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Why Must You Pay Sales People Commissions?

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Re: Why Must You Pay Sales People Commissions?

#111

Post by chimeracoder »

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…

> 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 ends of the distribution.

In other words, structural factors that teachers can't directly control, like family support or district curriculum standards, have a much larger impact on student performance than teaching quality does. (Except, of course, for the exceptionally bad teachers, but that's better addressed by firing them than by adjusting the compensation strategy).

Re: Why Must You Pay Sales People Commissions?

#112

Post by scarface74 »

savanaly wrote: post #61

To 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…

Companies 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.

Re: Why Must You Pay Sales People Commissions?

#113

Post by ryandrake »

aggie wrote: post #96
RcouF1uZ4gsC wrote: post #54

Earlier quoted context omitted.

You don't see CEO's being CEO's in their free time. Nor do you see sales people selling stuff just for the fun of it. With open source, developers will spend time and effort building very valuable stuff for free. This perpetuates the perception that programmers like programming so much they would do it as long as their living expenses are met. I honestly think open source has depressed the wages of programmers. Linux…

> Nor do you see sales people selling stuff just for the fun of it. Do you hang out with many sales people? In my experience, it's a very personality-driven field and they certainly do at least act like sales people outside of work, even if not literally selling a product or service for money.

Exactly, I knew a sales guy at a former start-up who, when not selling for our company, was off selling watches or hustling something else. He lived and breathed sales in his free time, like an open source programmer lives and breathes programming in his free time.

Re: Why Must You Pay Sales People Commissions?

#114

Post by NickNaraghi »

savanaly wrote: post #61

To 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…

Isn't this pretty much what the DAO was trying to solve for?

Re: Why Must You Pay Sales People Commissions?

#115

Post by ryandrake »

I 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.

Re: Why Must You Pay Sales People Commissions?

#116

Post by skookumchuck »

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…

Coffee is for closers!

Re: Why Must You Pay Sales People Commissions?

#117

Post by mdale »

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.

What about AWS ? I often see spend 10k+ Without much of a conversation with salespeople. But this is probably the exception rather then the rule. And of course there is high touch to grow accounts after they reach certain threasholds.

Re: Why Must You Pay Sales People Commissions?

#118

Post by late2part »

chowells wrote: post #73
tlb wrote: post #26

Earlier quoted context omitted.

It'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.

You've illustrated the circle nicely. Salespeople are paid on commission because salespeople are paid on commission. What if there was no commission job available as an alternative?

What if God spelled backwards was Foot? Your hypothetical is irrelevant in the real world, as there are commission jobs available as an alternative.

Commmunism would be wonderful if it weren't for basic human psychology.

Re: Why Must You Pay Sales People Commissions?

#119

Post by paulddraper »

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.

Not engineers. Resources.

Re: Why Must You Pay Sales People Commissions?

#120

Post by smallnamespace »

chimeracoder wrote: post #111
richdougherty wrote: post #63

Earlier quoted context omitted.

> 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…

> 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 Citadel whose trades made over $1bn in a year.

But imagine how the teaching profession would change if 1) the gains could be accurately measured and 2) we assigned payment or prestige to teachers based on (1).

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