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Why Must You Pay Sales People Commissions?

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Re: Why Must You Pay Sales People Commissions?

#131

Post by stevenwoo »

smallnamespace wrote: post #120
chimeracoder wrote: post #111

Earlier quoted context omitted.

> Unfortunately the effects of a single teacher are so noisy and indirect that it's basically impossible to measure their performance. The lack of firm data is why the debate about teacher compensation is so fraught. The problem is not that it's hard to measure. The people is that teachers actually have very little ability to make a marginal impact on their students though their performance, except at the very tail e…

> The problem is not that it's hard to measure. The people is that teachers actually have very little ability to make a marginal impact on their students though their performance, except at the very tail ends of the distribution. That's essentially true for most sales people and traders as well. There are VERY heavy tails -- that one guy at the car dealership who sells 3x as much as his peers, or the trader at Citade…

Based on national test scores, what we know works in a small homogeneous country at least is professionalizing teaching - raising the standards to become a teacher. They didn't raise salaries to the same level as other professionals like lawyers and doctors, it's about the same pay as the USA, but Finland managed to go from worst to the top in Europe in one generation. https://www.theatlantic.com/national/archive/2013/01/the-cas...

Re: Why Must You Pay Sales People Commissions?

#132

Post by gozur88 »

tptacek wrote: post #97
gozur88 wrote: post #43

If 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 t…

The 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.

I've met quite a few software developers who pad their estimates heavily and then coast when the job is complete.

Re: Why Must You Pay Sales People Commissions?

#133

Post by quadrangle »

No 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.

Re: Why Must You Pay Sales People Commissions?

#134

Post by neilwilson »

I'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.

Re: Why Must You Pay Sales People Commissions?

#135

Post by mickronome »

stevenwoo wrote: post #131
smallnamespace wrote: post #120

Earlier quoted context omitted.

> The problem is not that it's hard to measure. The people is that teachers actually have very little ability to make a marginal impact on their students though their performance, except at the very tail ends of the distribution. That's essentially true for most sales people and traders as well. There are VERY heavy tails -- that one guy at the car dealership who sells 3x as much as his peers, or the trader at Citade…

Based on national test scores, what we know works in a small homogeneous country at least is professionalizing teaching - raising the standards to become a teacher. They didn't raise salaries to the same level as other professionals like lawyers and doctors, it's about the same pay as the USA, but Finland managed to go from worst to the top in Europe in one generation. https://www.theatlantic.com/national/archive/201…

It's also interesting to note that children in Finland got a shorter school day, and mostly no homework at all. The shortening of the school day was especially prominent in for the youngest children.

Re: Why Must You Pay Sales People Commissions?

#136

Post by richdougherty »

richdougherty wrote: post #63
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…

> the sales person knows exactly how much money they bring in I agree this is the key factor. Any job where a person can argue a clear, direct, measurable link between their work and profit is a job that can be paid based on financial results. Other jobs where you see this: financial traders, consultants with direct client contact. To take the other extreme, look at teachers. They have the potential to generate huge…

I'll just put one citation into this discussion. Raj Chetty and his collaborators produce amazing research. I attended a talk when he visited New Zealand a few years ago. In this paper he's attempting to address the dream of measuring teacher value, by measuring changes in test scores against changes in lifetime income.

Yes there are other ways of measuring teacher "value" too, but income changes are relevant to this discussion, since they tell us how much a teacher could theoretically ask for in "commission". The paper suggests that an average teacher vs a bottom 5% teacher makes a $250,000 lifetime difference in income (present value).

"The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood" http://www.nber.org/papers/w17699

Take a look. He does a neat job controlling for different factors, trying to tease causality out of correlation.

Re: Why Must You Pay Sales People Commissions?

#137

Post by olavgg »

puranjay wrote: post #103
ugh123 wrote: post #87

Earlier quoted context omitted.

>An engineers actions are so far removed from revenue that they can't make a claim so directly. Really? I see it the other way around. How did the salesperson contribute to building the product? A well built technology solution can sell it self in many scenarios. If we didn't have sales people, we could still build a product and push it into the market. Of course all of this depends on the type of product, but still.…

You're not going to sell to large businesses without salespeople. A $10/month product? Sure. But when you're selling a $10,000/month product, you need salespeople.

Not always.

We sell out software to the big banks and we don't have a single salesperson in our team. Everyone call us. The reason for this is that we have been in national newspapers with awesome articles, which is great marketing.

I'm sure we could do even better on the international market with a sales team.

Re: Why Must You Pay Sales People Commissions?

#138

Post by tiggybear »

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…

Sales can get a percent of the value they generate because they have more leverage than engineers. Plain and simple. They have direct relationships with customers and the value they bring in is easier to show.

This line from the article was pretty gross to read, "Do your engineers like programming? Might they even do a little programming on the side sometimes for fun? Great. I guarantee your sales people never sell enterprise software for fun."

Personally, I don't do that much programming for fun and a lot of the crap I have to do for work I would never do for my own projects. It reads as though they are aware that they can get away with paying engineers less because they like to create valuable things just because. So it's easier to trick them into giving up the valuable things they create for cheaper.

Who cares why someone creates something? No businessman is entitled to someone else's creation because it was created for fun.

I mean, if all these VCs and founders are sooooo passionate about their work, they should't need equity or much of salary, right? It's the same line of thinking, but of course it doesn't apply in those situations for...reasons.

Re: Why Must You Pay Sales People Commissions?

#139

Post by tiggybear »

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…

Do bad engineers not get fired?

Re: Why Must You Pay Sales People Commissions?

#140

Post by tarsinge »

flukus wrote: post #130
adventured wrote: post #128

Earlier quoted context omitted.

> A well built technology solution can sell it self in many scenarios. If we didn't have sales people, we could still build a product and push it into the market. I don't how much sales experience you have, at either the management level or the hands-on sales level, but products almost never sell themselves. You're better off changing that to never sell themselves, because of how rare the examples of it are. It's pra…

I've come across a number of products that sell themselves because they've solved a problem I was having. A lot of these went on to unsell themselves with things like "contact us for pricing". A sales team might be better at maximizing sales, but that isn't necessarily a good thing. One that's bucked this trend lately has been atlassian, they're a 5 billion dollar company without a sales team that operates in a space…

> One that's bucked this trend lately has been atlassian, they're a 5 billion dollar company without a sales team that operates in a space that typically requires sales teams. Transparent pricing is a huge part of their success.

I heard they have a huge partner/reseller network though

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