performance pay

Performance Pay: Sales Spiff vs Commission

As a business owner, your employees are the heartbeat of your organization. All of their efforts and contributions help push the company forward. However, if you find your sales team is less enthusiastic about meeting sales goals, or perhaps they’re not as motivated as you’d like them to be, performance pay could be a good solution.

Performance pay is a form of salary, wage, or bonus that is paid to employees based on their achieved metrics. Businesses often provide these incentives to increase employee engagement and retention, which then creates financial savings and gains for the company. Performance pay can take two forms: spiffs and commissions.

A SPIFF, or Sales Performance Incentive Fund, is a short-term sales incentive to encourage immediate results. Most spiffs are financial, including rewards like prizes, vacations, or recognition. They give your business a temporary extra push, but there’s no guarantee that spiffs will yield your desired result.

On the other hand, a commission is a sum of money paid to an employee upon completion of a task, usually by selling a certain amount of goods or services. It can be paid as a percentage of the sale or as a flat dollar amount based on sales volume.

Let’s look at the benefits of each type.

Benefits of Performance Pay

Some professionals thrive with success metrics defining the amount they see on their paycheck. Your sales team might even prefer to be paid based on performance. This way it feels worth their time to push harder to meet any sales goals while also earning more for their work.

Performance pay will help:

  1. Incentivize employees to sell high-profit items
    • Since there’s pay tied to performance, your employees will be motivated to sell higher-profit items, bringing in more revenue for the company.
  2. Increase your average ticket sales
    • With performance pay, your employees will likely sell more than usual, resulting in an increase in ticket sales.
  3. Reduce employee turnover
    • In the long run, employee turnover drastically decreases due to increased pay and earning potential.
  4. Improve employee productivity
    • This is a big driver on performance pay. Your employees are more likely to work harder or more efficiently because they’re motivated to reach a goal. Like spiffs, it also creates healthy competitiveness in the workplace and contributes to a strong organizational culture.

Now we’ll dive into the two different areas of performance pay:

Benefits of Spiffs

Let’s say you have a short-term goal that you need to hit within a few weeks. Any goal that doesn’t land neatly at the end of the quarter or the year. If you have a tight deadline to hit any specific goal, that’s where spiffs shine.

The real benefit of spiffs is they can take many forms. A gift card, an extra vacation day, a catered happy hour. You could also just make it a simple cash prize!

Spiffs will help:

  1. Increases engagement
    • Employee disengagement can cause problems for many businesses, and it can be tough to keep employees efficient and invested in sales goals. Since spiffs provide an immediate reward upon completion, they have been known to increase employee participation. Also, they provide healthy competition in the workplace.
  2. Helps reach short term goals
    • If your business needs to meet a goal in a short amount of time, spiffs are the way to go. They allow sales reps to meet their quotas quickly and contribute to overall sales needs.
  3. Paid out faster than commissions
    • Since spiffs aren’t included as part of a normal compensation structure, like commissions, the spiff payout is often quicker. Without the requirement to wait for the close of the month or quarter like most commission payouts.
  4. Helps acquire new accounts
    • Spiffs are an essential part of your sales incentive program, but they should not be your program’s main focus. If so, they might take priority over other, more important goals for the organization. However, a successful spiff program can help usher in new prospects and accelerate customer signups.

Benefits of Commission Pay

Think of commissions as a long-term solution to broader and more established sales goals. Commission pay is more of a replacement or add-on to your standard pay cycle.

Commissions are usually set at the beginning of a quarter or year, and paid out at the end of a month or quarter . Your sales team will depend on that payment structure to remain relatively unchanged as it affects their ongoing compensation package.

Commission pay will help:

  1. Motivate employees to work harder
    • Since commission pay relies on the completion of a task or sale, employees are more motivated to complete sales. The more sales they make, the more generous their commission will be.
  2. Help manage payroll expenses
    • Since the amount that employees are paid depends on their sales, business owners can cut down in some areas of payroll costs, especially for employees who aren’t performing highly.

Things to Consider for Each

Choosing between the two payment models depends on your end goal. Are you scrambling to meet an urgent and unexpected sales deadline? Spiffs can help with that.

Or, are you looking for a long-term solution to growing your sales over the span of a year or longer? Well, commissions might be the payment model for you.

You can even implement both – commission on an ongoing basis and spiffs on occasion to drive aggressive short term goals.

Here are a few things to consider:

  • Clearly define goals
    • First and foremost, you should know what you expect from your employees. Be sure to outline objectives and communicate these objectives and compensation structures clearly. No matter what the goal is — meeting a quota, closing more deals, promoting a new product, or improving your sales pipeline — your sales reps or techs need to know what they’re aiming for to keep them on the right track.
  • Explain how your employees should achieve the goal
    • After communicating what your techs or reps should be doing, the next step is to articulate how your team should achieve the goal(s). Be clear on what you expect from them and the figures you want them to meet.
  • Make sure it fits the budget
    • Without proper planning and budgeting, any type of performance pay can cost the business a lot of money. To be safe, make sure your budget can handle all of your sales reps reaching the goal or milestone that is set. A financial advisor or CPA can help with this!

FieldEdge can help track employee time, track sales/profits, and keep everyone on target to meet their goals. Book a FREE personalized demo today!

Book a FieldEdge Demo!

Which Performance Pay Model Fits You Best?

Performance pay, spiffs, and commissions all offer great benefits to your employees and organization. Implementing a performance pay model will not be the same for every business; however, using the information in this guide, you can create a program that helps your business succeed and reach its goals.

Also, don’t forget to meet with a trusted CPA (Certified Public Accountant) before implementing a performance pay model. With their guidance, you’ll ensure all factors are being thoroughly considered.

Now you have all the tools to choose the best performance pay model for your field service business!

Related: Creating a Mission Statement and Company Vision

Want to get updates about the latest content, industry news and business tips? Sign up to receive our emails!