8 ms·

Eliminating Sales Commissions

49 points by ABS 14y ago

jpdoctor 14y ago
Please please do 1,2,&3 year followup posts. Interesting experiment, I'm pessimistic as to the outcome, but would enjoy being wrong.
- willlll 14y ago
  Why are you posting this message here? This site is not his site. This isn't his email inbox.
  - manojlds 14y ago
    And, he did not submit it on HN, but someone else did.
  - Evbn 14y ago
    Et tu.
jmduke 14y ago
So, my takeaway from the article: Sales commissions are good because they align what the company wants and what the salesperson wants. Sales commissions are bad because sometimes the company wants something (pushing a harder product, etc.) that isn't in the salesperson's best interest. ThoughtWorks' solution was to eliminate commissions, thus pushing for a salesperson role that was less of an advocate for the product towards the customer and more for an advocate for the customer towards the company. Maybe I'm oversimplifying things, but the sales staff the author describes isn't sales -- it's marketing. Which is good! But fills an entirely different niche. One of the issues the author talks about is that the sales staff were promising things that couldn't be delivered, but I only see that more exacerbated by this approach. What's the disadvantage of scaling commission based off of company goals? (Selling a less demanded product yields more commission). This is, from my understanding, how more institutionalized salesforces operate, and seems like a more gradual solution to the problem.
- mindcrime 14y ago
  Maybe I'm oversimplifying things, but the sales staff the author describes isn't sales -- it's marketing. I don't think there's any maybe too it. I think it's quite clear that the OP isn't suggesting to abandon sales completely in favour of marketing. So, yes, I think you're oversimplifying to a strong extent. What is being discussed is all about incentives for sales people, to motivate them to do what's in the company's best interests. If it were in the company's best interest to simply get a sale no matter what, regardless of how much damage that sale does to the company, then the standard commission based approach makes perfect sense. But what do you do about the deals where the salesperson does the normal "used car salesman / snake oil pitchman" act, scores the sell by promising a lot of shit that's not realistic, and then it ultimately costs the company more money than the sale price, to fulfil the deal? Or maybe it's not that bad, but maybe the scenario just creates a debacle that leaves a bad taste in the customer's mouth and ixnay's any future deals with that customer. And if your firm emphasizes lots of up-selling and cross-selling and tries to optimize "lifetime value of the customer" then you want to start the relationship off on a strong note, no?
  - jmduke 14y ago
    What is being discussed is all about incentives for sales people, to motivate them to do what's in the company's best interests. If it were in the company's best interest to simply get a sale no matter what, regardless of how much damage that sale does to the company, then the standard commission based approach makes perfect sense. But what do you do about the deals where the salesperson does the normal "used car salesman / snake oil pitchman" act, scores the sell by promising a lot of shit that's not realistic, and then it ultimately costs the company more money than the sale price, to fulfil the deal? This argument isn't against sales commissions, it's against bad salespeople. Obviously any sales approach that values get-rich-quick over providing long-term value for the company is going to be dangerous. Smart salespeople recognize that a relationship with the customer is the most important thing -- not despite commissions, but because of commissions. There's a sales cliche that goes along the lines of treating the customer like a cow to be milked instead of a cow to be slaughtered: if you're trying to optimize the lifetime value of a customer as a business, then that also means maximizing the possible commission from that customer, no? (And, furthermore, the point I'm raising is -- are those smart/good salespeople going to be disinclined to work at a company without commission? I really don't know.)
larrik 14y ago
Anecdotally, a company I used to work for actually went the opposite direction, moving from purely salaried salesreps to pure commission. I believe it was a disaster (the reporting was so bad back then there was no way to tell), but salary costs went down, so they just kept it. Yeah, weird place.
MattRogish 14y ago
FogCreek has eliminated commissions, too. http://blog.fogcreek.com/why-do-we-pay-sales-commissions/ http://blog.fogcreek.com/why-do-we-pay-sales-commissions/ So have we. My thoughts? Commission-based sales is almost never a good alignment between sales people and the company. Almost always sets up unintended consequences and leads to local maxima before reaching global optmima. Also, if you're a software product company, you end up with the "doers" (software people, support, etc.) earning far, far less than sales-people, which causes them to get fed up and leave. Yes, we're a business and we have to make money, but without great software developers we won't have anything to sell. Put everyone on salary and then have company-wide profit sharing (that is equal amongst the divisions/people) tends to align everyone's interests.
- orangethirty 14y ago
  Also, if you're a software product company, you end up with the "doers" (software people, support, etc.) earning far, far less than sales-people, which causes them to get fed up and leave. I don't understand this point. The sales person is the one making sure everyone else gets a paycheck. Why should they be treated equally? They are the stars of the show, not the developers, or management. If people get fed up, then let them. Code does not sell itself.
  - mindcrime 14y ago
    I don't understand this point. The sales person is the one making sure everyone else gets a paycheck. Why should they be treated equally? They are the stars of the show, not the developers, or management. If people get fed up, then let them. Code does not sell itself. Your take on this sounds just as wrong to me, as the one you quote. Wouldn't it be better to take a more holistic view and realize that both the "sellers" and the "makers" are equally important? Sure, code doesn't sell itself, but a salesperson with no product to sell doesn't do anybody any good either.
    - tptacek 14y ago
      This would be true if there were good salespeople languishing for lack of decent products to sell. There probably aren't.
orangethirty 14y ago
There are two types of salespeople: A. Those who can and will sell with motivation to make good money. B. Those who want a steady paycheck and will sell OK. Your approach values option B. Is it bad? Not really. OK sales people still make sales. But they tend to have very negative impact on the rest of the business. I only hire sales people on commission, and pay them very well. They always bring twice as much business as a salaried one.
- mseebach 14y ago
  It seems like they're trying to cultivate a middle-ground sales person. It seems counter-intuitive that the only good salespeople are solely motivated by blindly moving product for personal profit, and none will be receptive to do good selling on a long-term vision instead.
- alanctgardner2 14y ago
  > They always bring twice as much business as a salaried one. Do you have any numbers for that? At all? Also, why do we need to pay bonuses to encourage salespeople to be motivated? I don't get paid per line of code, or even by features shipped. Surprisingly, I don't just stop coding and wait for someone to throw more money at me. I work because it's satisfying, and I know I will receive a promotion and other recognition if I consistently perform well. edit: Someone linked the Fog Creek blog post about "Why do we still pay commission?", where Joel has exactly the same opinion. It's kind of demeaning to salespeople to imply they're just chasing a quick buck.
- deleted 14y ago
  [deleted]
- ucee054 14y ago
  And I never want to work for you implementing whatever fever dreams your salesmen promised your customers (with a free pony thrown in!)
- ncallaway 14y ago
  In your penultimate sentence you state you only hire sales people based on commission. In your final sentence you state that they perform twice as well as salaried sales people. These seem contradictory to me. How can you know the latter given the former? Where do your stats for the comparison cone from? Sorry if I'm being terse, I'm on my mobile at at moment...
BlackJack 14y ago
Why don't people incentivize long term sales? For example, instead of giving a commission based on how much they sold in a given year, have each salesperson given some money based on how many years a client has remained with the company, and maybe extra if the client buys more products later on. That way you're incentivizing sales people to build long-lasting relationships, which I assume is what you want.
- instakill 14y ago
  That is a great idea.
- faet 14y ago
  The way my company does it is X% of total sales from Customer A the first year. Followed by Y% for next couple years.
TWAndrews 14y ago
I would love to see this become the norm for companies who sell enterprise software.
- mindcrime 14y ago
  FWIW, we don't have salespeople yet at Fogbeam Labs, but I'm leaning very heavily towards the idea of adopting a Fog Creek / Thoughtworks approach when we get to that point. I tend to think that going salary + regional bonuses + companywide profit sharing (or something along those lines) is more compatible with taking a long-term view and ultimately generating the most profit. Now time might ultimately prove me wrong, but it is encouraging to see other firms exploring this approach.
  - TWAndrews 14y ago
    My suspicion is that this model will prevent you from attracting the very best reps, but that you'll be able to get a disproportionately high share of above average reps, and that your turn over will be a lot lower. In any case, it's much easier to try this model and then add in commissions later on than to do the reverse.
gadders 14y ago
I can't read the article as I'm in corporate lockdown IE8 hell, but one point that may or may not be in the original: I always thought that salespeople were paid well was because, fundamentally, it's a shitty job.
- qxf2 14y ago
  Totally agree. The emotional variance a salesperson has to endure on a day to day basis is very, very high. We engineers are lucky to work in a rational space. When things work, they work. When things don't work we can apply rational thought and fix the problem a majority of the time. You can deal with emotional/people issues via straight talk, through your manager, avoidance and/or just quitting. With sales and marketing, they are grappling with a fundamentally irrational (or at least opaque) set of constraints - people, their moods, budget cycles, company processes, etc. Its hard. I used to think sales and marketing was at par or below engineering. My thinking changed over the years thanks to something I saw first hand. My previous employer had a large, all hands on deck, one week long conference every year. As an engineer I would observe how our sales team would interact with clients. Clients, especially the bigger ones, would treat them very badly. Our sales members would put on a cheerful face and continue with their jobs. I would have walked out if I had been treated like that in public. I can only imagine how bad the treatment is when its in private. I've been much more polite to salespeople, even to pushy salespeople, ever since then. I actually take time to reply to (generic) emails for products that I signed up for a trial offer.
  - freework 14y ago
    It depends on the person. Some people take to "human problems" very well.
- codva 14y ago
  It can be a fundamentally shitty job. In 2000 when I was selling Sun servers and Oracle licenses to dot coms it was a fundamentally awesome job. My golf game improved a lot in those years :) There is no simple answer here. You can hire smart salespeople that care about the company and know when to walk away from a bad deal. That comes from corporate culture too though. For all the lip service about good sales and partnering with clients at the end of the month or quarter most of my employers have not given one shit about anything except getting the deals done. It's not salespeople that creates bad sales, it's management. We just do what we are paid to do. If you create an environment where the sales force is expected to bring in only deals that are good for the company, and pay the sales force in a way that allows them to walk away from bad deals without worrying about the mortgage that month, it can and will work. Commission can be a part of that setup, but it can't be 75% of the comp plan. Pay the sales force a base they can live on during a bad month, with commission or bonuses that reward them for bringing in the right kind of new business, and it can be a win-win set up. It's not rocket science.
armored_mammal 14y ago
Just thinking about the author bringing up metrics and aligning motivation, it might be possible do both across multiple departments by having moderate bonuses based on customer retention and satisfaction. (I guess that's similar to profit sharing, in a way.) edit: realized I'm not the first to suggest something similar. Haha.
trimbo 14y ago
I like to say "money begets money". If the incentive is money, people make more money. If it's not, they don't. It's that simple. Everything money related works this way for a reason. Sales, real estate, trading, mortgages, whatever. And I am pretty sure that no one wants their sales team to make less money, right? What you're really looking for by eliminating commissions is discipline. Not selling the product in a way that puts you under (like Oracle nearly did in 1990-ish[1]). That requires a strong leader to guide this, not changing the core incentive AWAY from making money. Oracle fixed their problem by changing their accounting. I'm not a sales person, but my understanding from sales people is that the best ones work on commission. If you were told that the best engineers required equity, would you make your company equity-free? Didn't think so. [1] - http://en.wikipedia.org/wiki/Oracle_Corporation#Sales_practices http://en.wikipedia.org/wiki/Oracle_Corporation#Sales_practi...
martinced 14y ago
The problem is always the same with commissions, anywhere: kickbacks ("retro-commission" in french). It does definitely happen in the software industry. You find someone responsible for acquisitions and you tell them: "Look man, if you buy 200 licences of this I'll get a commission and I'll give you under the table a kickback of 25% of my commission". You're a fool if you think this doesn't happen and there are some very famous names in this industry where sales people are known to behave this way. The good move is to completely suppress them but the problem is that your competitors may be employing sales people using shaddy practices so you'll, sadly, all too often not be competing on merits.
jasonlotito 14y ago
Equating sales and sales commissions as the same across different fields is dangerous. Even across different companies. For example, the traditional relationship is between the companies and the sales person representing that company. This is because the relationship is, in reality, between two individuals. This happens all the time in the startup world, we just don't call it commissions.
jonathanjaeger 14y ago
I don't think the issue is black and white. Take for instance a company where your big money comes from landing big accounts, and the only way to do that is with star sales people. And maybe on the tech side the work is rather mundane, and star engineers don't even want to work for the company -- for example, simple landing page setup or setting Javascript pixels to track conversion and other metrics. For software intensive companies where the product is the business, perhaps sales commissions don't make sense. But there are many companies where tech is either outsourced or not the differentiator in terms of competitive advantage, and therefore salaries/commissions skew towards the salespeople making the most. There are certainly issues that can crop up in that case, but the incentives can help.
louischatriot 14y ago
Sales commissions are the best way to maximize short term returns. Then your operational teams leave because they're paid much less but don't see why their work is less important, your clients leave when they understand the solution you sold them is not adapted and so on. Tldr of the article: http://tldr.io/tldrs/512258d5ace532876b000003/eliminating-sales-commissions http://tldr.io/tldrs/512258d5ace532876b000003/eliminating-sa...
- jasonw44 14y ago
  I think that salesmen always have gimmicks. Often, the best way to sell a product is to lie. Also having a sliding commission scale gives incentives to push sales through at whatever cost, just to get to the next tier of commission-- the difference is substantial. I've seen how this can lead salesmen to sell to fraudulent clients who use demo service or products (at a cost to the company) Reducing or eliminating tiered commissions can help. If possible, applying penalties to salesmen who don't conduct due diligence to verify clients' identities, or penalties for cancelling a service before rescission periods end could help, too. Yet, at the same time, I'm making a switch from tech to entrepreneur and I believe that sales is a lot about telling a story. In general, you have to make your clients believe your product or service is a great deal and that you don't make any money on the deal. (which is impossible) So, how do you sell a product or service at a decent profit without becoming slimy? Or how do you run a company and give incentives (and disincentives) to employees that lead to both short and long term growth, customer satisfaction, employee satisfaction and sustainable profit? Good question. I've come to believe the answer isn't a one size fits all. Most businesses (especially tech businesses) are businesses of scale. Short-term growth is especially important in the beginning of a company, but sustainable growth is the ultimate goal.
briandoll 14y ago
We're really happy not having sales commissions at GitHub. Further reading: Optimizing Sales for Happiness https://github.com/blog/1230-optimizing-sales-for-happiness https://github.com/blog/1230-optimizing-sales-for-happiness
bane 14y ago
In my last company we operated for years without commissions. But our sales were never really quite paying the bills. But because of how we sold our software, we ended up building very long reaching and substantial relationships with our customers. Quite a few are still very loyal customers today, almost a decade later. Everybody was a sales person. Still we couldn't quite get over the hump to profitable and growing. For a few years we had a professional sales guy who handled a number of clients. He was paid like everybody else, base salary plus bonuses. However, he always felt uncomfortable not getting a base + commission like he was used to. One thing that was noted was the "drive by" approach to sales he used. Customer interaction was fairly limited, relationship building was minimal, meetings of any sort were kept on strict time schedules (and no longer than 1 hour). This ran counter to how the rest of us moved software. He did "ok" compared to the rest of us in short term sales, but not a single one of his customers stayed on as long term customers. Enter a new CEO, he brought in a professional sales team, and restructured the sales operation to a base + commission model. Very quickly one problem became very apparent. The hours worked on a sale by the a sales guy were quickly dwarfed by the hours worked by the rest of the staff to support him. But when the sale was made, he kept the entire commission. This became a really big problem as the new sales guys would start new custom demo building efforts without regard to how much time it took the rest of the staff to support him. To him, his 2 or 3 1-hour meetings, a half dozen emails and a phone call or two didn't change if the demo took 8 hours to put together or 120. Sales were also still not up-to-par. The sales team blamed the lack of support, the support team resented the flippant treatment by sales. Something had to give. The new CEO was absolutely opposed to getting rid of commission entirely, he felt that it would limit his ability to recruit new sales talent. So I proposed a middle ground: - any designated sales person "owned" their account and were guaranteed some money out of a deal closing - if he made the sale completely, 100% on his own, he kept 100% of the commission. This was to encourage them to start respecting how much work went into the support he received and for them to better learn the product line they were pushing (we had a problem where every salesman needed a support engineer in every sales meeting to answer 80% of the questions the customer posed) - if he required even 5 minutes of anybody else's time, he lost 40% of this commission, to be paid to the person who helped him. This was to encourage the sales staff to collaborate and get the most out of their support person, and to encourage the support person to collaborate with the sales guy -- effectively reintroducing the "everybody is a salesperson" back into the company - if more than one person had to help, the 40% was split between those people, this again further encouraged collaboration, skill building (so the support person wouldn't have to rope in additional colleagues) and the need for the requesting sales person to actually learn about the functions needed to support his sales effort and who had those skills In the end, the sales guy, rather than being a brash, drive by, finger pointing irritant to the company -- rewarded for everybody else's work -- had to learn to lead micro-teams for each sales effort, or learn the products back and forth and serve themselves. The results: - small sales efforts ended up being handled solo, the sales guys started to get really good at estimating LoE for a sale. One guy ended up specializing in these and handed off larger sales to the rest of the sales team as he didn't want to coordinate people...he kept selling so it was fine - larger LoEs automatically pulled in a few core people who ended up more or less as sales engineers for the sales staff, we became much more careful about sizing sales vs. LoE so we didn't waste now 2 or 3 people's time - support staff loved getting extra checks every quarter, motivation was up and resentment was down - sales guys became much more part of the team than slick lone-wolfs sales were up record percentages What went wrong? When more than one support staff worked on a sale, it became unclear how to split the 40% at times. There were still sales where the support work dwarfed the sales guy's work, and/or times when the sales guys thought they could game the system by delegating virtually all of the sales process to a support person, then collect their 60% for virtually no work (this happened under the old system when they made 100% too) the 60/40 split didn't always make everybody happy. It introduced quite a bit of complexity into the sales process. Pre-commission, we were free to just focus on the sales process, post-commission there was endless negotiations over commission splits, payout times, etc. If I had to do it over again, I make the rules this way. Sales people would be payed a normal competitive salary, no commissions until they've at least covered their own cost to the company, then commission pay outs as before. Actually, I'd still setup a commission-free system, but with generous bonuses to outstanding members of the team.

49 points by ABS 14y ago

Please please do 1,2,&3 year followup posts. Interesting experiment, I'm pessimistic as to the outcome, but would enjoy being wrong.

willlll 14y ago
Why are you posting this message here? This site is not his site. This isn't his email inbox.
- manojlds 14y ago
  And, he did not submit it on HN, but someone else did.
- Evbn 14y ago
  Et tu.

jmduke 14y ago

So, my takeaway from the article: Sales commissions are good because they align what the company wants and what the salesperson wants. Sales commissions are bad because sometimes the company wants something (pushing a harder product, etc.) that isn't in the salesperson's best interest. ThoughtWorks' solution was to eliminate commissions, thus pushing for a salesperson role that was less of an advocate for the product towards the customer and more for an advocate for the customer towards the company. Maybe I'm oversimplifying things, but the sales staff the author describes isn't sales -- it's marketing. Which is good! But fills an entirely different niche. One of the issues the author talks about is that the sales staff were promising things that couldn't be delivered, but I only see that more exacerbated by this approach. What's the disadvantage of scaling commission based off of company goals? (Selling a less demanded product yields more commission). This is, from my understanding, how more institutionalized salesforces operate, and seems like a more gradual solution to the problem.

mindcrime 14y ago
Maybe I'm oversimplifying things, but the sales staff the author describes isn't sales -- it's marketing. I don't think there's any maybe too it. I think it's quite clear that the OP isn't suggesting to abandon sales completely in favour of marketing. So, yes, I think you're oversimplifying to a strong extent. What is being discussed is all about incentives for sales people, to motivate them to do what's in the company's best interests. If it were in the company's best interest to simply get a sale no matter what, regardless of how much damage that sale does to the company, then the standard commission based approach makes perfect sense. But what do you do about the deals where the salesperson does the normal "used car salesman / snake oil pitchman" act, scores the sell by promising a lot of shit that's not realistic, and then it ultimately costs the company more money than the sale price, to fulfil the deal? Or maybe it's not that bad, but maybe the scenario just creates a debacle that leaves a bad taste in the customer's mouth and ixnay's any future deals with that customer. And if your firm emphasizes lots of up-selling and cross-selling and tries to optimize "lifetime value of the customer" then you want to start the relationship off on a strong note, no?
- jmduke 14y ago
  What is being discussed is all about incentives for sales people, to motivate them to do what's in the company's best interests. If it were in the company's best interest to simply get a sale no matter what, regardless of how much damage that sale does to the company, then the standard commission based approach makes perfect sense. But what do you do about the deals where the salesperson does the normal "used car salesman / snake oil pitchman" act, scores the sell by promising a lot of shit that's not realistic, and then it ultimately costs the company more money than the sale price, to fulfil the deal? This argument isn't against sales commissions, it's against bad salespeople. Obviously any sales approach that values get-rich-quick over providing long-term value for the company is going to be dangerous. Smart salespeople recognize that a relationship with the customer is the most important thing -- not despite commissions, but because of commissions. There's a sales cliche that goes along the lines of treating the customer like a cow to be milked instead of a cow to be slaughtered: if you're trying to optimize the lifetime value of a customer as a business, then that also means maximizing the possible commission from that customer, no? (And, furthermore, the point I'm raising is -- are those smart/good salespeople going to be disinclined to work at a company without commission? I really don't know.)

larrik 14y ago

Anecdotally, a company I used to work for actually went the opposite direction, moving from purely salaried salesreps to pure commission. I believe it was a disaster (the reporting was so bad back then there was no way to tell), but salary costs went down, so they just kept it. Yeah, weird place.

MattRogish 14y ago

FogCreek has eliminated commissions, too. http://blog.fogcreek.com/why-do-we-pay-sales-commissions/ http://blog.fogcreek.com/why-do-we-pay-sales-commissions/ So have we. My thoughts? Commission-based sales is almost never a good alignment between sales people and the company. Almost always sets up unintended consequences and leads to local maxima before reaching global optmima. Also, if you're a software product company, you end up with the "doers" (software people, support, etc.) earning far, far less than sales-people, which causes them to get fed up and leave. Yes, we're a business and we have to make money, but without great software developers we won't have anything to sell. Put everyone on salary and then have company-wide profit sharing (that is equal amongst the divisions/people) tends to align everyone's interests.

orangethirty 14y ago
Also, if you're a software product company, you end up with the "doers" (software people, support, etc.) earning far, far less than sales-people, which causes them to get fed up and leave. I don't understand this point. The sales person is the one making sure everyone else gets a paycheck. Why should they be treated equally? They are the stars of the show, not the developers, or management. If people get fed up, then let them. Code does not sell itself.
- mindcrime 14y ago
  I don't understand this point. The sales person is the one making sure everyone else gets a paycheck. Why should they be treated equally? They are the stars of the show, not the developers, or management. If people get fed up, then let them. Code does not sell itself. Your take on this sounds just as wrong to me, as the one you quote. Wouldn't it be better to take a more holistic view and realize that both the "sellers" and the "makers" are equally important? Sure, code doesn't sell itself, but a salesperson with no product to sell doesn't do anybody any good either.
  - tptacek 14y ago
    This would be true if there were good salespeople languishing for lack of decent products to sell. There probably aren't.

orangethirty 14y ago

There are two types of salespeople: A. Those who can and will sell with motivation to make good money. B. Those who want a steady paycheck and will sell OK. Your approach values option B. Is it bad? Not really. OK sales people still make sales. But they tend to have very negative impact on the rest of the business. I only hire sales people on commission, and pay them very well. They always bring twice as much business as a salaried one.

mseebach 14y ago
It seems like they're trying to cultivate a middle-ground sales person. It seems counter-intuitive that the only good salespeople are solely motivated by blindly moving product for personal profit, and none will be receptive to do good selling on a long-term vision instead.
alanctgardner2 14y ago
> They always bring twice as much business as a salaried one. Do you have any numbers for that? At all? Also, why do we need to pay bonuses to encourage salespeople to be motivated? I don't get paid per line of code, or even by features shipped. Surprisingly, I don't just stop coding and wait for someone to throw more money at me. I work because it's satisfying, and I know I will receive a promotion and other recognition if I consistently perform well. edit: Someone linked the Fog Creek blog post about "Why do we still pay commission?", where Joel has exactly the same opinion. It's kind of demeaning to salespeople to imply they're just chasing a quick buck.
deleted 14y ago
[deleted]
ucee054 14y ago
And I never want to work for you implementing whatever fever dreams your salesmen promised your customers (with a free pony thrown in!)
ncallaway 14y ago
In your penultimate sentence you state you only hire sales people based on commission. In your final sentence you state that they perform twice as well as salaried sales people. These seem contradictory to me. How can you know the latter given the former? Where do your stats for the comparison cone from? Sorry if I'm being terse, I'm on my mobile at at moment...

BlackJack 14y ago

Why don't people incentivize long term sales? For example, instead of giving a commission based on how much they sold in a given year, have each salesperson given some money based on how many years a client has remained with the company, and maybe extra if the client buys more products later on. That way you're incentivizing sales people to build long-lasting relationships, which I assume is what you want.

instakill 14y ago
That is a great idea.
faet 14y ago
The way my company does it is X% of total sales from Customer A the first year. Followed by Y% for next couple years.

TWAndrews 14y ago

I would love to see this become the norm for companies who sell enterprise software.

mindcrime 14y ago
FWIW, we don't have salespeople yet at Fogbeam Labs, but I'm leaning very heavily towards the idea of adopting a Fog Creek / Thoughtworks approach when we get to that point. I tend to think that going salary + regional bonuses + companywide profit sharing (or something along those lines) is more compatible with taking a long-term view and ultimately generating the most profit. Now time might ultimately prove me wrong, but it is encouraging to see other firms exploring this approach.
- TWAndrews 14y ago
  My suspicion is that this model will prevent you from attracting the very best reps, but that you'll be able to get a disproportionately high share of above average reps, and that your turn over will be a lot lower. In any case, it's much easier to try this model and then add in commissions later on than to do the reverse.

gadders 14y ago

I can't read the article as I'm in corporate lockdown IE8 hell, but one point that may or may not be in the original: I always thought that salespeople were paid well was because, fundamentally, it's a shitty job.

qxf2 14y ago
Totally agree. The emotional variance a salesperson has to endure on a day to day basis is very, very high. We engineers are lucky to work in a rational space. When things work, they work. When things don't work we can apply rational thought and fix the problem a majority of the time. You can deal with emotional/people issues via straight talk, through your manager, avoidance and/or just quitting. With sales and marketing, they are grappling with a fundamentally irrational (or at least opaque) set of constraints - people, their moods, budget cycles, company processes, etc. Its hard. I used to think sales and marketing was at par or below engineering. My thinking changed over the years thanks to something I saw first hand. My previous employer had a large, all hands on deck, one week long conference every year. As an engineer I would observe how our sales team would interact with clients. Clients, especially the bigger ones, would treat them very badly. Our sales members would put on a cheerful face and continue with their jobs. I would have walked out if I had been treated like that in public. I can only imagine how bad the treatment is when its in private. I've been much more polite to salespeople, even to pushy salespeople, ever since then. I actually take time to reply to (generic) emails for products that I signed up for a trial offer.
- freework 14y ago
  It depends on the person. Some people take to "human problems" very well.
codva 14y ago
It can be a fundamentally shitty job. In 2000 when I was selling Sun servers and Oracle licenses to dot coms it was a fundamentally awesome job. My golf game improved a lot in those years :) There is no simple answer here. You can hire smart salespeople that care about the company and know when to walk away from a bad deal. That comes from corporate culture too though. For all the lip service about good sales and partnering with clients at the end of the month or quarter most of my employers have not given one shit about anything except getting the deals done. It's not salespeople that creates bad sales, it's management. We just do what we are paid to do. If you create an environment where the sales force is expected to bring in only deals that are good for the company, and pay the sales force in a way that allows them to walk away from bad deals without worrying about the mortgage that month, it can and will work. Commission can be a part of that setup, but it can't be 75% of the comp plan. Pay the sales force a base they can live on during a bad month, with commission or bonuses that reward them for bringing in the right kind of new business, and it can be a win-win set up. It's not rocket science.

armored_mammal 14y ago

Just thinking about the author bringing up metrics and aligning motivation, it might be possible do both across multiple departments by having moderate bonuses based on customer retention and satisfaction. (I guess that's similar to profit sharing, in a way.) edit: realized I'm not the first to suggest something similar. Haha.

trimbo 14y ago

I like to say "money begets money". If the incentive is money, people make more money. If it's not, they don't. It's that simple. Everything money related works this way for a reason. Sales, real estate, trading, mortgages, whatever. And I am pretty sure that no one wants their sales team to make less money, right? What you're really looking for by eliminating commissions is discipline. Not selling the product in a way that puts you under (like Oracle nearly did in 1990-ish[1]). That requires a strong leader to guide this, not changing the core incentive AWAY from making money. Oracle fixed their problem by changing their accounting. I'm not a sales person, but my understanding from sales people is that the best ones work on commission. If you were told that the best engineers required equity, would you make your company equity-free? Didn't think so. [1] - http://en.wikipedia.org/wiki/Oracle_Corporation#Sales_practices http://en.wikipedia.org/wiki/Oracle_Corporation#Sales_practi...

martinced 14y ago

The problem is always the same with commissions, anywhere: kickbacks ("retro-commission" in french). It does definitely happen in the software industry. You find someone responsible for acquisitions and you tell them: "Look man, if you buy 200 licences of this I'll get a commission and I'll give you under the table a kickback of 25% of my commission". You're a fool if you think this doesn't happen and there are some very famous names in this industry where sales people are known to behave this way. The good move is to completely suppress them but the problem is that your competitors may be employing sales people using shaddy practices so you'll, sadly, all too often not be competing on merits.

jasonlotito 14y ago

Equating sales and sales commissions as the same across different fields is dangerous. Even across different companies. For example, the traditional relationship is between the companies and the sales person representing that company. This is because the relationship is, in reality, between two individuals. This happens all the time in the startup world, we just don't call it commissions.

jonathanjaeger 14y ago

I don't think the issue is black and white. Take for instance a company where your big money comes from landing big accounts, and the only way to do that is with star sales people. And maybe on the tech side the work is rather mundane, and star engineers don't even want to work for the company -- for example, simple landing page setup or setting Javascript pixels to track conversion and other metrics. For software intensive companies where the product is the business, perhaps sales commissions don't make sense. But there are many companies where tech is either outsourced or not the differentiator in terms of competitive advantage, and therefore salaries/commissions skew towards the salespeople making the most. There are certainly issues that can crop up in that case, but the incentives can help.

louischatriot 14y ago

Sales commissions are the best way to maximize short term returns. Then your operational teams leave because they're paid much less but don't see why their work is less important, your clients leave when they understand the solution you sold them is not adapted and so on. Tldr of the article: http://tldr.io/tldrs/512258d5ace532876b000003/eliminating-sales-commissions http://tldr.io/tldrs/512258d5ace532876b000003/eliminating-sa...

jasonw44 14y ago
I think that salesmen always have gimmicks. Often, the best way to sell a product is to lie. Also having a sliding commission scale gives incentives to push sales through at whatever cost, just to get to the next tier of commission-- the difference is substantial. I've seen how this can lead salesmen to sell to fraudulent clients who use demo service or products (at a cost to the company) Reducing or eliminating tiered commissions can help. If possible, applying penalties to salesmen who don't conduct due diligence to verify clients' identities, or penalties for cancelling a service before rescission periods end could help, too. Yet, at the same time, I'm making a switch from tech to entrepreneur and I believe that sales is a lot about telling a story. In general, you have to make your clients believe your product or service is a great deal and that you don't make any money on the deal. (which is impossible) So, how do you sell a product or service at a decent profit without becoming slimy? Or how do you run a company and give incentives (and disincentives) to employees that lead to both short and long term growth, customer satisfaction, employee satisfaction and sustainable profit? Good question. I've come to believe the answer isn't a one size fits all. Most businesses (especially tech businesses) are businesses of scale. Short-term growth is especially important in the beginning of a company, but sustainable growth is the ultimate goal.

briandoll 14y ago

We're really happy not having sales commissions at GitHub. Further reading: Optimizing Sales for Happiness https://github.com/blog/1230-optimizing-sales-for-happiness https://github.com/blog/1230-optimizing-sales-for-happiness

bane 14y ago

In my last company we operated for years without commissions. But our sales were never really quite paying the bills. But because of how we sold our software, we ended up building very long reaching and substantial relationships with our customers. Quite a few are still very loyal customers today, almost a decade later. Everybody was a sales person. Still we couldn't quite get over the hump to profitable and growing. For a few years we had a professional sales guy who handled a number of clients. He was paid like everybody else, base salary plus bonuses. However, he always felt uncomfortable not getting a base + commission like he was used to. One thing that was noted was the "drive by" approach to sales he used. Customer interaction was fairly limited, relationship building was minimal, meetings of any sort were kept on strict time schedules (and no longer than 1 hour). This ran counter to how the rest of us moved software. He did "ok" compared to the rest of us in short term sales, but not a single one of his customers stayed on as long term customers. Enter a new CEO, he brought in a professional sales team, and restructured the sales operation to a base + commission model. Very quickly one problem became very apparent. The hours worked on a sale by the a sales guy were quickly dwarfed by the hours worked by the rest of the staff to support him. But when the sale was made, he kept the entire commission. This became a really big problem as the new sales guys would start new custom demo building efforts without regard to how much time it took the rest of the staff to support him. To him, his 2 or 3 1-hour meetings, a half dozen emails and a phone call or two didn't change if the demo took 8 hours to put together or 120. Sales were also still not up-to-par. The sales team blamed the lack of support, the support team resented the flippant treatment by sales. Something had to give. The new CEO was absolutely opposed to getting rid of commission entirely, he felt that it would limit his ability to recruit new sales talent. So I proposed a middle ground: - any designated sales person "owned" their account and were guaranteed some money out of a deal closing - if he made the sale completely, 100% on his own, he kept 100% of the commission. This was to encourage them to start respecting how much work went into the support he received and for them to better learn the product line they were pushing (we had a problem where every salesman needed a support engineer in every sales meeting to answer 80% of the questions the customer posed) - if he required even 5 minutes of anybody else's time, he lost 40% of this commission, to be paid to the person who helped him. This was to encourage the sales staff to collaborate and get the most out of their support person, and to encourage the support person to collaborate with the sales guy -- effectively reintroducing the "everybody is a salesperson" back into the company - if more than one person had to help, the 40% was split between those people, this again further encouraged collaboration, skill building (so the support person wouldn't have to rope in additional colleagues) and the need for the requesting sales person to actually learn about the functions needed to support his sales effort and who had those skills In the end, the sales guy, rather than being a brash, drive by, finger pointing irritant to the company -- rewarded for everybody else's work -- had to learn to lead micro-teams for each sales effort, or learn the products back and forth and serve themselves. The results: - small sales efforts ended up being handled solo, the sales guys started to get really good at estimating LoE for a sale. One guy ended up specializing in these and handed off larger sales to the rest of the sales team as he didn't want to coordinate people...he kept selling so it was fine - larger LoEs automatically pulled in a few core people who ended up more or less as sales engineers for the sales staff, we became much more careful about sizing sales vs. LoE so we didn't waste now 2 or 3 people's time - support staff loved getting extra checks every quarter, motivation was up and resentment was down - sales guys became much more part of the team than slick lone-wolfs sales were up record percentages What went wrong? When more than one support staff worked on a sale, it became unclear how to split the 40% at times. There were still sales where the support work dwarfed the sales guy's work, and/or times when the sales guys thought they could game the system by delegating virtually all of the sales process to a support person, then collect their 60% for virtually no work (this happened under the old system when they made 100% too) the 60/40 split didn't always make everybody happy. It introduced quite a bit of complexity into the sales process. Pre-commission, we were free to just focus on the sales process, post-commission there was endless negotiations over commission splits, payout times, etc. If I had to do it over again, I make the rules this way. Sales people would be payed a normal competitive salary, no commissions until they've at least covered their own cost to the company, then commission pay outs as before. Actually, I'd still setup a commission-free system, but with generous bonuses to outstanding members of the team.