Less Security

Understandably, sales representatives have less security under commission-based remuneration arrangements than they do under fixed salaries. Fortunately, you may allay their worries by employing the proper fixed-to-variable compensation ratio, which lowers the level of risk associated with employment.

Difficult to handle

For small sales teams, managing the sales commission may be rather simple. It gets much more difficult, though, as the number of salespeople and commission arrangements rise. As a result, managing compensation plans that include sales commissions can be difficult, but utilizing a sales commission calculator can streamline the process and ensure accuracy.

SPIFs: Advantages and Disadvantages

Advantages of SPIFs

Similar to sales commissions, SPIFs have several benefits and drawbacks.

The advantages of incorporating SPIF in sales are:

Gaining new clients

Your sales staff may be highly successful at bringing in new clients or prospects since a SPIF program can assist them in focusing on short-term objectives. A SPIF, for instance, can assist you if you wish to launch a new product in a new market. However, keep in mind that while SPIFs might be useful for this, your sales plan shouldn't be built around them.

Attaining short-term sales objectives

SPIFs are a very successful tactic when trying to meet short-term sales targets. These might range from boosting the success of the introduction of a new product to meeting short-term revenue goals.

Increasing worker involvement

Employee involvement may significantly enhance the productivity, drive, and morale of sales reps. Simply, reps will perform better when they are more motivated. Despite this, many companies have trouble maintaining employee engagement. SPIFs can increase sales rep engagement by providing short-term rewards, which helps them reach their targets.

Providing incentives more quickly

SPIF sales incentive programs enable reps to be paid out more quickly because they give short-term benefits and aren't a regular element of your representatives' remuneration. As a result, they don't have to wait until the end of the month or the end of the quarter to find out if they've fulfilled their quotas and whether they'll get paid. As a result, this might maintain their motivation and spirit.

The places where SPIF has drawbacks are:

Possibility of deceit

The fact that SPIF sales incentives might encourage dishonest behavior among sales representatives is one of its key drawbacks. For instance, salespeople may hold back on sales if they are aware of an impending SPIF to increase their earnings during that time. They could also market incorrect items to inappropriate clients to boost sales, which is another issue. This not only jeopardizes customer satisfaction but also negatively impacts customer retention metrics, ultimately resulting in a loss of income.

Implementation is difficult

Because SPIFs are geared toward quick results, it may be difficult to design and implement them effectively. If they are not implemented correctly, certain reps may not qualify. It can also happen that SPIFs may not be granted properly, or money may not be available to reward reps when they are due. Eventually leading to a loss of motivation and morale. 

Possibly pricey

Although SPIFs might be useful to increase short-term sales or accomplish other objectives, you should only employ them seldom. If you don't, it will counteract where it is expensive while not fulfilling the purpose of engagement and drive.

Unhealthy rivalry

Competition can spur sales representatives to improve, as was already indicated. Unhealthy competition, however, can produce a negative work atmosphere that lowers morale, motivation, and output. Usually, this occurs when your SPIF prefers some reps over others or when there can be only one winner.

Factors To Consider When Implementing Sales Commissions and SPIF

Sales Commissions
  • Company Objectives

SPIF and sales commissions are eventually rewards that are given to employees for successfully achieving their goals and targets. So the first question is what are your company’s objectives for the year?

Companies must first set their objectives straight. They must have clarity as to what their goals are and how they strive to achieve them. Determining what their short-term and long-term goals are, helps make better use of SPIF and sales commission. 

Having a roadmap to growth helps better prepare the workforce for successfully achieving their quotas and effectively using the incentive program for positive results. 

  • Financial Clarity

At the end of the day, incentive compensation is about financial management. Sales commissions are a planned incentive program where the management by objectives is clear; these are the sales targets, and these targets define the probable incentives each employee is entitled to.

But SPIF are spontaneous rewards that once promised have to be given and can be given only when the budget has sufficient funds for such unexpected payments. Hence, managers must have financial clarity on whether they will be able to give the promised amount without creating a constraint on the existing budget.  

Sales compensation management is a crucial part of sales. Be it a short-term sales achievement or long-term sales that require consistent effort, the motivation and drive that incentives and rewards give employees is immense.

Hence, the management must create an environment where employees are clear about the incentive calculation and have transparency in the way it is calculated. Clarity and transparency are key to bringing a healthy work environment. 

Automation of incentive compensation management is an inevitable part of improving the integrity of company operations. 

Kennect runs your compensation programs in cruise mode to achieve operational efficiency. For more info, Book A Demo NOW and discover how our sales commission tool can streamline your incentive compensation management!"

Author

Diya Mathur

Diya is a Product Marketing Associate and content writer specializing in Incentive Compensation Automation. Diya has honed her ability to bridge the gap between intricate software functionalities and accessible, reader-friendly content. Her articles are a testament to her dedication to breaking down intricate SaaS solutions into digestible insights that cater to both tech-savvy professionals and those new to the software landscape.

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sales-coaching

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