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Why Must You Pay Sales People Commissions?
- calinet6 9y agoA strong argument would at least consider the systemic consequences of commissions, rather than just extolling the assumed virtues in a circular argument. What is their impact on product? On support? Engineering morale? On the customer experience itself? Just a myriad of effects not even considered here when commissions are looked at in isolation, the system be damned. It's probably very true that it's not plausible to do anything but commission-based sales in this market, and competing with other companies offering so much more money for the same job is just not worth the effort. But it's lazy to assume that their isn't a better holistic model, taking into account the whole company system, and not solely myopic sales metrics. Edit: is Pluralsight a big enough counterexample? Maybe some food for thought from Aaron Skonnard here: https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-in-the-long-run.html https://www.inc.com/aaron-skonnard/why-sales-commissions-don...
- ThomPete 9y agoYou have to find a way to measure it though. As long as you can't that it doesn't matter if there are a more holistic way to think about it (my guess is that there are but it requires a lot more data pick-up-point)
- calinet6 9y agoDo you though? At an individual level? The only measurement that matters is profit, which is pretty easy to measure.
- seanp2k2 9y agoHard to AB test and convince MBA types of #showMeTheKPIs
- deleted 9y ago[deleted]
- ThomPete 9y agoWhat matters is who creates profit which is easy to measure by their paycheck. What I was saying was that if want a more holistic way to approach it you will need to find a better way to measure who is involved in the sales process.
- abraae 9y agoMaybe it is lazy not to investigate better models than commission. But on the other hand, the world of enterprise sales, from software to jet planes to insurance, has worked this way for decades/centuries/millenia. So trying to find a better way is less "not lazy", and more heroically quixotic.
- deleted 9y ago[deleted]
- ghaff 9y agoMostly. Going back a ways to companies like Digital Equipment Corp., sales commissions weren't originally used--or at least they were limited. The theory was that you wanted to form long-term partnerships with customers, not encourage selling things they didn't need, etc. This was a minority practice though and DEC itself eventually abandoned it. Although it's not directly related to commissions, as others have touched on, sales is generally a very performance-oriented culture. You don't hear about the challenges of interviewing for sales because it's really pretty simple. You often hire based on past performance and, if you hire someone who doesn't make quota for a quarter or two, you get rid of them. A useful quote is: "I've never met a sales manager who has trouble firing people."
- tlb 9y agoIt's not a circular argument to point out that excellent sales people will take the commission job, while bad sales people will take the salaried job. All the things you mention (support, morale, ...) are second-order considerations -- the first order consideration is getting the best people.
- calinet6 9y agoThis assumes a specific philosophy of how companies work (good individuals) while an alternative model of good working systems is also effective. A systems view is less dependent on good individuals. As W. Edwards Deming said, "A bad system beats a good person every time."
- tptacek 9y agoI've read articles from credible people talking about building commission-less sales cultures and I like the idea. But from experience in a few different companies, one of which involved me directly working with a decent-sized sales team, adverse selection is empirically a major issue. Among the things I feel like I've learned is that the sales people who are most engaged with the product space and can converse most intelligently about the product you're building are not necessarily the people who are best at actually driving revenue, and that a fledgling product for which the numbers don't exist to guarantee a pretty steady stream of commissions will drag very intelligent-sounding ineffective salespeople out of the woodwork. There seems to be a species of salesperson that has evolved to sell executive management on continuing to pay them while blaming the rest of the company for their inability to close deals, rather than selling prospective customers on a product. I've had the misfortune of working with some of them. At the time, they even had me on their side! It's really quite creepy in retrospect. I'd go way out of my way to avoid attracting the sort of salesperson who is driven by anything other than transactionally closing deals as quickly as possible, just to avoid the possibility of having to work with someone like that again.
- calinet6 9y agoThat's a much less lazy argument. Horowitz should take notes.
- PeterisP 9y agoIt's important to note that what counts in the end is the bottom line of the company. Revenue brought in by sales has a direct effect on the stuff that matter. The effect of product quality, support quality and engineering morale matters only to the extent that it affects revenue. A salesman getting some CFO to sign on the dotted line has a clear and guaranteed impact on your profits. An engineer developing an excellent new feature or removing a major future scalability problem might have an uncertain (though possibly large) effect on your profits in the distant future. Maybe the feature will drive new sales, and maybe it won't. Maybe the company won't ever reach the volume where the future scalability problem will matter, as they'll go out of business. Companies are in the business of using money to make money. Selling a feature doesn't work will get you money that might allow to make that feature. Making a great feature that's not sold is money and effort that's completely wasted.
- robocat 9y agoThinline misposted response to the inc.com article: Interesting last comment (from November 2016) to the original article: "Important Update * I am currently employed at Pluralsight, and I feel obligated to point out that the author of this article, our CEO, no longer believes or stands behind any of the content in this article. Pluralsight does not operate under the Deming philosophy. As of January 2017, Pluralsight will be implementing sales commissions again. We have reverted to the typical high-pressure, high-stress quota models found in most companies.
- calinet6 9y agoThank you—that's revelatory and mildly disappointing. I'll have to look into it more closely.
- phkahler 9y agoWhy do sales people get commissions and engineers don't? Because the sales person knows exactly how much money they bring in and can claim "if I didn't make the sale, that money would not be coming in" even though it's not always true it's a good story. An engineers actions are so far removed from revenue that they can't make a claim so directly. Also, if they did want to claim a portion of product revenue they could just as easily be fired and the revenue would still flow. Such is the delay between engineering work and revenue.
- Waterluvian 9y agoAlso personality. Good salespeople are... Good salespeople. They apply their craft when negotiating compensation. What am I going to do, make a single page app about why I should be paid more? ...actually that's not a bad idea.
- KekDemaga 9y agoI wonder if that's how Glassdoor was started.
- jbooth 9y agoAt the end of the day, a salesperson not making quota is going to be fired. The best salesperson in the world could maybe buy themselves an extra year, at best. But eventually, if they're so great, where are the numbers? And their next job search isn't gonna look so great. They can't solve a problem on a whiteboard to make up for the fact that their prior business was a bad fit for the market, or whatever. A salesperson who is making quota and running way over it into big bonuses is by definition earning their money. Sometimes people are in the right place at the right time, of course, but in general it's hard to say a sales person is overpaid unless they're completely useless and failing to earn their base pay.
- Waterluvian 9y agoBut a good salesperson who is making quota can also apply their craft to carving a larger piece of the pie for themselves. Just because they're doing well, it does not mean their compensation is an accurate proportion to their contribution to the whole. But don't get me wrong, I'm not saying we should try to quantify the efficacy of SW devs more. I had a PM do that once in the form of ticket quantification as a KPI. I had to expend a lot of political capital to opt out from that nightmare.
- sidlls 9y agoI like how he inadvertently admits that engineers are compensated less well in part because they mistake their jobs for something fun they'd do anyway.
- Finnucane 9y agoYeah, certainly there are a lot of programmers writing software because it's fun for them. They're contributing to FOSS projects because they believe in them. Are they doing what _you_ want them to do just for fun? Probably not.
- mturmon 9y agoI agree with your observation, that was a badly broken analogy within the OP. Of course the OP can "guarantee your sales people never sell enterprise software for fun." But I'll bet those salespeople take more than a passing interest in buying a car, tending an estate sale, dividing up household responsibilities, or negotiating a lease.
- sidlls 9y agoWhat does that have to do with the article or my comment? I write software in my limited spare time for fun, too and I have even had a PR or two accepted by an open source project in my time! I just don't think that means I should be compensated less well, or told that it means I should appreciate being paid (for my job, obviously) while doing something I love, etc.
- caf 9y agoCommission or Salary is orthogonal to Well Compensated and Badly Compensated. Those students selling paintball packages in the mall are paid on commission, but they sure aren't being paid well. (The article isn't "why sales people are paid a lot", it's about why their pay structure is based on a commission structure).
- sidlls 9y agoSure, but in the context of this article engineer style compensation compares poorly. That is, it's essentially a statement that engineers aren't compensated as well as sales workers, and one of the reasons given as to why that's possible is because engineers "have fun" doing engineering work even outside their jobs.
- ryanmarsh 9y agoAre there any examples of competitive sales organizations that don't pay commission of some kind?
- calinet6 9y agoNot competitive exactly (it's not necessary when you don't have commission) but Pluralsight: https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-in-the-long-run.html https://www.inc.com/aaron-skonnard/why-sales-commissions-don...
- robocat 9y agoThinline responded to that article in another post: Interesting last comment (from November 2016) to the original article: "Important Update * I am currently employed at Pluralsight, and I feel obligated to point out that the author of this article, our CEO, no longer believes or stands behind any of the content in this article. Pluralsight does not operate under the Deming philosophy. As of January 2017, Pluralsight will be implementing sales commissions again. We have reverted to the typical high-pressure, high-stress quota models found in most companies.
- tyingq 9y agoThoughtworks doesn't pay commissions, and I think that's highly unusual in that space. No idea if that will change now that a PE firm bought them.
- koolba 9y agoBest advice I've ever heard on this subject is never hire just one. Sales teams need competition to thrive so it is to be at least two people.
- csours 9y agoPutting prediction hat on before reading article: "because your competitors pay commission" > Company A pays commissions and, if you do what you know you can do, you will earn $1M/year. Company B refuses to pay commissions for “cultural reasons” and offers $200K/year. Which job would you take? Now imagine that you are a horrible sales person who would be lucky to sell anything and will get fired in a performance-based commission culture, but may survive in a low-pressure, non-commission culture. Which job would you take? There it is.
- quickthrower2 9y agoSurvivorship bias. If you were wrong you wouldn't have posted :-)
- csours 9y agoHush, you!
- alexasmyths 9y agoTheir contribution to revenue is so direct that this kind of bonus can be incentivized in a very valid way. Engineers at Google get 'bonuses' as well, all of them, so you could very well ask 'why are they paid bonuses'. If Engineers could be incentivized so directly, I'd imagine they would be.
- 0xbear 9y agoGoogle actually had to dial down the bonuses circa 2011. For one thing, to keep the comp looking competitive, it makes sense to have a larger component, because until this rebalancing bases were unimpressive there. For another too large a bonus creates more competition than one would like in the engineering discipline, where the overall success depends on people working well together. So they just cut the bonus in half and added it to the base.
- matwood 9y agoI’ve personally seen this in action, and it leads to all sorts of issues in engineering where the team output is really what matters.
- ericfrenkiel 9y agoSales people earn commission because their work is "non-deterministic," meaning they could execute a perfect sales strategy to win an account but the opportunity could still fall through for circumstances beyond the rep's control (budget is yanked, project is delayed, etc.) By comparison, an engineer's work is "deterministic" in that is fully under his or her control to complete the goal. Sales is a risky job and it's compensated accordingly. It doesn't matter if you crushed your numbers 2 quarters ago. It's the reason why there's a saying that a sales rep is always just 6 months out of a job.
- alttab 9y ago> By comparison, an engineer's work is "deterministic" in that is fully under his or her control to complete the goal. I hope you don't manage engineers.
- ericfrenkiel 9y agoHaving empathy for fields outside your own is exactly why this article is written. It sounds like you only have a single perspective, which is fine, but having more perspectives would help you move beyond being so rigid in your thinking.
- iaabtpbtpnn 9y agoThe parent didn't display any rigidity of thinking, they simply criticized your inaccurate characterization of engineering work... a point which your non sequitur reply does not address.
- ericfrenkiel 9y ago> By comparison... is the operative phrase. Your fallacy is conflating engineering work and an individual engineer's scope on said work. Projects can fail, engineering teams can face delays - all common things. But an individual engineer is very unlikely to lose his/her job over it, in contrast to a sales person missing on his/her quarterly number repeatedly.
- JamesBarney 9y agoCEOs tell everyone if you want great CEOs you gotta pay them. If you wanna great salespeople you gotta pay them. You want great devs. You should put in a ping pong table and give out free soda. The myth that great developers aren't interested in compensation is terrible for our collective pay.
- jetsnoc 9y agoNailed it. A commission structure is key when it comes to sales and a good one puts all of the right motivators in to all of the right places. It keeps them hungry, selling more, and they are motivated to structure deals and sell the product. Devs, the very best ones, don't want to punch a time clock either and they aren't a production line. We want to build good reliable products that are sold and ultimately used by clients. We too want our company to be competitive and to hit important goals and milestones to become bigger and stronger and compensation tools from management should reflect that. A good balance of 'Smart, Get things Done and Doesn't Jeopardize the entire business by building crap' must be handsomely rewarded and free beer doesn't cut it. It's hard to find those people, but, I know it's hard to find really good sales people too that are interested in selling aggressively, meeting goals but also building sustainable and fruitful relationships with clients instead of building a house of cards. I think startups nail this with the first few hires, they are incredibly critical to get right and they usually get a pretty good amount of stock.
- chii 9y ago> A good balance of 'Smart, Get things Done and Doesn't Jeopardize the entire business by building crap' must be handsomely rewarded and free beer doesn't cut it. Those who do are called founders. It sucks, but the reality is that if you aren't an owner, you don't get rewarded.
- jetsnoc 9y agoThat is a good point. When I wrote my note, I was wondering about the middle-ground. An engineer that meets the criteria above but aren't interested in risk so instead of the spoils of millions, they trade their risk for the spoils of tens or hundreds of thousands. Basically, good bonuses for being a high-performer in a high-performing organization. The more I thought of it, the more I realized the middle ground already exists in Corporate America. If you want to trade ping pong tables for income, found a start-up or move in to Corporate America and starting playing the ladders.
- deleted 9y ago[deleted]
- CommentCard 9y agoThere's a simpler explanation: people are afraid of rejection. Sales is difficult because it requires acknowledgement and constant interaction with rejection. It takes more of a psychological toll than engineering, and some people don't want to deal with it, or do not have the personality to brush off repeated rejections in order to get a sale.
- trumpsupporter3 9y agoTrue. The saying goes that in sales, you get 1 yes out 20 sales contacts and it is usually the 20th contact that gives you the sale.
- unabridged 9y agoIt comes down to quality of product vs competitors. Where you have a very in demand brand, you can get away with no sales people (eg Telsa). In a field where your products are indistinguishable from competitors, you need to pay for sales people. And in field where your product is probably worse than cheaper (or free) alternatives, you have a company entirely made of sales people (eg Oracle)
- idlewords 9y agoTesla has a sales team, you're just not looking in the right place. Their sales team works with investors, and sells them on a story.
- unabridged 9y agoDefinitely but I think goes into the marketing/advertising category. But either way almost every other car company has an end sales person used to jack up the price, while tesla can sell cars at a fixed price off a website. And this is solely because of the perceived quality of the product.
- idlewords 9y agoMy point is that Tesla can lose money on every sale. Other companies don't have that luxury, and so need salespeople.
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- gozur88 9y agoIf you didn't pay commissions sales people would start coasting once they made their numbers. Imagine you have to make a million on sales per quarter, and three weeks in you strike gold in the form of a $1.1m contract. Sure, you get bonuses for exceeding your numbers, but you could spend the next two months slacking off, which would probably be worth the lost income. Worse, from the company's perspective, you might try to make sure your new prospects don't close until next quarter, just as a little bit of insurance in case it turns out to be leaner than this one. You're already drinking the coffee - what's the rush? Sales is a tough job. It's a lot of travel, a lot of rejection, and a lot of stress. If I had to do sales you can be damn sure I would expect a lot of compensation.
- caf 9y agoWorse, from the company's perspective, you might try to make sure your new prospects don't close until next quarter, just as a little bit of insurance in case it turns out to be leaner than this one. This has a name in sales - "sandbagging".
- tptacek 9y agoThe theory of not paying commissions is that salespeople will be incentivized the same way other employees are. You don't code on commission and tend not to coast once a revenue number is hit.
- gozur88 9y agoI've met quite a few software developers who pad their estimates heavily and then coast when the job is complete.
- arximboldi 9y agoWhich is great for everyone. The company gets predictable estimates, the developer gets a stress-free life. A shorter but unmet deadline is worse for everyone, specially the company, even if the product is still delivered sooner than the padded deadline.
- Chiba-City 9y agoSalespeople also come in tiers with overlapping recruits and cattle calls. The recruits get bigger or quicker commissions on "who-they-know." Some cattle call younger salespeople find a mentor or get lucky. But attrition rates are high. I brought in IBM fed sales head for a talk years back. IBM only adjusted base salaries once around 1974 or so. They just let them die on the vines otherwise when sales go down.
- savanaly 9y agoTo me, it is obvious why sales people are paid by commission. It's because the most efficient thing for a company to do is pay someone their precise marginal value, not more or less, as that leads to the incentive of people doing the best they can given special constraints that only they personally know such as their own personal productivity function and how much they value their own time and effort. Companies would do similarly for managers and engineers if there were a discreet non-gameable measurement of their output (I'm sure you don't need much imagination to see why paying per JIRA task completed wouldn't work). Unfortunately there's no such measurement system, so the best solution companies have found so far is pay them a salary and try to incentivize effort through bonuses, raises or promotions.
- scarface74 9y agoCompanies would do similarly for managers and engineers if there were a discreet non-gameable measurement of their output The sales process is gameable especially in software. The salesperson can sell vaporware and promise the customer that the company can deliver. That puts pressure on software development to work overtime - unpaid - to meet the deadline.
- NickNaraghi 9y agoIsn't this pretty much what the DAO was trying to solve for?
- arximboldi 9y ago> It's because the most efficient thing for a company to do is pay someone their precise marginal value, not more or less [...] But if they did so there would be no surplus value left for shareholders. Paying for labor less than its contribution to the value of the product is the basis of capitalism.
- trumpsupporter3 9y agoAnd this is supposed to be a revelation? Question to all the engineers reading this: how do you think the money that goes to your bank account gets to your employer first? And what do you think would happen to your job if money stopped flowing from customers to your company?
- trumpsupporter3 9y agoAnd to those of you whiners who are jealous: become a consultant and get paid by the hour instead of getting paid on a salary. Better yet: become open source developers beholden to none.
- deleted 9y ago[deleted]
- thinline 9y agoInteresting last comment (from November 2016) to the original article: "Important Update * I am currently employed at Pluralsight, and I feel obligated to point out that the author of this article, our CEO, no longer believes or stands behind any of the content in this article. Pluralsight does not operate under the Deming philosophy. As of January 2017, Pluralsight will be implementing sales commissions again. We have reverted to the typical high-pressure, high-stress quota models found in most companies. I'm sharing this because I don't want anybody to read this article and follow the bad advice found here. Maybe commissionless sales organizations can work, but apparently not at Pluralsight."
- jasode 9y agoI'm confused why you think the old Pluralsight comment is relevant to this article: 1) The author Ben Horowitz is a VC and not the CEO of Pluralsight. 2) The article explains the psychology & incentives for sales commissions instead of advising companies to pay their salespeople zero commissions.
- trevyn 9y agothinline's comment is just misposted at root level; several of the other comments on this page refer to: https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-in-the-long-run.html https://www.inc.com/aaron-skonnard/why-sales-commissions-don...
- thinline 9y agoYes, meant as a reply to one of those...
- erikb 9y agoWeird. Have I misread it? It seems like the blog post is exactly supporting that statement: You need to pay commissions to sales people.
- clairity 9y agoa competitive selling environment, which is horowitz's conclusion in the article, is definitely part of reason to pay commission, but it's actually larger than that. whether you have sales people or not, and whether you pay them commission or not is dependent on all parts of the marketing mix: your product's scope and complexity, its price, its visibility in the market, and how it's delivered. the more complex your product is, the more customization it requires, the more (higher-skilled) people the customer will need involved in deploying your product. that requires more convincing (i.e., sales). the higher the price, the more senior people are needed to be involved in the decision, requiring sales. the more complex your product, the less likely an ad will be effective, and the more likely that the purchase is a big deal. sales is the marketing channel of choice for highly complex, customizable and expensive products precisely because sales is very effective, yet expensive, so it only makes sense for products with high costs (typically at least 5-figures). you'd typically use less expensive account managers for 4-figure sales, and other marketing channels for less than that. and lastly, the percentage of compensation that you pay as commission is directly correlated with the riskiness of the sale. the harder the sale, the higher the commission as a percentage of comp. account managers, who typically do sales via email and phone, usually get most of their pay as salary. outside sales people typically get a large percentage of sales as commission.
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- askari01 9y agoSales is very important, a salesperson can sell shitty app and still make money, meanwhile i have seen some really good softwares n products being dumped for lack of budget. So I think hardworking smart salesman deserves to be paid well. And marketing is very important.
- tensor 9y agoI suspect that developers are not so much upset at salespeople getting commission, but rather why they get paid so much compared to developers. Personally I don't buy that sales skills are so much more difficult to find or are in higher demand than software development skills. Some of the difference in equity certainly has to do with the higher risk of getting fired for poor performance in sales. But beyond that it's probably that sales and business people are motivated mostly or only by money and thus have spent decades as a collective optimizing getting more money for themselves. In contrast, developers and designers are motivated by accomplishing and creating good things before money and end up not focussing on optimizing money making. If developers were compensated like lawyers, I doubt they'd be so worked up over salespeople getting commissions.
- watwut 9y agoThe other reason is sales being motivated to sell no matter what - meaning they have all motivation to lie or mislead customers just to sell and none for the opposite. That leads to engineers being blamed for product not having (oftentimes mutually excluding) features that were sold or not being done in ridiculously short time. Which in long term oftentimes costs more money then the non-existing feature was sold for. And it leads to bad relationship with customers - and somehow it is engineers who deal with those problems s not sales.
- varjag 9y agoSure we like what we do but in the end of the day the engineers wake up and commute to the office to earn money for their services. Given FU money upfront, many would still code for fun of course, but unlikely the same kind of corp CRUD app or Uber for pets or cloud staging scripts, year after year as on the job. There's no reason to envy sales people being "paid so much" anyway. For every high earner there's a dozen who are living fairly stressful, very unstable lower income life. It is a very competitive line of work, directly reflecting the competitive nature of market economy - from which many of engineers are blissfully shielded.
- peteretep 9y ago> I don't buy that sales > skills are so much more > difficult to find or are in > higher demand than software > development skills Sure, and sales people don't understand why the entire engineering function of the company can't be done on eLance for $10/hr. We can talk about 10x developers all we like, but if you sit in a sales meeting of many companies you'll find there are 10x sales people whose presence is easily measured.
- megiddo 9y agoWhat an enormous echo chamber. I moved from senior dev to sales. My contract is 100% commission, because it aligns performance with business requirements. Good sales is every bit as difficult as good dev, maybe harder. The only people who think devs are not well compensated are devs who can't negotiate or are marginal. If you've never told an interviewer to go fuck themselves over stupid questions or whiteboarding in an interview, you're probably not making an effort.
- AstralStorm 9y agoTry negotiating your salary in a corporation, see how well it works, then attempt censure. People find it easier to up the salary by moving instead of negotiating and it is not due to lack of skill. Otherwise they wouldn't be getting raises that way. You essentially did that by moving to a managerial job. Some people become contractors to expedite this process. The whole structures are designed to prevent you from negotiating. From useless reasons to not give one a raise like easy to misinterpret and worthless KPI, through bureaucracy preventing even slightly risky projects, office politics, levels of indirection, use of statistics on personal level etc. Even if you are great you may have real trouble showing that you are. So people hop jobs. When hopping, what matters is the resume and salesmanship indeed. Only very small companies don't have those bureaucracies and instead they cannot just offer you what they don't have. Unless they have huge VC funding, but that can also evaporate bringing it back to job hopping. Even measuring the effect of your work is difficult, much less selling it, even less so in a way that bypasses all the layers of junk.
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- ryandrake 9y agoI wonder what an org would look like where engineers got compensated as well as salespeople--as a percentage of sales, where if you made a great product that sold like gangbusters, you got showered with money, but if it doesn't sell you get very little or fired. I bet at the very least the products would look very, very different.
- matwood 9y agoYou might be onto something. Paying devs this way could stop the rewrite in new the js framework flavor of the month over and over, and instead put focus on adding features and fixing bugs.
- probablybroken 9y agoIt could also lead to a too many chefs situation, since every contributor would have a steak in the outcome.
- mcmoose75 9y agoYou could make the argument that in (growing) startups, this is closer to the way things are- engineers create value over longer time periods (and efforts are often harder to tie directly to economic value creation). Equity-based comp is a good way to compensate for these kinds of efforts.
- quadrangle 9y agoNo chance of this happening, but the ideal is on the other side: customers should refuse to buy from anyone who gets a commission. The conflict-of-interest is too strong. If customers all really understood that, then all the sales tactics that get commission-based sales people to be so rich would stop working. Then, you wouldn't need commissions.
- neilwilson 9y agoI'd let the sales person generate the $10 million elsewhere and get the commission. Because I can guarantee you that you'll make more profit from the low pressure sales. Commission based sales leads to a turnover based culture and as the saying goes - turnover is vanity; profit is sanity. If you want to align sales people, give them equity and pay a dividend. Or run a cooperative. Then everybody gets a share of the spoils.
- hyperpallium 9y ago> I guarantee your sales people never sell enterprise software for fun. A funny line, yet his "sales people" are really consultative problem solvers. Such people probably would apply their skills in areas such as community projects (e.g. sporting clubs, hobby/user groups, scouts, school, church), politics (e.g. local councils) and charities... for free. These probably bear about the same relation to selling enterprise software as an engineer's side projects have to making enterprise software.
- notahacker 9y ago> Such people probably would apply their skills in areas such as community projects (e.g. sporting clubs, hobby/user groups, scouts, school, church), politics (e.g. local councils) and charities... for free They wouldn't necessarily volunteer to deal with the absolute tosser at BigAccount, make the 4am call to Asia or spend their entire time at the conference trying to find new customers as opposed to having a leisurely chat with someone who isn't going to buy though. For similar reasons, engineers who would happily write code all day for free get very highly compensated to work on fixing bugs on the somewhat similar but less exciting corporate CRUD app.
- lordnacho 9y agoHere's something that's only touched upon: Sales people can vary a lot in the amount of money they bring in, and the variance isn't necessarily explicable by things in their CV. In other words a guy can talk a good talk as well as have a positive record, but when you drop them into your org, you're taking a chance on whether they manage to get anything done. (Which is true for devs as well, but people tend to think -wrongly- they know how to identify devs.) So paying them on commission is necessary because if they fail you want them out and you cannot afford to pay them anyway. If they do well they share in some of the upside from the uncertainty crystallising to positive.
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- gersh 9y agoYou gotta be careful with commission-based sales people. They will promise the sun, the moon, and anything to close the sale. While this may work for some products, it can lead to pissed off customers. Commission can encourage a short-term attitude that doesn't consider the long-term relationship with the customer.
- staunch 9y agoWhy? Because sales people are good at sales! Their whole job is negotiating the highest possible compensation for the value they provide. Apple doesn't need sales people to move millions of their products into "the Enterprise," and neither does any other company with products as good as theirs. It's just that most companies make shitty "Enterprise software" and then try to push it with aggressive sales tactics. There's more than one way to succeed, and making great products is a lot more interesting than a cocaine-powered salesforce.
- ghaff 9y agoExcept Apple actually does. [1] Yes, it's relatively limited but Apple has selectively hired sales people for enterprise sales. [1] http://www.techrepublic.com/article/apple-posts-huge-gains-in-its-25-billion-enterprise-business/ http://www.techrepublic.com/article/apple-posts-huge-gains-i...
- staunch 9y agoAh, technically correct, the best kind of correct ;-) It's true they have some people who will talk to you if you're a big customer, and even let you use the VIP room, etc. But, it's nothing like the model that A16Z promotes, where you push bad products with aggressive sales people.
- cerebrum 9y agoI would be interested in an experiment. Do sales with comission and without and compare the results. Also consider that without having to pay comission you could hire more salespeople for the comissionless model. I bet that there should not be a significant difference in the amount you are selling.
- jlebrech 9y agocoders should get commision
- cdevs 9y agoI could go on and on about how my company screws this up. First, even though they get commission they also get large base pay despite a salesmans performance which makes the salesman stop working around making 70k a year, second horrible tracking of what the deal in each contract will cost our company in developer hours and hardware etc etc so they get paid full commission on a $20,000 that ends up being $4,000 revenue. What our company needs is a strict standard but it's a endless loop of oh salesman can make a sale if you can create this so stop what you are building and welcome to the chaos.
- osullivj 9y agoI have seen one scenario where engineers get sales commissions: quants in investment banks. Typically in banks traders will get 3% of PnL before costs are stripped out, or 10% after costs. Traditional sector coverage sales will get a volume based commission. This always leads to tension between sales and trading as one is compensated on volume and the other on margin. Etrading sales get sales credits on channel volume, not sector volume, which is often another source of tension. And finally, the quants coding up new pricing models may get sales credits on trades priced with those models. No doubt there are some interesting comp models at automated or systematic trading hedge funds where there's no real distinction between traders and coders, but I have no first hand experience there.
- erlend_sh 9y agoI'd rather have a sales person that is as much a part of the team as anyone else. Daniel Pink's ["To Sell Is Human"](http://www.danpink.com/books/to-sell-is-human/ http://www.danpink.com/books/to-sell-is-human/) makes a strong argument against commissions, which is echoed in these articles: https://hbr.org/2012/07/a-radical-prescription-for-sales https://hbr.org/2012/07/a-radical-prescription-for-sales > Mitch Little began questioning the received wisdom on sales commissions in the late 1990s, shortly before he became vice president for worldwide sales and applications at Microchip Technology, a large semiconductor company headquartered near Phoenix. He oversaw 400 salespeople whose compensation plan was the industry standard—60% base salary, 40% commissions. > “That made sense 40 years ago, when the Fuller Brush salesman went door-to-door,” Little told me. “But the world of business-to-business sales has shifted fundamentally.” So in an act of sacrilege for a onetime sales guy, Little killed commissions altogether. He established a new plan in which salespeople received 90% of their compensation in a high base salary, and the other 10% was linked to corporate (rather than individual) measures such as top-line growth, profits, and earnings per share. > The result? Total sales increased. The cost of sales stayed the same. Attrition dropped. Retention rose. http://www.nytimes.com/2013/11/21/business/smallbusiness/for-some-paying-sales-commissions-no-longer-makes-sense.html http://www.nytimes.com/2013/11/21/business/smallbusiness/for... > The proponents of ditching commissions believe they foster negative behaviors, such as focusing on an individual’s profit over the company’s, emphasizing short-term outcomes and encouraging unproductive competition among sales representatives. Even companies that pay commissions can face costly turnover as representatives chase more lucrative offers. https://blog.fogcreek.com/why-do-we-pay-sales-commissions/ https://blog.fogcreek.com/why-do-we-pay-sales-commissions/ > In the year since we dropped the commission system our sales have gone up. In fact, four of the last five months have been record months. We can’t reasonably say that our record sales were caused by this change, but we can reasonably say it didn’t hurt, and that’s worth having a hard think about in your own company. There is no guarantee that this will work for everyone, but it’s unlikely to be a disaster either. > Our salespeople all estimated that they were spending about 20% of their time just keeping track of what money was due them. There was constant horse trading. And, most worrying, we created a heavy disincentive to do all the service stuff that makes customer service shine. Why would you want a system that sets up after-sales service as competition against new sales, especially if you have a small sales team? Reputation and retention, after all, are both paths to revenue. > Removing commissions has changed the sales team. It has taken their focus off their compensation. They have all that administration time back for more useful things. They take a longer view of the value of a prospect, and are less worried about who is going to buy right now. They feel less stress about taking vacation. They don’t quibble among themselves over accounts. And best of all, they feel more integrated with the company.
- k__ 9y agoI have feeling sales people have too much leverage in general. Almost every company I worked for had a sales CEO. God, they are software companies! All the successful software companies have engineers as CEOs...
- erikb 9y agoEngineering is about providing a tool/service that fulfills a customer need. But in the end it is not about making customers happy, as most engineering focussed blog posts would suggest. In the end it's about getting this very rare ressource called money in amounts big enough to pay your regular costs (for instance your engineer) while maybe even making a profit. In some regards the battle for money and solving customer problems are interdependendent and can happen together by coincidence, but they are not necessarily connected. For instance a few months ago I was forced to pay a four digit lawyer bill (could've been bigger) in exchange for the lawyer actually telling me face to face he's not willing to work for me, after signing the contracts. Still can't do much about it. What the sales people provide as value is a high spirit of competition for money, together with an acceptance for how immoral and shitty this world is. And these two skills are also valuable for climbing up the Ladder. The desire to live in a comfortable fantasy world of people helping each other all the time is not good enough. Therefore most of the CEOs are managers or sales people and not engineers. And your companies, while maybe being shitty in the engineering department, may have still made more money than some engineering lead corp.
- aj7 9y agoA couple of things I learned in a career in sales and engineering: 1. Salesmen make most of their money pushing and closing on a hot product with a true advantage. This is easy big money, and it's a lot lot of fun. During this mode, when they come to town, they screw the secretaries in the marketing department (back then.). This mode can't last; market saturation and the competition intervene. The company is wasting a lot of money during this period on commissions, but the good times can build some loyalty in the sales force, but not much. Top salespeople leaving for the competition when this period ends is common. During this period, the sales manager should fire at least one salesperson who is above quota, but who is slacking off and not making the one extra call. That salesperson doesn't get it, and a rookie with a good understanding of the sales material can do great in this environment, and for cheaper. 2. Sales greatness is measured by stolen sales. By this, I mean that if looked at objectively, better specs/price, or historically, customer is used to buying from company, in many sales situations, one company starts out with an advantage. A great salesperson can reverse that advantage, and in doing so, outcompete his counterpart. THIS is why you pay a commission. 3. A salesperson is different from anyone else in the organization. He has to look the customer in the eye and ask for the order. And deal successfully with what follows. The people in the Apple Store are not salespersons, and are not paid as such. Imagine: 737 vs A320. Capiche? 4. Salespeople have contempt for engineers, whose heroics make them rich. Bad salespeople don't hide this effectively, and get fired. 5. Good salespeople know: "The customer is the star." Not his product, not his company, and not him.
- chayesfss 9y agoProblem is, only 1 in 10 or less salespeople are any good. Most are just there to try and get some easy inbound leads and close those off. Very few will actually try and do some work around finding projects, different ways into a company. It's ridiculous that salespeople will get 10-15% of a deal when they typically don't know jack shit about the technology. Honestly I think todays new companies would be wise to allow companies to sign up directly and save themselves 10% of the price. Yes these same companies would have to bolster their corporate staff to ensure redlines are done, etc but the world would be a great place.
- sjg007 9y agoWell you have commissions or stock options. I think you get one or the other. Then again the best sales people probably get both.
- Spooky23 9y agoTwo reasons -- you don't want to pay salespeople who don't sell anything, and you want to attract salespeople with technique and a book of business that makes them sell more. The best salespeople I typically work with have built a relationship with the clients. I take meetings with them because they do not waste my time and they understand my company's needs. I'm more likely to take a call from company X if I know the rep from past business. On the counter-side, I've run into many, many salespeople who bounce around and suck. They focus on doing the dance and checking boxes in Salesforce instead of actually selling product and dump their internal corporate drama on the customer. They bounce because they miss their quota and get canned.
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- jondubois 9y agoSales people have it the best; they are partially responsible for creating market bubbles by overpromising results/features in order to get sales... Then when the bubble which they created reaches popping point, stock prices collapse and companies go bankrupt; engineers lose all their stock options but sales people are fine because they already got their commissions. Overpromising allows them to get all the upside and none of the downside. The only downside is that sales gets more competitive at the peak of the bubble; so it's harder to get those big commissions.
- basseq 9y ago"Sales is the highest paying hard work and the lowest paying easy work."[1] With sales, you want to pay for performance and pay for outcomes. And with sales, it's easy to measure quantitatively and simply. Good sales people love it and make good money—bad sales people don't get paid and/or leave. This is the ideal world. As a employer and an employee, you wish all your departments could be measured and rewarded like that. Not everyone is cut out for sales, and that's fine, but the model works and works well. Examples where it doesn't work well (e.g., over-promising, over-paid) are companies that have poorly balanced incentive commission plans. [1] https://www.nasp.com/article/FF282761-5D6C/sales-is-the-highest-paying-hard-work-and-the-lowest-paying-easy-work.html https://www.nasp.com/article/FF282761-5D6C/sales-is-the-high...
- madshiva 9y agoTotally wrong in my point of view. If you have a good product it will sale by itself, only poor product need aggressive sale people to sell them. It's not about who is selling, but what are you selling? My father is selling product, did a very nice job, but because he did too much result, get is commission removed or downsized but yeah the commission is the solution...
- lunchables 9y ago>I guarantee your sales people never sell enterprise software for fun. And I guarantee you your programmers aren't working on your enterprise software outside of work. Conversely, your sales people are practicing the exact same activities (social interaction, manipulation, etc) outside of work on their personal time.
- edc117 9y agoSorry, but disagree. I guarantee you many passionate software developers are working on their development skills - learning new frameworks, building personal projects that carry into their day to day work, and yes, sometimes even developing something the company can use 'for fun'. Are there developers that don't? Sure, same as there are sales people that don't. Edit: As another post says, it's because sales people are only one step removed from the revenue-gaining process - they are often directly responsible for closing a sale, so they can easily claim credit.
- ghostbrainalpha 9y agoSaying they practice social interaction and manipulation for fun outside work, so they shouldn't receive extra incentive is possibly the worst argument I have ever seen on Hacker News. A prostitute would gladly sleep with a star NBA player for free, so should she/he not be compensated for sleeping with an aging/overweight and smelly client? I enjoy playing high quality video games in my free time like Zelda. Should I not receive composition for bug testing the latest mind numbing Bejeweled mobile game crap at my job? What I am saying is this... everyone interacts with other human beings. There is a large range in the quality of those interactions. Businesses must incentive heavily someone to make them actively seek out the most difficult and profitable of those human interactions. Because someone chooses to interact with another human in their free time does not mean they shouldn't be paid for it.
- QuantumGood 9y agoAgree that value is derived from all contributors to a project, but the value/income from a project is gated most at the level of the sale. Projects can be created but not sold, or sold poorly, deriving little to no value for the organization. But great salespeople can even sell projects that have not been created (not always a good thing). Also, where does the money come from to pay someone? With a sale, it's clear: The salesperson went out and harvested money directly. With everyone else, it's derived through politics, formulas and philosophies.
- mherrmann 9y agoI recently read the author's book "The hard thing about hard things". I understand many people here will be familiar with it. To those who aren't, I recommend checking it out. It finally made me "get" VC and what it's like to work on VC-backed startups. (I'm bootstrapping my companies.)
- hashkb 9y agoI agree, I think, but the points are made so badly I cringed as I read. Every point is made by begging the question. It's dripping with pro-sales bias. There's no content here, just preaching to the choir.
- The_DaveG 9y agoSolid article, there is a middle ground that is missing, that or a base plus bonus of the team. Some of the best sales teams I've ever know work based off a bonus for the whole company meaning they have a huge incentive to help the other members of the team get better and collaborate for the betterment of the company. This will create the best sales team, but will not attract the top X% of sales people.