ASK JOHN

Hi John,

I’d like to know your views and also understand industry practices and trends about presales teams participating in SPIFFs (Sales Incentives). We have just been through several acquisitions and because of that, and new management, our compensation plans are changing. Early indications are that there will be a number of incentive programs put into place next fiscal year to promote cross-selling, use of partners, linearity, new products and a variety of other behaviors. It seems presales will not be included in any of these programs which doesn’t seem particularly team-oriented to me.

So – thoughts/ideas/data?

Thank You

Martin – Boston, USA


 

Hi Martin,

Thanks for the question. Before I answer – a quick piece of trivia about the origin of SPIFFs. Although there have been numerous explanations about the SPIFF acronym (like the humorous Sales Performance Incentive FFund) it is not an acronym. The use of “spiff” or “spif” derives from the 1850’s. It was a term used by tailors to describe a payment in kind of fine cloth they gave to their best salespeople. The salespeople would then use the cloth to have suits or shirts made to “spif” themselves up.

As far as data, the one number I can share is that about 25% of technology companies (2017-18 data ; software/hardware companies $250m to $4bn annual revenue) allow presales to participate, to some degree, in SPIFF programs. I continue to collect data within other industries as I don’t have a large enough sample size yet – but I feel that they are all about the same with the exception of lower-margin services.
That said, I am a firm believer in presales participation, when appropriate. Here is the reasoning I have always used with VPs of Sales and Finance.

1. If we are truly engaged in team-based solution selling, then you need to encourage team-based rewards to reinforce the behavior.

2. Salespeople bear far more risk (both financially and job stability) than presales, so they should clearly receive the largest portion of a SPIFF.

3. Most presales people care more about inclusion in a program than the actual payout amount. (The best thing a VP of Sales can do to gain the respect of a presales team is to show that he/she considers the impact of every program and initiative on both sales and presales.)

4. I define “where appropriate” in this manner:

a. A SPIFF to encourage linearity of bookings in all three months of a quarter, or to include faster payment terms to reduce DSO (Days Sales Outstanding) is a SALES SPIFF only.
b. A SPIFF to encourage the uptake of a new product, or cross-selling across multiple product sets is a joint SALES/PRESALES SPIFF.
c. A SPIFF To encourage customers to upgrade from an old version of a product to a newer version is a PRESALES SPIFF.

5. I define ‘sharing” using this great example. A hardware company was originally planning to rollout a 10,000 Euro SPIFF to salespeople who sold a certain amount of new product to new accounts in a quarter. Their goal was €40M. After looking at who would truly be doing most of the work (demonstrating, configuring, benchmarking etc.) they elected to modify the SPIFF. The revised version gave €7,500 to sales and €2,500 to presales. The result was maximum engagement, team selling and €62M of new product sales into the new accounts market.

6. Back in 2015 we helped the finance department of a software company analyze the historical results of multiple SPIFF programs over a three-year period. Those that included presales had an average incremental effectiveness of 26% over those that did not.
So the summary is that presales should participate in SPIFFs when a case can be made that they drive a significant part of the end goal – although to a lesser extent than sales.

FINALLY – A WARNING. One of my customers decided to implement a 20% additional sales quota credit for all deals that were implemented through a new partner program. In one quarter, partner deals increased from 17% to 85% – thus resulting in 5/6 deals going through partners, even when they shouldn’t have – to the detriment of the customer. Presales, who received no credit – had to clean up the mess alongside services and support. Compensation drives both behavior and behaviour.

 

/John.

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