Welcome back to our March series on Sales Compensation.
Part I: Designing Rep Comp Plans (Last week!)
Who’s involved in comp plan design
Getting the split right: Base vs Variable
Quota to OTE ratio
Baselining achievement
Accelerators
Paying sales managers
A case study: Salesforce’s early comp plans
What counts as a booking?
Comp plan flaws
Part II: The Art and Science of SPIFFS (This week!)
Why do spiffs succeed or fail?
When’s the best time to run a spiff?
How should you structure spiffs?
SPIFF structures you can copy
Part III: Commission Stack Benchmarking (Next week!)
What percentage commission should an Account Exec (AE) make on a deal?
What does the total commission stack look like after you add in everyone else?
Stuff that can push the stack higher
Source: ICONIQ
Spiffs are a long standing point of contention between finance and sales teams. Depending on who you talk to, spiffs, or variable cash bonuses tied to a business goal, metric, or contest, are either a tasty motivation leading to short term business results, or a creative way to flush cash down the toilet.
According to a study by ICONIQ, 71% of sales organizations offer SPIFFs to reward strong performance against quota or other objectives, and they make up approximately 10% of total account executive comp.
Why does this scare CFOs? Well, it’s increased as a percentage of the comp stack since 2021 (see below), and it’s not always clear if the company is throwing money at something they would have achieved anyway.
Source: ICONIQ
I’ve asked multiple RevOps, Finance, and Sales leaders about spiffs over the last year on the Run the Numbers Podcast. And I have a lot of experience (good and bad) implementing them throughout my own career.
Here’s the TL;DR of what we cover in this post:
Why: Why do spiffs succeed or fail? Is it a function of people, or structure?
When: What’s the best timing to do a spiff?
How: How should you set them up? What are some structures I can steal?
Strategy: Focus on the incremental, don’t over index, keep it stupid simple
Why do spiffs fail?
People misuse them. A spiff should not even raise to the level of being on finance’s radar. It should be a short term thing, short term outcome driven, and immediately gratifying, per Ryan Walsh, Founder of RepVue.
And it shouldn’t be tied to your core metrics. It should not be like
“Hey, we are going to miss our number, so if we someone how hit it, we’ll pay you more.”
That’s like trying to buy an insurance policy after the flood hits.
Something that would make sense:
“Hey, it’s Wednesday let’s do an opportunity contest through the end of the week to see who creates the most pipeline.”
It should be fun and light. And not required to keep the lights on.
Where spiffs go wrong is when people make them hard to separate from the actual number - the goal itself.
If you need a spiff to get out of bed in the morning, there’s something fundamentally wrong.
“Where spiffs don’t work is if you are the finance person at a company that has the wrong sales sales culture. If you are releasing spiffs into a sales culture where people actually work 100% harder because a spiff got pulled out, then you probably need to talk to your CEO about whatever type of sales leader you have running the group.”
-Ethan Schechter, VP of Sales at Snyk
Why do spiffs succeed?
Experience shows they are a useful tool when you have a stretch target for the quarter and you need to get more out of the middle of the pack.
Why the middle? You figure that your top reps are your top reps no matter what - they’ll show up. At the same time, you can’t count on much from your bottom reps, because you are either trying to exit them from the business anyway, or they are on some sort of hardcore improvement plan.
Therefore, the goal is to get the handful of people in the middle to do 20% more.
That’s where you move the needle.
So it’s less about overall achievement throughout the org, and more about galvanizing a specific sub segment.
When are good times to throw a spiff out there:
Tough first months of quarters: Keeping people’s heads in the game in July…
When you launch a new product: It’s tough sledding to sell something that may not have product market fit yet, or requires a rep to learn a brand new playbook. Spiffs help grease the learning curve.
Post M&A: Related to the above, spiffs can be useful after you purchase a company or product line. The new product may not have the same market awareness as your current offerings.
Tough macro economic times: When COVID came, it was important to keep people’s heads in the game. Spiffs were an extra carrot to refine focus on certain industries. Speaking of that…
Building Dams and Bridges
Spiffs are most useful when you consider them from a long term company building perspective. Yes, you want to impact the quarter you are in. But you also don’t want to lose good people because they get discouraged or take their eye off the ball.
Spiffs are a way to keep people engaged as you bridge from one time in the business to another.
Ethan hit me with an amazing historical analogy:
“FDR with the new deal - economists today will tell you none of those programs actually made the economy better… the economy just needed to unwind itself because it was so upside-down.
But what it did was keep people’s heads in the game, and kept them getting out of bed each day. So in those tough times when you know the targets were not scoped the right way or the economy is bad, and you know you want to grow again next year, it’s expensive to go out and hire people again. That takes time. So even if you are in that situation, and even if it’s a loss leader, and it’ll impact your CAC, sometimes you need to motivate people to build dams and bridges and roadways because you know you’ll get to the end of this and you don’t want to lose talented people.”
-Ethan Schechter, VP of Sales at Snyk
Spiffs help you transition from one time to another. Sometimes throwing small dollars at a group of people will pay big dollars in terms of having an educated, ramped, and happy stable of reps when times turn good again. Short term dollars might make long term cents sense.
SPIFF Structures You Can Copy:
“Double Bubble”: You retire 2x quota on deals for a specific period of time
Big Deal Prizes: Giving the rep with the largest deal in a quarter a watch / TV / golf club. Sales people love watches and physical tokens of achievement. Someone recently told me they had the biggest deal one quarter and got a Porsche convertible lease paid for the summer. That’s baller.
Fast Start: You get [1.5x] quota retirement on deals closed in the first week of the month, [1.25x] for deals closed in the second week of the month, [1.1x] for deals closed in the third week of the month…
Pipeline Sprint: Great to pull out of the toolkit when your pipeline coverage ratio falls below [3x] and reps are shouldering the load of sourcing their own deals (marketing vs sales driven pipeline).
Upfront Payments: In times when you are trying to preserve cash, you can give a little extra juice to reps for prepaid contracts that get dollars in the door today for services you’ll provide the customer tomorrow.
Strategy
Focus on the incremental
One of the most common places to use a spiff, right or wrong, is upon a new product launch. But what many people fail to gauge was if this was necessary in the first place. If the product is good, and there is market demand, it might sell just fine without it.
That’s why you have to focus on the incrementality of what you are doing - would you have gotten this result without the spiff?
I think Spiffs can work, as long as you are tying spiffs to incremental behavior that you wouldn’t get anyway. And that’s the balance - often times it’s like “let’s do a spiff to focus on x product or y product because it’s a new launch.”
That’s fine, but then you have to think of what are the implications of doing that? What does it do to our focus on the rest of our products? Are you OK with that potential implication? Would you have had focus on this product anyway because it’s a new launch? Does it have great product market fit? Is there market pull?
So I always go back to the incrementality of it.
-Sid Kumar, SVP of Revops at Hubspot
KISS: Keep It Super Simple
It all goes back to making the comp plan simple. Spiffs can go off the rails in a number of ways. The first is making it so confusing that the rep is trying to add up on a piece of paper if they are checking the boxes.
“The fewer more intentional actions you can direct a rep to, it will make a lot more sense.”
-Sid Kumar, SVP of Revops at Hubspot
The rep has to clearly understand how to balance the spiffs objective with their core comp and broader objectives.
Fun payout ideas:
Big golf checks
Gift cards
Car lease
Watches for big deal bonus
Plinko board where you win the spiff and drop chip in and things at bottom are different prizes
Gym memberships
Sports tickets
Parking spot in front of building
Relevant Listening:
Thank you to the President’s Club members below who helped inform this series:
Brett Queener, Founding Partner of Bonfire VC (and early Salesforce)
Ethan Schechter, VP of Sales at Snyk
Ryan Walsh, Founder of RepVue
Sid Kumar, SVP of RevOps atHubSpot
Binge This
Tune in next week when we’ll go deep on Commission Percentages.
