Why do we pay sales commissions? • Hacker News Board

Re: Why do we pay sales commissions?

#91

Post by MBCook » Thu, Jan 05, 2012, 1:17 AM UTC

AlexBlom wrote: post #15

I agree that commissions can generally be corrosive (and are a hallmark of lazy management, generally speaking), but I have to wonder how this would work in larger teams. In smaller teams (when managed well, and with the right talent), the focus is always on the sales number vs. the sales commission, which is properly considered as a byproduct of the sales number. If you dig deeper, many of the negative attitudes are…

and are a hallmark of lazy management, generally speaking

That's my thought. I really like the idea of commissions to reward hard work, but either way you have to manage things right.

At one small company I worked at, the main sales guy received very little (if any) commissions. He didn't get many sales at all, but that wasn't a big issue since he had his salary.

At another, there were three sales people on commissions. One of them didn't sell much or provide much value, but he had in the past. As long as his old clients didn't leave, he kept getting paid (due to the way things were structured). This did not endear him to the other employees.

The other two sales people were very motivated by the commissions. They could sell a ton, which would be great if it wasn't for the way it was done. They were in constant cut-throat competition, trying to adjust things so their numbers would be 1% better at the other one's expense. This just devolved into a ton of fighting, eventually causing controls to be put into place to prevent either one from tweaking things. It was also easier to get a new customer to pay us for a few months than increase old business or keep them happy, so customer turnover was very high.

The best system I saw had one person working to get new business (on commissions), and once the sales was in it was managed by someone else (on commissions for keeping/improving their business). This removed the incentive to replace good old customers with fly-by-night new ones, but it was a very small team so I'm not sure it would have scaled very big.

Whether there are commissions or not, management needs to keep an eye on things to intervene when something is happening that's not in the organization's best interest. There are plenty of sales people (just like every other profession) that are happy to take advantage of companies if given the chance. Some people can do an amazing job for you, but need a ton of oversight.

Re: Why do we pay sales commissions?

#92

Post by yuhong » Thu, Jan 05, 2012, 1:39 AM UTC

gamble wrote: post #89

AnonSales wrote: post #67

Earlier quoted context omitted.

I don't want to speak for John, but this is my answer to the same question: "Sales isn't rocket science, it just takes someone who is comfortable talking to people...and when you're selling something you believe in, that's really easy to do."

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…

That is why I mentioned that sales cooperating with engineering would be a better idea instead of incentives.

Re: Why do we pay sales commissions?

#93

Post by yuhong » Thu, Jan 05, 2012, 1:42 AM UTC

AnonSales wrote: post #74

yuhong wrote: post #70

Earlier quoted context omitted.

Yea I suggest cooperation with engineering before: http://news.ycombinator.com/item?id=3148143 Also consider equity or profit sharing in the company too.

Equity would get complicated, quickly. Profit sharing seems to be an easier route. I'm not sure I agree with sales being in product development. You run the risk of having a sales person champion an idea as the greatest thing on earth, only to find out the market size is exactly 1. The salesperson should, however, be concerned with the customer's satisfaction long after the deal is signed.

It would still be better than using unethical sales tactics.

Re: Why do we pay sales commissions?

#94

Post by polymatter » Thu, Jan 05, 2012, 2:01 AM UTC

niklas_a wrote: post #44

I'm sorry to say that this is wrong on so many levels. We engineers like to believe that the author is right and our guy gut tells us that "hey why do the sales people get commission and I don't??". So why is the author wrong? While there certainly ARE cases where commission is being used in the wrong way, there is nothing inherently wrong with it. 1) The author misinterprets the research and states that people perfo…

I disagree that sales is a menial task.

If it were, there would be a small difference between the best salespeople and the worst. Everything I've seen suggest the variance is bigger in sales than it is in programming.

Re: Why do we pay sales commissions?

#95

Post by jacques_chester » Thu, Jan 05, 2012, 2:06 AM UTC

tptacek wrote: post #83

jacques_chester wrote: post #63

Earlier 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.

Competent direct sales people choose that career because they are good at handling that risk and like the boost in compensation they get from it. The guy who's content with the base salary is almost the definition of a sales account manager who isn't working out.

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.

Re: Why do we pay sales commissions?

#96

Post by jacques_chester » Thu, Jan 05, 2012, 2:09 AM UTC

paulhauggis wrote: post #84

jacques_chester wrote: post #63

Earlier 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…

> so they aren't really increasing their risk by that much.

The rate of commission is not where the risk lies. Commissions are, from a short-term perspective, risk-free for the business. If the sales staff don't sell, you pay them less; the risk of divergence between revenue and expenses is lessened. The incidence of risk is pushed onto the sales staff.

If expenses are fixed but revenue is variable, then you face higher risk as a business.

In this case Fog Creek are taking the incidence of downside risk on themselves; in exchange for the loss of upside risk they will pay higher fixed wages.

Re: Why do we pay sales commissions?

#97

Post by tptacek » Thu, Jan 05, 2012, 2:18 AM UTC

jacques_chester wrote: post #95

tptacek wrote: post #83

Earlier quoted context omitted.

Competent direct sales people choose that career because they are good at handling that risk and like the boost in compensation they get from it. The guy who's content with the base salary is almost the definition of a sales account manager who isn't working out.

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.

Re: Why do we pay sales commissions?

#98

Post by absconditus » Thu, Jan 05, 2012, 2:30 AM UTC

d_meyer wrote: post #40

Atlassian (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.

Re: Why do we pay sales commissions?

#99

Post by dcpdx » Thu, Jan 05, 2012, 2:33 AM UTC

gamble wrote: post #89

AnonSales wrote: post #67

Earlier quoted context omitted.

I don't want to speak for John, but this is my answer to the same question: "Sales isn't rocket science, it just takes someone who is comfortable talking to people...and when you're selling something you believe in, that's really easy to do."

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 for every closed deal because you won't have anything convincing to say when the person on the other end decides to call you on your bullshit. Being a truly great salesperson means fundamentally understanding the needs of the customer and working together to discover ways that your product or service can deliver them benefit and a positive ROI. Sales is about asking questions and listening intently, and I believe the truly great people find a way to effectively sit on the same side of the table as the customer while at the same time delivering the objectives that their company requires. Honesty and integrity play a huge role in selling and business relationships, and any company that understands the value of maintaining long-term business relationships will work this into their sales incentive structure.

Re: Why do we pay sales commissions?

#100

Post by absconditus » Thu, Jan 05, 2012, 2:39 AM UTC

I find it a bit baffling to see so many comments defending commissioned salespeople with claims that most of the major problems with commission are due to improper management or pay structure or this or that. Where are all of these magical salespeople in enterprise software sales who are knowledgeable, ethical and do not overpromise? One might even argue that this type of sales process leads to worse software as it becomes bloated with promised features, half of which are never used.