Think When and How Not What to Drive Spiff Effectiveness
by Steve Murphy
The good news from our recent Reseller Survey is that spiffs continue to be an acceptable business practice in most reseller organizations although some do require management approval for their sales reps. That certainly shouldn’t surprise anyone as the chief complaint about spiffs from VAR management is that they are not aligned to their business objectives. Meanwhile, the biggest complaint about spiffs from the partner sales team’s perspective is that the process is too complex – forms need to be simplified and/or eliminated.
WHAT’S THE POINT
For years we’ve heard the arguments, pro & con, for cash or cash equivalents vs. points-based ‘loyalty’ rewards and vice verse. Most of our survey repsondents, for their part, saw no difference. Many spiff program designers, semmingly, are infatuated with the latest, greatest item or tchotchke – as if a rewarding an iPad for a new deal would drive better results than a Surface Pro or vice verse (sorry Apple). We all like buzz. But choice is the only sustainable reward strategy for determining what is the right reward. Perhaps that’s why prepaid debit cards became the reward of choice (pun intended) for so many tech vendor spiffs. They may be old school but they give the recipient the choice of how to spend their reward.
The search for the perfect incentive is older than the tech industry itself; in our view the pursuit is the wrong one.
But, here’s a thought – what if we spent as much effort focused on ‘when’ rather than ‘what’ in thinking about the optimal spiff/reward incentives? And what if equal effort were spent to improve on ‘how’ spiff/rewards were earned, claimed, authorized and fulfilled? Competitive advantage is much more likely found by focusing on speed and ease of use than the perfect prize.
Let’s start with why run a spiff in the first place? Well, presumably, it’s to drive incremental sales – and, often, with an eye toward this quarter’s revenue. And, perhaps it’s also because they are an effective means to capture the attention of and promote deeper engagement with partners’ sales teams. That’s great.
But are sales spiffs tied only to the closed sale with an end-customer the best way to accomplish that goal? For most companies, they are simply the easiest to design, communicate and manage while satisfying the CFO that you’re only paying for performance. But how do you know you’re not paying for sales that you’d be getting anyway? And are you really driving engagement or capturing mindshare when you need it – during the sales process, not after?
IT’S ABOUT TIME TO THINK ABOUT WHEN
The motivational impact of any reward or spiff diminishes with the length of time between the desired behavior – connecting a customer with your solution during the buying process and promoting your solution throughout that process – and recognizing that behavior. Beyond simply acknowledging the behavior, actually receiving the reward further cements the reinforcement aspect.
What happens when a sales rep pitches a vendor product or solution in May, closes the deal in November and receives a spiff reward in January? Does he or she go the extra mile for you with other customers in between? The longer the time gap – the lower the motivational impact. Just ask any reseller about the challenge of keeping sales reps motivated when their commissions are received only after customer pays an invoice.
But there’s an opportunity to leverage the motivation gap by shifting spiffs from closed sales to approved opportunities. Doing so improves a vendor’s pipeline visibility and rewards desired behaviors and it can be done in conjunction with a spiff for achieving the desired outcome (closed deals)
To pay for such a shift, start with a simple calculation to re-allocate a budget for a closed-sale spiff (100%), for example, to one for an approved registration (25%) and another closed-sale (75%). So, rather than offering $1,000 for a closed deal > $50K, that $1,000 might be allocated to reward $100 for an approved registration and reward $750 for the closed sale.
Assuming a close ratio of 40% for approved registrations, the actual spiff cost per closed deal in the example is the same — $1,000. But in this case the partner sales reps received $100 approved registration spiff long before the close and likely well before partners’ commission kicks in. In short, if you’re the vendor – you’ve got their attention!
Beyond engaging the partner sales team, there are other benefits created that do not occur with a closed sale spiff:
- Vendors gets earlier pipeline visibility
- Partners can be assured that the spiffs are aligned to their business objectives – it’s in their pipeline report!
HOW ABOUT MAKING IT EASIER AND FASTER AS WELL
If closing the gap between desired behavior and receiving tangible reinforcement, there’s another piece to the when storyline: really it is more about how.
In our view, one of the biggest and often overlooked challenges with spiffs is that they can distract vendors from a course of making it easier to do business for their partners. They often create a lot of administrative burden for channel teams and partners’ sales teams alike. So, how can spiffs be improved operationally?
First, if the rewards are based on registered deal activity in the vendor’s CRM, the first step is to streamline or eliminate the claims process for the partner sales rep who gets a qualifying opportunity approved. Most companies still require a spiff claim to be submitted along with proof of performance and that is then verified and approved to initiate the reward fulfillment process. This creates an administrative burden for both vendor and reseller employees – why?
Why not eliminate the claims process altogether? Or at a minimum streamline the approvals by incorporating all the qualifying information from the registration data received.
Next, look to virtual payment platforms rather than merchandise or plastic pre-paid cards as the fastest – and most cost-effective – fulfillment mechanisms. Sure, your incentive supplier may have a received a killer deal on electronics or still be trying to persuade you that your logo on the pre-paid card reinforces your brand every time they take it out their wallet. It does – it reminds them that along with the other 11 cards already in their wallet, they know they really don’t like the hassle. Not to mention the security nightmare you can create if your plastic cards are not personalized.
For more on how to improve your spiffs, schedule a demo today – and do the math on moving away from strictly closed sales spiffs — your partners will be glad you did and so will your CFO.