Performance Pay: Spiffs and Commissions

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 less enthusiastic about meeting sales goals or not as motivated as you’d like them to be, performance pay could be a solution. 

Performance pay is a salary, wages, and/or bonuses paid to employees based on their performance. Businesses provide incentives to increase employee engagement and retention, which then provides financial rewards. Performance pay includes spiffs and commissions, which are different but a part of performance pay.

A SPIFF, or sales performance incentive fund, is a short-term sales incentive to encourage immediate results. Most spiffs are financial, as they reward things like prizes, vacations, or recognition. They give your business the extra push it needs temporarily; however, there’s no guarantee that they will be successful. 

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

Performance pay will help to:

  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 sale
    • With performance pay, your employees are going to be selling 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 employee engagement.
  4. Improve company and 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.

Benefits of Spiffs

  1. Increases engagement 
    • Employee disengagement can provide problems for many businesses, and it can be tough to keep employees efficient and invested in sales goals. Since spiffs provide a reward upon completion, they have been known to increase employee participation. Also, they provide healthy competitiveness 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. 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 can take the importance of 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

  1. Motivates employees to work harder
    • Since commission pay relies on the completion of a task or sale, employees are more motivated to complete a sale. The more sales they make, the more generous their commission will be.
  2. Helps manage payroll expenses 
    • Since the amount that employees are paid depends on their sales, business owners can cut down costs, especially for employees that aren’t performing well. In addition, it can create a more motivated and proactive workforce.

Things to Consider for Each

  • Outline goals and define them clearly 
    • First and foremost, you should know what you expect from your employees. Be sure to outline objectives and communicate these objectives 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 need to know what they’re aiming for to keep them on the right track. 
  • Explain how your reps should achieve the goal
    • After communicating what your sales reps should be doing, the next step is to articulate how your representatives should achieve the goal(s). Be clear on what you expect from them and what figures you want them to hit. 
  • 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. 

Conclusion

Performance pay, spiffs, and commissions all offer great benefits to your employees and organization. Implementing them will not be the same for every business; however, with thorough planning and research, you can create a performance pay, spiff, or commission program that helps your business succeed and reach its goals. 

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