It’s a funny thing really, having your manufacturer offer financial incentives directly to your salesreps so they will sell their products. And in more sophisticated industries, business owners would have the asses of their manufacturers in a sling if they offered SPIF like rewards to their employees directly.
So why is it OK in the cabinet industry? How can manufacturers get away with that?
I think it’s ignorance. Now before I get accused of calling people stupid, remember that ignorance is synonymous with “not knowing”. I’m ignorant of a lot of things — especially about how women really think. That doesn’t make me stupid (although a few of my female friends would argue otherwise).
So dealers are predominantly a bunch of construction guys (and sometimes gals) who started their own businesses out of the back of their garages. They are successful operations in their own right, yet they remain ignorant of how they really should react to manufacturer SPIF programs.
So let’s explore a SPIF for a moment. Consider the normal chain of parties involved in selling a product.
- Dealer Sales Rep
The manufacturer is somewhat hidden from the consumer because of you, the dealer, so the manufacturer is limited in how to influence the buying decision of the consumer. The more layers in between the manufacturer and the consumer equates to the more places where a deal can be lost.
A SPIF in our industry usually comes in the form of cash or a cash-equivalent reward of some sort which is paid directly to your salesreps as an immediate reward for selling their product. It is a sneaky way of back-dooring an incentive and jumping the normal chain of command to get closer to the consumer where the decision to buy (or not buy) is made. When a SPIF is in place, the chain looks more like this:
- Dealer Sales Rep
Manufacturers are 1-2 steps closer to the sale (notice how the dealer can get cut out of the loop). But SPIFs put dealer management in an awkward position. Consider this:
- What if you were trying to push cabinets from manufacturer B for a significant rebate but manufacturer A was offering a SPIF to your salesreps? You might not make your revenue target to get that rebate you need so badly for other areas of the business. That’s because the cash flow was just redirected to your salesrep’s wallets.
- What if you were negotiating with a manufacturer for better terms and using your volume with them as a lever in the discussions? If your salesreps are being paid in cash to move that product (SPIF’ed) do you think the manufacturer may have you over a barrel? You bet they will! You may want to pretend that you can move that volume over to another line but how will you do that when your salesforce keeps selling it?
Manufacturers have figured out the cabinet industry for a long time now. And they know what makes your salesreps tick. Once a SPIF is in place it is going to be very difficult to remove it.
So what’s the best practice here?
SPIFs are EVIL and Must be Destroyed
SPIFs are damaging to almost every aspect of your business and your market strategy. The only thing they ever benefit is the salesperson and the manufacturer.
- SPIFS make salespeople offer product because it is better for themselves, not necessarily for the customer
- SPIFs can alter your revenue targets and overall business plan
- SPIFs are done outside your management team — sometimes even without your knowledge
- Someone has to pay for the SPIF. This is most likely not eaten long term by the manufacturer — rather, it is built into the overall cost of the product and passed on to you so the SPIF can be offered to your salespeople. In other words, you’re paying extra cash to your salespeople with a SPIF even if it doesn’t sound that way.
A SPIF is fundamentally no different than Ford bribing the local school city official to make all city vehicles Fords — behind the back of the Mayor. It’s the stuff that makes front page news, and makes senators look really stupid (not ignorant). The next time a manufacturer offers a SPIF to your salespeople, stop it dead in its tracks and demand a lower cost factor instead. Or force them to offer a rebate back to the BUSINESS and you can decide how to allocate that down through your commission programs (if at all).
Then tell the manufacturer that the next time they stick their hands like that in your business, you’ll start shopping for another line.
Remember — salespeople get rewarded from you, not your manufacturers. If a manufacturer wants more volume, they need to improve the quality, price, service or delivery of their product. If the manufacturer’s sales are down, they probably have a problem with one of those areas in relation to their competition. Allowing a SPIF simply enables a manufacturer to hide from their real problems.
SPIF’s are the dinosaurs of the cabinet industry, and they should have suffered the same fate: extinction.
But that’s just me, stirring up the pot.
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