How to Turbo-Charge Your Sales Incentives

Three "turbo-charged" sales incentive techniques will accelerate your sales performance, say experts Jerome A. ("Jerry") Colletti and Mary S. Fiss. They shared their tips at the WorldatWork's Total Rewards Conference and Exhibition, held recently in San Diego.

The three turbocharged techniques Coletti and Fiss suggest are: Fast Start Bonuses, OA incentives, and SPIFFs. Colletti is Managing partner of consulting firm Colletti-Fiss, LLC; Fiss is a partner.

What Can You Expect from Turbo-Charging?

Fast start bonuses are helpful to counter seasonality or cyclicality in buyer purchases, and to help realize more revenue sooner, for example, in subscription-based businesses.

OA Incentives (OverAchiever Incentives) encourage quota attainment sooner, and improve the number of sales reps that overachieve.

SPIFFs help to achieve priority and short term sales goals, for example, a new product launch or a new market entry, say Coletti and Fiss. (What's a SPIFF? See tomorrow's Advisor.)

Fast-Start Bonuses

Colletti and Fiss's suggest three business situations ripe for Fast Start Bonuses:

• Seasonality in buying (e.g., pool & spa, office and school supplies and equipment, outdoor furniture and patio accessories)
• Cyclicality (e.g., enterprise software, electrical manufacturers and distributors)
• Usage (e.g., subscription based businesses such as software as a service; media)

Design Principles associated with Fast Start Bonuses

Colletti and Fiss offer the following design principles for developing Fast Start Bonuses for your organization:

• Eligibility. All "sellers" and their direct managers.
• Incentive opportunity. 15% to 30% of target.
• Performance measure. One—typically the "production" measurement. (the one with the majority incentive weight).
• Funding. Carve out from overachievement pay.
• Payout frequency. Typically, end of Q1.

Illustrative Design: Fast Start Bonus 

Here is Colletti and Fiss's example of a Fast Start Bonus:

If actual performance is…	Bonus defined by formula in current sales incentive compensation plan (X) times multiplier indicated below:
Below threshold	1
Greater than threshold but less than 100% of quota	1
100% of quota or greater but less than excellence performance	120% times X
Excellence performance or greater	140% times X

Note (provision specific to plan feature): Multiplier is applied to incentive compensation earned in Q1 only.

Effectiveness Assessment: Fast Start Bonus

Colletti and Fiss suggest the following assessment activities for Fast Start Bonuses:

Before	Clarify objective – why you use Fast Start Bonuses, what results are expected; how measured; what is the budget Determine timing – this year only; "evergreen"
During	Performance distribution – favorably impacted? Number of reps participating vs. expectation Earnings per rep during period—overall, and proportion due to Fast Start bonus Managers' views about Fast Start's impact
After	Comparative analysis – this year with Fast Start bonus vs. last year without it ROI assessment – results vs. cost; met/exceeded expectations Managers and sales reps views about plan Impact on customers – pluses; minuses

Overachievement Incentive

Again, Colletti and Fiss identify two business situations appropriate for Overachievement Incentives:

• Attractive profitability model, i.e., relatively high gross margin with no to low capacity constraints
• "Aggressive" selling behavior desired with limited negative customer satisfaction consequences

They find the approach suitable for:

• Most business segments within the high technology sector
• Software Industry
• Professional services (accounting, tax, investment advisors)
• Sales financing services (installment credit services)
• Businesses whose revenue model is subscription based, e.g., software as a service, and driving usage is essential to success

Design Principles Associated with OA

Colletti and Fiss offer the following design principles for developing OA Incentives for your organization:

• Eligibility. All "sellers" and their direct managers.
• Leverage opportunity. Ranges from 2x to 4x depending on competitive practice and affordability.
• Measure(s) OA is assigned to. Typically, only sales financial measures.
• Number of OA points. Typically, one; two points if performance excellence range is narrow and second over-achievement point can be set with confidence.
• Limitations, i.e., caps, "visor." Use to limit company's financial exposure when confidence in sales forecasting and quota allocation is low.

Illustrative Design: Overachievement Incentive

Here Colletti and Fiss show how payouts could be structured for a major account rep:

Major Account Sales Rep
Target Incentive: $60,000; OA opportunity 3x ($180,000)

Element	Performance Metric(s)	% of Target (Schedule)	Rates	Payout Frequency
Bonus	YTD sales (bookings) vs. quota.	0 – 50%       > 50% to 100%	$600 $1,200	Quarterly
OA Commission	Total sales booking vs. annual sales quota	>100%       > 120%	10% of total sales +5% (for total of 15%)	Annual

Note:
Because OA is paid annually (after close of year), it motivates retention.

Effectiveness Assessment: OA Incentive 

Colletti and Fiss suggest the following assessment activities for OA Incentives:

Before	Confirm mix and leverage competitively appropriate for the sales job(s). Confirm leverage ratio is financially affordable at proposed OA level(s). Estimate number of sales reps that will reach OA level(s) and related cost.
During	Performance distribution – OA consistent with expectation? Managers' views about performance to plan; OA's impact on driving to year-end performance.
After	Comparative analysis – results current year vs. prior years; results vs. plan. ROI assessment – results vs. cost; consistent with budget set for OA. Managers and sales reps views about this component of plan.

Colletti is Managing partner of consulting firm Colletti-Fiss, LLC; Fiss is a partner. They shared their tips at the WorldatWork's Total Rewards Conference and Exhibition, held recently in San Diego.

How SPIFFs Will Turbo-Charge Your Sales Performance

What's a SPIFF?

Several phrases have been proposed as possible origins of the acronym SPIFF (e.g., "Sales Performance Incentive Fund," and "Special Pay Incentives For Fast Sales"), but experts believe that they are all "backronyms," as these phrases would have had no meaning in 1859, when the usage of "SPIFF" was first documented.

In any event, SPIFF generally refers to a special bonus to encourage sale of a particular product.

Applicable Business Situations for SPIFFs

Colletti and Fiss offer three business situations that are ripe for SPIFFs:

• Introduce new products
• Acquire new accounts in new market
• Sell aging/discontinued products or products under competitive attack

The approach will work for B2B companies (with the notable exception of long cycle sales), and B2C companies, particularly when consumer goods are sold through multi-channels, they say.

Design Principles Associated with SPIFFs

Colletti and Fiss offer the following design principles for developing SPIFFs for your organization:

• Eligibility. Typically, all sales reps and first line sales managers – employees in jobs that directly impact sales results.
• Frequency. Typically quarterly (more frequent use dilutes impact).
• Average length. 90 days (should reflect length of sales cycle).
• Performance criteria. Defined goal; metric(s) should neither compete with sales incentive comp plan nor reward a result that it pays for (i.e., double comp'ing).
• Average % winners. 20% to 30% of eligible participants.
• Type of award. Cash.
• Average value of SPIFF awards. Within range of 5% to 10% of variable pay (commission, sales bonus) budget; and, within 3% to 6% of base salary.

Illustrative Design: New Product/New Order SPIFF

Here is Colletti and Fiss's example of a SPIFF:

• Eligible personnel. All sales personnel, both Field and Inside staff; excludes managers.
• Eligible products. Only products specifically listed in SPIFF program sheet qualify for reward provisions.
• Definition of a sale. For purpose of the SPIFF program, a sale is defined as a "booked order."
• "New" order. If an eligible product has not been purchased by a current customer either "stand-alone" or part of a "bundled" order during the 12 month period prior to the start of this Program, then order shall be considered a "new order."
• Program period. This SPIFF program will be in effect from February through July; new orders must be submitted and accepted into the CRM system during that period to qualify for SPIFF bonus.

Illustrative Design Alternatives for New Product/New Order SPIFF

Here Colletti and Fiss show how payouts could be structured in two ways:

Alternative 1:	Defined Bonus $s	Alternative 2:	Defined Commission Rate
Product Sales	Bonus Payout	Product Sales	Commission Rate
$x to y	$1,000	$x to y	3%
>y to z	$2 000	>y to z	3.5%
>z	$3,000	> z	4%
Etc.	Etc.	Etc.	Etc.

Effectiveness Assessment: SPIFFs

Colletti and Fiss suggest the following assessment activities for SPIFFs:

Before	Clarify objective – why SPIFF is used; what results are expected; how measured; where funds will come from Confirm SPIFF is appropriate for proposed use
During	Percent employee participation – consistent with expectation; representative by job or job level Performance distribution – favorably impacted
After	Final percent employee participation Range of awards; size of average award ROI assessment – results vs. cost; met/exceeded expectation Managers' and sales reps view about SPIFF

Fast-Start Bonuses, OA incentives, and SPIFFS, all part of the never-ending challenge of compensation. "Maintain internal equity and external competitiveness and control turnover, but still meet management's demands for lowered costs." Sound familiar? Many of the professionals we serve find helpful answers to all their compensation questions at Compensation.BLR.com, BLR's comprehensive compensation website.

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Thanks to Steve Bruce / HR Daily Advisor BLR / BLR Business & Legal Reports
http://hrdailyadvisor.blr.com/archive/2011/12/5/Compensation_Sales_Incentive_Techniques.aspx?source=HAC&effort=15
http://hrdailyadvisor.blr.com/archive/2011/12/6/Compensation_Sales_Turbo_Charged_SPIFFs.aspx?source=HAC&effort=15