Why Must You Pay Sales People Commissions? • Hacker News Board

Re: Why Must You Pay Sales People Commissions?

#31

Post by caf » Tue, Sep 12, 2017, 2:52 AM UTC

phkahler wrote: post #3

Why 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…

There's often a considerable delay between sales work and revenue, too. "Sales" are generally counted on the day the client signs the contract, but the company doesn't see the revenue until actual delivery.

It's more likely to be because in sales, the individual can have a major effect on the numbers that their commission is calculated on, so (as the article describes) that attracts the strongest performers, because they know that they will be well-compensated.

In positions where your personal performance doesn't have a direct and immediate effect on the numbers, the strongest performers won't be attracted to commissions. If you were part of a software development team would you want a significant part of your compensation to be at-risk based on this quarter's sales numbers? Probably not, because you know that you could bust your ass this quarter getting an important release out but still see your paycheck dive because that big potential lead backed out of signing.

Re: Why Must You Pay Sales People Commissions?

#32

Post by [deleted] » Tue, Sep 12, 2017, 2:52 AM UTC

hackits wrote: post #22

ericfrenkiel wrote: post #15

Sales 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'…

Wouldn't call engineer's work `deterministic` its the least `deterministic` field i've been in.

[deleted]

Re: Why Must You Pay Sales People Commissions?

#33

Post by ericfrenkiel » Tue, Sep 12, 2017, 2:52 AM UTC

alttab wrote: post #20

ericfrenkiel wrote: post #15

Sales 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'…

> 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.

Having 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.

Re: Why Must You Pay Sales People Commissions?

#34

Post by [deleted] » Tue, Sep 12, 2017, 2:54 AM UTC

calinet6 wrote: post #6

ThomPete wrote: post #4

Earlier quoted context omitted.

You 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)

Do you though? At an individual level? The only measurement that matters is profit, which is pretty easy to measure.

[deleted]

Re: Why Must You Pay Sales People Commissions?

#35

Post by idlewords » Tue, Sep 12, 2017, 2:54 AM UTC

unabridged wrote: post #28

It 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)

Tesla 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.

Re: Why Must You Pay Sales People Commissions?

#36

Post by caf » Tue, Sep 12, 2017, 2:56 AM UTC

sidlls wrote: post #5

I 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.

Commission 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).

Re: Why Must You Pay Sales People Commissions?

#37

Post by protomyth » Tue, Sep 12, 2017, 2:56 AM UTC

jbooth wrote: post #25

Waterluvian wrote: post #7

Earlier quoted context omitted.

Also 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.

At 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 salesper…

Agreed and to add: It is very much like a waitress / waiter. Lower base pay with commissions substituting for tips. The big difference is the Darwinian nature of the job. Bad food or service from the kitchen might decrease tips, but probably won’t get the waitstaff fired[1], but salespeople that don’t perform, regardless of the software or support, are going to be canned.

I don’t begrudge high salespeople commissions because that means things are pretty good, just don’t let them run the company (see Steve Jobs ‘lost’ 1995 interview with Cringly).

1) until the restaurant goes under

Re: Why Must You Pay Sales People Commissions?

#38

Post by [deleted] » Tue, Sep 12, 2017, 2:56 AM UTC

unabridged wrote: post #28

It 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)

[deleted]

Re: Why Must You Pay Sales People Commissions?

#39

Post by Swizec » Tue, Sep 12, 2017, 2:57 AM UTC

sidlls wrote: post #5

I 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.

I would totally write code for fun and I do! But engineering ... that shit ain’t fun. Most of it is monotonous and boring and rife with managing process and people and working around things you built 2 years ago that no longer fit but you don’t have time to change. For every hour of coding, I am rewarded with 2 hours of engineering. Bleh

Re: Why Must You Pay Sales People Commissions?

#40

Post by ericfrenkiel » Tue, Sep 12, 2017, 2:57 AM UTC

calinet6 wrote: post #23

ericfrenkiel wrote: post #15

Sales 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'…

Isn't that an argument not to pay based on deals won? Doesn't that make it a random or unpredictable reward structure, and therefore not very effective?

It really depends on the type of business - if it's a high-volume business, then your proposal is often used by sales organizations. You might call this an "order taking" business - low ASP (average sales price), simple product, etc.

For a low-volume business with high ASP, it's typically a complex product that takes longer to close which introduces some degree of unpredictability, and so a business must compensate the individual with a reward (commission) program reflective of that.