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Why do we pay sales commissions?

blog.fogcreek.com

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Re: Why do we pay sales commissions?

#111

Post by kokey »

edw519 wrote: post #8

...and are less worried about who is going to buy right now... So you implemented a system that makes people less worried about the most important thing to worry about? OP makes many fine arguments about the pros and cons of commissions, but this one little nit trumps them all. There are many reasons for businesses to suffer and eventually die: capitalization, profitability, positioning, etc. but insufficient revenue…

I think it also depends on what stage a business is at. I think if you are in an initial high growth period the emphasis should certainly be on the 'buy right now' customers, these are new customers trying out a new company or customers you are taking off a competitor. I think commission structures are more appropriate during this phase, the business still needs to find what type of customer it works best with, and it needs to get a critical mass of these, and this is mostly a numbers game.

However, there is a point where you've reached a certain critical mass, where your happy customers market for you, where your own marketing and presence sells the company. Like Fog Creek, which is now an established and known company. At this point you will do better at growing your customer base through marketing instead of commission driven sales, where customer service to the existing customers will do the selling for you, and changing the pay structure of your sales people will align them better to this approach. It also allows you to convert your customer base slowly to those you know will remain with you for longer. I think you still need to keep statistics on sales performance, and deal with bad performers and promote good performers, but these should be closer to a bonus structure and work over longer timescales, like the rest of the staff.

Re: Why do we pay sales commissions?

#114

Post by earle »

This is just an absurd argument. You're paying top sales people commissions because thats what top sales people demand! You dont have a choice in this matter if you want real world class sales people -- you'll be giving them more than just commissions!

Re: Why do we pay sales commissions?

#115

Post by deltaqueue »

matwood wrote: post #69
deltaqueue wrote: post #11

I 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…

and yet I still think a $200,000 deal requires more work and yields more profit for the company than a $5,000 deal, and thus I should be rewarded for that additional effort. Interesting. I wrote a particularly tricky piece of code today. It required much more effort on my part than some simple code I wrote last week, so I need to be rewarded for that additional effort. Oh wait, I am rewarded with a salary for doing w…

The difference is that the additional effort put forth in the sales process yields direct, tangible profits, whereas coding efforts are not always as easily quantified.

Think of this from the perspective of an owner. If you are going to choose between two sales guys, one who pulls in $10 deals and another who pulls in million-dollar deals, who are you going to choose? OK, now that you've chosen the latter, how much are you going to pay him? Since there's no simple way to come up with an arbitrary worth, say you settle on a nice big offer for him. What if he stops producing stellar numbers (due to personal deficiencies or market forces)? Do you fire him or reduce his pay? Doing either is sure to infuriate him if external forces are at play, so the only alternative is a merit-based commission system.

I'm not saying it's right for companies who only pay sales commissions and don't reward coders--there absolutely should be profit sharing and bonuses for programmers with measurable contributions to the company--but this process is in place simply because sales' efforts are infinitely easier to quantify and reward (from a profitability standpoint) than are programming efforts.

Re: Why do we pay sales commissions?

#116

Post by gamble »

dcpdx wrote: post #99
gamble wrote: post #89

Earlier quoted context omitted.

It's a good philosophy to start from, but you can't have a career in sales without eventually being forced to push products that no reasonable person would believe in. Perhaps I've been soured by the particular salespeople I've worked with, but I don't think it's a job that ethical or sane people thrive in long-term because there are eventually going to be situations where management expects results that can't be ach…

As a sales professional myself, I find it disheartening that so many view salespeople in the manner described. One of the cardinal rules of being a truly great salesperson is to believe in what you're selling (Zig Ziglar talks about this often). If you don't, customers and prospects will not only be able to smell it from a mile away, but your passion and desire to succeed will be nonexistent and you'll have to fight…

I used to work for a highly sales-focused software company (6-7 figure licenses, year-long sales cycles) with some very good salesmen. It was an eye-opening experience. The really good salesmen were no more ethical than a used-car salesman, but they were very good at portraying themselves the way you describe and extremely judicious in their use of deception. Perception of honesty and integrity is very important in sales, but I have my doubts that genuinely honest people rise to the top in sales. I had the typical distrust of shady salespeople before working there, but now I'm deeply suspicious of anyone in sales, regardless of how honest they seem.

Re: Why do we pay sales commissions?

#117

Post by jacques_chester »

tptacek wrote: post #106
jacques_chester wrote: post #103

Earlier quoted context omitted.

> 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)…

I agree with you, personally; commissions have their place.

That said we don't really know. Everyone uses commissions because everyone agrees that they work. But I'm not sure we've tested the alternative. That's why the Fog Creek trial will be interesting.

Re: Why do we pay sales commissions?

#119

Post by samaparicio »

JoachimSchipper wrote: post #10
edw519 wrote: post #8

...and are less worried about who is going to buy right now... So you implemented a system that makes people less worried about the most important thing to worry about? OP makes many fine arguments about the pros and cons of commissions, but this one little nit trumps them all. There are many reasons for businesses to suffer and eventually die: capitalization, profitability, positioning, etc. but insufficient revenue…

Apparently, they've had "record months" since implementing this system.

To me, the article is about 1 or 2 years too early. It provides great detail about all the pros and cons of judging the choice in advance, but no evidence that they made the right choice. Unless Spolsky is ready to start judging the performance of a sales team by some metric other than revenue.
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