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Why Must You Pay Sales People Commissions?

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Re: Why Must You Pay Sales People Commissions?

#81

Post by jetsnoc »

chii wrote: post #51
jetsnoc wrote: post #42

Earlier quoted context omitted.

Nailed it. A commission structure is key when it comes to sales and a good one puts all of the right motivators in to all of the right places. It keeps them hungry, selling more, and they are motivated to structure deals and sell the product. Devs, the very best ones, don't want to punch a time clock either and they aren't a production line. We want to build good reliable products that are sold and ultimately used by…

> A good balance of 'Smart, Get things Done and Doesn't Jeopardize the entire business by building crap' must be handsomely rewarded and free beer doesn't cut it. Those who do are called founders. It sucks, but the reality is that if you aren't an owner, you don't get rewarded.

That is a good point. When I wrote my note, I was wondering about the middle-ground. An engineer that meets the criteria above but aren't interested in risk so instead of the spoils of millions, they trade their risk for the spoils of tens or hundreds of thousands. Basically, good bonuses for being a high-performer in a high-performing organization. The more I thought of it, the more I realized the middle ground already exists in Corporate America. If you want to trade ping pong tables for income, found a start-up or move in to Corporate America and starting playing the ladders.

Re: Why Must You Pay Sales People Commissions?

#82

Post by clairity »

a competitive selling environment, which is horowitz's conclusion in the article, is definitely part of reason to pay commission, but it's actually larger than that.

whether you have sales people or not, and whether you pay them commission or not is dependent on all parts of the marketing mix: your product's scope and complexity, its price, its visibility in the market, and how it's delivered.

the more complex your product is, the more customization it requires, the more (higher-skilled) people the customer will need involved in deploying your product. that requires more convincing (i.e., sales). the higher the price, the more senior people are needed to be involved in the decision, requiring sales. the more complex your product, the less likely an ad will be effective, and the more likely that the purchase is a big deal.

sales is the marketing channel of choice for highly complex, customizable and expensive products precisely because sales is very effective, yet expensive, so it only makes sense for products with high costs (typically at least 5-figures). you'd typically use less expensive account managers for 4-figure sales, and other marketing channels for less than that.

and lastly, the percentage of compensation that you pay as commission is directly correlated with the riskiness of the sale. the harder the sale, the higher the commission as a percentage of comp. account managers, who typically do sales via email and phone, usually get most of their pay as salary. outside sales people typically get a large percentage of sales as commission.

Re: Why Must You Pay Sales People Commissions?

#83

Post by fulafel »

RcouF1uZ4gsC wrote: post #54
JamesBarney wrote: post #16

CEOs tell everyone if you want great CEOs you gotta pay them. If you wanna great salespeople you gotta pay them. You want great devs. You should put in a ping pong table and give out free soda. The myth that great developers aren't interested in compensation is terrible for our collective pay.

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…

I think this is analogous to the "lump of labour" fallacy. You argue there is less demand for software engineering because lots of software is available as open source, but actually there is more demand because this enables a wider range of software to be made in a cost effective way.

Re: Why Must You Pay Sales People Commissions?

#84

Post by sidlls »

caf wrote: post #31
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…

Commission isn't the only mechanism of performance based compensation: bonuses and revenue and profit sharing (which commissions might be considered a subset of, I suppose) are also things. Equity (real equity, e.g. of a public company or profitable, stable company with a clear, real value) is another form.

Besides that, it's certainly possible to measure at least in aggregate the impact on revenue non-sales team members have, e.g. by the value the products they work on create. It's obviously not as clear or direct as a sale.

Re: Why Must You Pay Sales People Commissions?

#85

Post by Waterluvian »

dingo_bat wrote: post #50
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.

> single page app about why I should be paid more? Isn't that a resume?

My resume doesn't have enough frameworks.

Re: Why Must You Pay Sales People Commissions?

#86

Post by Waterluvian »

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…

But a good salesperson who is making quota can also apply their craft to carving a larger piece of the pie for themselves. Just because they're doing well, it does not mean their compensation is an accurate proportion to their contribution to the whole.

But don't get me wrong, I'm not saying we should try to quantify the efficacy of SW devs more. I had a PM do that once in the form of ticket quantification as a KPI. I had to expend a lot of political capital to opt out from that nightmare.

Re: Why Must You Pay Sales People Commissions?

#87

Post by ugh123 »

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…

>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...

I'm actually in favor of of commissions, and engineering bonuses for the same reasons from this article. But it cannot be said that engineers are so far removed from the revenue.

Re: Why Must You Pay Sales People Commissions?

#88

Post by Waterluvian »

Fordrus wrote: post #65
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.

When I was still in the humanities (German Literature Major), my program was making a MAJOR push for all graduates of the major to be able to articulate to others and interviewers the skillset they'd gained during their time at university, and I found it quite useful and helpful, even though I can't remember too much about the specifics. I even talked to one of my professors personally about the push, in which I ment…

I think I know what you're saying all too well, if I understand correctly. In my Master's program, my advisor had to keep asking me to stop saying, "we" any time I described efforts. I didn't even notice I was doing it, but very naturally I would say, "we applied X." "We then did Y" instead of "I", being the sole researcher.

It's very hard for me to be so bold as to flatly say, "I designed and built this, and I feel responsible for why it has been such a success." The most I can get out these days is, "I am very proud to see that software still finds value among the other dev teams."

Re: Why Must You Pay Sales People Commissions?

#89

Post by scarface74 »

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…

An engineers actions are so far removed from revenue that they can't make a claim so directly.

Not always. I've worked for two companies that customize software for customers. I knew exactly what the company was charging for every hour I worked.

Re: Why Must You Pay Sales People Commissions?

#90

Post by bayonetz »

JamesBarney wrote: post #16

CEOs tell everyone if you want great CEOs you gotta pay them. If you wanna great salespeople you gotta pay them. You want great devs. You should put in a ping pong table and give out free soda. The myth that great developers aren't interested in compensation is terrible for our collective pay.

I'd really love to see software developers unionize...
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