Why didn't they call this blog post "Why we don't pay sales commissions"?
That "we" means industry in general, not Fog Creek.
Why do we pay sales commissions?
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Re: Why do we pay sales commissions?
#102asdfghjkl;
Re: Why do we pay sales commissions?
#103Earlier quoted context omitted.
Sure, but my point was that it's not a one-way exchange of value. The sales staff may be paid less, but they get lower risk in return. Whether they like that is up to them.
But I'm not making a moral judgement. Pay your sales team whatever you want. Pay them minimum wage; for the people who accept the job, you're still doing them a service. My point is that you will get bad salespeople by selecting for the ones willing to take smooth, low returns over commissions.
> But I'm not making a moral judgement.
I was addressing the parent comment to mine, which did seem to be making a value judgement.
> My point is that you will get bad salespeople by selecting for the ones willing to take smooth, low returns over commissions.
Can you back this up with figures, or is it your expert opinion?
Re: Why do we pay sales commissions?
#104Earlier quoted context omitted.
> Fog creek basically just gave themselves a pay raise. Rather than giving salespeople a cut of the sales, they now are paying them a flat-fee. Fog Creek have taken on the sales risk entirely from the sales staff. It's not a one-way trade.
"Fog Creek have taken on the sales risk entirely from the sales staff. It's not a one-way trade." I suppose. But without sales, they would be out of business. They take this risk on regardless of what they are paying their sales staff (Business is all about taking risk). I wonder what percentage they were actually giving their sales staff..10%..20%? I doubt it was over 50%, so they aren't really increasing their risk…
Without a product, they would be out of business.
Re: Why do we pay sales commissions?
#105Atlassian (which also makes bug tracking software) has been around longer than Fog Creek, and doesn't even have salespeople, much less commissions. Demonstrated model of success, no need to blog about it in 2012.
That is not true. When my employer was evaluating JIRA we were contacted by people who performed the same function as salespeople. They are definitely not pushy and did not take us out for steak and strippers, but they do seem to exist.
Do you know if that was people from Atlassian or a licensed reseller? My understanding was they use 3rd party resellers but don't have a sales team themselves, but could be wrong
Re: Why do we pay sales commissions?
#106Earlier quoted context omitted.
But I'm not making a moral judgement. Pay your sales team whatever you want. Pay them minimum wage; for the people who accept the job, you're still doing them a service. My point is that you will get bad salespeople by selecting for the ones willing to take smooth, low returns over commissions.
> But I'm not making a moral judgement. I was addressing the parent comment to mine, which did seem to be making a value judgement. > My point is that you will get bad salespeople by selecting for the ones willing to take smooth, low returns over commissions. Can you back this up with figures, or is it your expert opinion?
In the 3 companies I've worked at where I worked closely with direct sales teams, the ones who beat their numbers stick around, the ones who don't get fired. Your salary is the base pay you get whether you clear your numbers or not.
It's weird to call that "expert opinion". I'm not an "expert" at managing sales teams, though I've hired salespeople in 2 companies (I've never done sales or managed a sales organization). But we're right now not so much discussing my opinions about direct sales as we are talking about basic facts.
Re: Why do we pay sales commissions?
#107I suspect FogCreek had success because their sales team is relatively small, but I'm curious to see how this works long-term. Is a lack of commission structure going to deter future recruits? They said nobody left, but have they tried hiring any additional sales reps? Big time sales reps will assuredly balk at the prospect of cutting their income to some average amount, but perhaps that type of employee only exists a…
I'm with you on this. On my previous company, they had this no-target no-commission sales policy and it did hurt them. When one smart sales head realized, the company grown up 20-times with target and commission based structure.
Re: Why do we pay sales commissions?
#108Earlier quoted context omitted.
* Commissions are typically paid on a contract, not on the lifetime value of the customer. * If I give my sales people a cut of the lifetime value of a customer instead of the immediate contract, would that be better or worse?
That's a really good question. The short answer is, "it depends." In my mind, the problem is that commission is an incentive to do whatever it takes to close the deal -- especially if you're in an uncapped commission with accelerators. For example, if I'm paid 10% on my first $300k in new business, 15% on $300-499, 25% on 500+, I'm doing everything I can to hit $500k, right? I (the commissioned salesperson) would lie…
Just for the sake of argument, what if it were a pro rata commission on the lifetime value of the customer, paid continuously as money comes in the door, and only while you are employed with good standing?
What I'm really getting at: is the problem with commissions themselves or the way in which commissions were structured at the places you worked? Putting aside cash flow and accounting issues, could you design a commission structure that incentivises correct behavior?
Re: Why do we pay sales commissions?
#109[deleted]
Re: Why do we pay sales commissions?
#110I have trouble with a comparison between incentive comp schemes for programmers and sales commissions. One of the biggest problems with programmer incentive comp is the need to align it with business goals --- which is why you'd have to be an idiot to pay per-line-of-code. Programmer comp is several layers of indirection away from company income. The same is not true of sales comp. Salespeople earn commissions on mon…
How did they transition from a base + commission package to a base only ? Does the salesguy that use to get a higher than average commission now gets a higher than average base ?