The other day I was asked what a SPIF was. Well, SPIF actually stands for Sales Performance Incentive Fund and is not to be confused with MDF which is Marketing Development Funds.
Typically the term SPIF is used when you want to move product faster to support a tactical or strategic goal. The SPIF is an additional incentive paid either by a manufacturer or employer directly to a salesperson for selling a specific product. As in “let’s SPIF the product in the channel to get more movement.” In this case you offer an incentive, like for every unit sold within a certain period of time you will pay $10, to the channel sales rep who sold the product. It is key that a SPIF be for a specific period of time, has goals (e.g. we want to sell 100 pieces of product with this incentive) and the money can therefore be accrued and recognized accordingly. Because a SPIF is an expense, like commissions, it shows up in operating expenses not COGS which is also interesting in its presentation (and could be argued) on financial statements.
SPIF’s are quite prevalent in the tech industry with manufacturers paying distributor and reseller sales personnel directly. However, in 2007 the ethical nature of a SPIF was starting to be questioned. Because you can have a manufacturer directly paying another companies employee (e.g. the reseller sales rep) you may be in conflict with the Reseller/Distributor corporate direction, instructions or intentions. The US Department of Justice actually went so far as to qualify a SPIF as a kickback (read more here) which involves a whole other level of disclosure (see Side Deal Letters). For now, SPIF as a kickback only applies to Government Resellers and Government Distributors so you are OK to sign that Side Deal letter if you don’t sell into these arenas.
I mentioned MDF because it is similar in supporting a tactical or strategic goal but does not involve a specific incentive or commission directly to a sales rep. MDF programs are usually designed to co-share costs associated with marketing a particular product jointly, creating sales contests for channel partner sales reps (e.g. the person who sales the most product in a particular period of time wins a trip), educate the channel sales reps about the features of your product through a ‘lunch and learn’ and programs to push and pull products through the channel in general. Because they are jointly designed with the partner it removes the conflict of interest; however, that sales trip could still be seen as an incentive.
Anyhow, the goal is to try to promote your product effectively and ethically with a channel partner when they also have the ability to promote your competitors. Trying to stay at the forefront of mind-share at a huge channel partner is difficult and requires creativity which is how these programs evolved.
If you are looking for more information on strategic marketing programs to help sell through various channels, look to Business Ready Sales and Marketing tools to help.