Definition:
SPIFF stands for "Sales Performance Incentive Fund." It is a short-term, immediate bonus paid to salespeople for achieving a specific goal within a defined timeframe.
If commissions are the "salary" of sales performance, a SPIFF is the espresso shot. It provides a quick burst of energy and focus.
But like caffeine, it can be dangerous if abused.
Many finance leaders hate SPIFFs because they feel like "extra cost" for work the rep should already be doing. Many sales leaders love them because they create excitement.
The truth is somewhere in the middle. A well-designed SPIFF can clear aging inventory, launch a new product, or save a slow quarter. A poorly designed one creates a "sugar rush"—a temporary spike in activity followed by a crash, often cannibalizing future deals.
Here is your guide to designing a SPIFF that drives revenue without wrecking your budget.
Part 1: When to Use a SPIFF (And When Not To)
A SPIFF is a tactical weapon, not a strategic one. Use it for:
- New Product Launches: Sales reps are creatures of habit. They sell what they know. A SPIFF ($500 per demo of Product X) breaks the inertia and forces them to pitch the new thing.
- Inventory/Contract Cleanups: "Double commission on any deal that signs a 2-year contract this month." This aligns rep behavior with a specific company goal (retention).
- The "Slow Start" Fix: If Q1 is historically slow, a "Fast Start" SPIFF in January can pull activity forward.
Do NOT use a SPIFF for:
- Closing revenue at the end of the quarter. (You are just paying extra for deals that were likely going to close anyway).
- Core job responsibilities. (Never SPIFF for updating CRM data. That's a management issue, not a compensation issue).
Part 2: The "Sugar Rush" Danger
The biggest risk of a SPIFF is cannibalization.
Scenario: You offer a $1,000 bonus for deals closed in December.
The Behavior: Reps push deals that were naturally closing in January into December.
The Result: December looks great. January looks terrible. You paid extra money for the same total revenue.
The Fix: Always measure the net impact over a 90-day period (the SPIFF month + the following two months). If the total hasn't increased, your SPIFF failed.
Part 3: How to Budget for a SPIFF
Finance leaders often ask: "Where does the money come from?"
It should NOT come from the core commission budget. A SPIFF is a marketing expense or a strategic initiative cost.
- If the SPIFF is for a new product, charge it to Product Marketing.
- If it is for clearing inventory, charge it to Operations.
This keeps your Cost of Sales (CoS) metrics clean and ensures the department benefiting from the behavior pays for the incentive.
Frequently Asked Questions (FAQ)
What does SPIFF actually stand for?
The most common definition is "Sales Performance Incentive Fund," though some sources cite "Sales Performance Incentive Formula" or "Special Pay Incentive for Fast Sales." Regardless of the acronym, it always refers to a short-term bonus.
Are SPIFFs taxable?
Yes. SPIFFs are income. Whether paid in cash, gift cards, or trips, they must be reported as taxable income on the employee's W-2. Using "under the table" gift cards is a compliance risk.
How long should a SPIFF last?
Short. A SPIFF loses its power after 30 to 45 days. Any longer, and it just becomes part of the expected compensation plan. Keep it urgent.
Related Reading
Model the Cost Before You Launch
Don't launch a SPIFF until you know the financial impact. Will it lower your margins? Will it blow your budget?
Use our free Plan Design Wizard to model different incentive structures and ensure your "bonus" doesn't become a "burden."
Model Your Incentives Now →Stay in the Loop
Get updates on new features, resources, and insights on sales compensation.
