Performance Pay: Commission vs. Sales Spiff
Performance pay might be a good solution if you find that your sales team isn’t as motivated as you’d like them to be or is less enthusiastic about hitting sales targets.
Performance pay can be used in situations where you need to come up with original ways to keep your team motivated because all of your employees’ efforts and contributions help your business advance.
Employees may receive performance pay in the form of a salary, wage, or bonus based on metrics they have met.
Consider these reasons as to why you might offer performance pay incentives:
- increases employee retention and engagement
- maximizes savings and profits for your company
Spiffs and commissions are two options for performance compensation.
A sales incentive for quick results is called an SPIFF (Sales Performance Incentive Fund). The majority of spiffs are monetary, such as rewards like prizes, trips, or recognition. While they temporarily boost your company’s momentum, there is no assurance that spiffs will produce the desired outcome.
A commission, on the other hand, is a sum of money given to an employee after they complete a task, typically by selling a certain quantity of goods or services. Depending on the volume of sales, it may be paid as a flat dollar amount or as a percentage of each sale.
Let’s examine the advantages of each kind.
Performance Pay’s advantages
With success metrics determining the amount they see on their paycheck, some professionals thrive. Even better, your sales team might prefer to be compensated for performance. This makes it seem worthwhile for them to work harder to achieve any sales goals while also receiving more compensation for their efforts.
Paying for performance will aid:
Encourage staff to sell high-profit items
Since pay is performance-based, your staff will be encouraged to promote more profitable goods, increasing sales for the business.
Boost the average number of tickets sold.
Your employees will probably sell more than usual with performance pay, which will increase ticket sales.
decrease employee churn
Due to higher pay and earning potential, employee turnover significantly declines over time.
Boost personnel productivity
A significant factor in performance pay is this. Because they are driven to accomplish something, your staff members are more likely to work harder or more effectively. Similar to spiffs, it fosters constructive competition at work and strengthens organizational culture.
We’ll now delve into the two distinct components of performance pay:
Advantages of Spiffs
Consider a scenario in which you have a deadline of a few weeks to meet a short-term objective. any objective that does not neatly fit at the end of a quarter or a year. Spiffs excel when you have a short window of time in which to complete any particular task.
The main advantage of spiffs is the variety of forms they can take. A catered happy hour, an extra day off work, or a gift card. It could also be a straightforward cash award.
Spiffs can assist:
Employee disengagement can lead to issues that make it difficult to maintain employee productivity and commitment to sales objectives. Spiffs have a reputation for boosting employee participation because they offer an instant reward upon completion. Spiffs also promote healthy competition at work.
Meet short-term objectives
Spiffs are the best option for your company if you have a deadline to meet. They help to meet overall sales needs and enable sales representatives to quickly reach their quotas.
More quickly than commissions
The spiff payout is frequently faster because spiffs aren’t a regular component of compensation plans like commissions. This indicates that, unlike most commission payouts, spiffs are not subject to the requirement of waiting until the end of the month or quarter.
Obtain new clientele
Although spiffs are a crucial component of your sales incentive program, they shouldn’t take center stage. If so, they may be given precedence over other, more crucial objectives for the organization. However, a fruitful spiff program can aid in bringing in fresh leads and speeding up customer signups.
Commission Pay’s Advantages
Consider commissions as a long-term answer to more comprehensive and well-established sales objectives. Commission payments are more of an addition to or replacement for your regular pay period.
Commissions are typically determined at the start of a quarter or year and paid out at the conclusion of the period. Because it affects their ongoing compensation package, your sales team will depend on that payment structure remaining largely unchanged.
Paying commissions will assist:
Encourage employees to put in more effort
Employees are more motivated to complete sales because commission pay depends on completing a task or making a sale. Their commission will be more generous the more sales they make.
control payroll costs
Due to the fact that employees’ pay is based on sales, business owners can reduce some payroll expenses, particularly for underperforming employees.
Considerations for Different Types of Performance Pay
Your end goal will determine which of the two performance pay models you use. Are you attempting to meet a last-minute, pressing sales deadline? Spiffs can be useful here.
Or are you trying to find a long-term fix to increase your sales for at least a year? Commissions may be the best payment method for you, then.
You can even use both—commission on a regular basis and spiffs occasionally to support ambitious short-term objectives.
Here are some things to think about:
Clearly state objectives
Keep your employees’ expectations in the open. Outline your goals and make sure they’re understood, along with the compensation arrangements. Your techs need to be aware of their goals so they can stay on track, regardless of what they are (e.g., hitting quotas, closing more deals, promoting a new product, improving your sales pipeline, etc.).
Describe how your staff should accomplish the objective.
The next step is to explain how your team should accomplish the goal(s) after explaining what your techs should be doing. Set definite objectives and expectations for them to meet.
Ensure that it is affordable.
Any form of performance pay can end up costing the company a lot of money without adequate planning and budgeting. To be safe, confirm that your budget can support all of your techs achieving the established goal or milestone. Keep in mind that a CPA (certified public accountant) or financial advisor can assist you with this.
InvoiceASAP can assist in keeping everyone on track to achieve their objectives by tracking employee time, sales, and profits. Try InvoiceASAP right now!
What Performance Pay Model Best Suits You?
Both spiffs and commissions have a lot to offer your staff and business. Every company will implement a performance pay model differently. However, by using the information in this manual, you can design a program that aids in the achievement of your company’s objectives.
Don’t forget to consult a reliable CPA before putting a performance pay model in place. You will make sure that every factor is carefully taken into account under their direction.
You now have all the resources necessary to select the ideal performance pay model for your field service company!