
Why Must You Pay Sales People Commissions? - runesoerensen
https://a16z.com/2017/09/11/sales-commissions/
======
phkahler
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 just as easily be fired and the revenue
would still flow. Such is the delay between engineering work and revenue.

~~~
richdougherty
> 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 value based on how effectively they develop society's human
capital. 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.

~~~
richdougherty
I'll just put one citation into this discussion. Raj Chetty and his
collaborators produce amazing research. I attended a talk when he visited New
Zealand a few years ago. In this paper he's attempting to address the dream of
measuring teacher value, by measuring changes in test scores against changes
in lifetime income.

Yes there are other ways of measuring teacher "value" too, but income changes
are relevant to this discussion, since they tell us how much a teacher could
theoretically ask for in "commission". The paper suggests that an average
teacher vs a bottom 5% teacher makes a $250,000 lifetime difference in income
(present value).

"The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes
in Adulthood"
[http://www.nber.org/papers/w17699](http://www.nber.org/papers/w17699)

Take a look. He does a neat job controlling for different factors, trying to
tease causality out of correlation.

~~~
aj7
250k lifetime? So he should get another $6k. Teachers and engineers don't work
for money. And there are often bad consequences for people who "don't work for
money."

I worked in sales so I could afford to be an engineer later. There were plenty
of ex-teachers in sales. They did well.

~~~
avs733
>Teachers and engineers don't work for money. And there are often bad
consequences for people who "don't work for money."

This is a metnarrative[0]. It is a thing that people say not because it is
true but because it is useful to create a larger narrative that is perceived
as useful within the social sphere. Peopl, especially engineers, are
socialized to believe it and normed to say it. The result is very simply lower
pay for their labor. It is a post hoc justificication.

[0] Sorry to lazy at the moment for a real cite so heres a wiki
one...[https://en.wikipedia.org/wiki/Metanarrative....A](https://en.wikipedia.org/wiki/Metanarrative....A)
metanarrative (also meta-narrative and grand narrative; French: métarécit) in
critical theory and particularly in postmodernism is a narrative about
narratives of historical meaning, experience, or knowledge, which offers a
society legitimation through the anticipated completion of a (as yet
unrealized) master idea

~~~
SilasX
So true! Case in point: people considered it "oniony" for a top teacher to
leave the state for one that pays teachers better. The metanarrative has made
it _risible_ for high-star teachers to shop around for better salaries like
star basketball players would! That's ridiculously unfair, press them into a
kind of charity role.

[https://www.reddit.com/r/nottheonion/comments/6ktzx1/teacher...](https://www.reddit.com/r/nottheonion/comments/6ktzx1/teacher_of_the_year_in_oklahoma_moves_to_texas/)

------
thinline
Interesting last comment (from November 2016) to the original article:

" __ _Important Update_ *

I am currently employed at Pluralsight, and I feel obligated to point out that
the author of this article, our CEO, no longer believes or stands behind any
of the content in this article. Pluralsight does not operate under the Deming
philosophy. As of January 2017, Pluralsight will be implementing sales
commissions again. We have reverted to the typical high-pressure, high-stress
quota models found in most companies.

I'm sharing this because I don't want anybody to read this article and follow
the bad advice found here. Maybe commissionless sales organizations can work,
but apparently not at Pluralsight."

~~~
jasode
I'm confused why you think the old Pluralsight comment is relevant to this
article:

1) The author Ben Horowitz is a VC and not the CEO of Pluralsight.

2) The article explains the psychology & incentives for sales commissions
instead of advising companies to pay their salespeople zero commissions.

~~~
trevyn
thinline's comment is just misposted at root level; several of the other
comments on this page refer to: [https://www.inc.com/aaron-skonnard/why-sales-
commissions-don...](https://www.inc.com/aaron-skonnard/why-sales-commissions-
don-t-work-in-the-long-run.html)

~~~
thinline
Yes, meant as a reply to one of those...

------
calinet6
A strong argument would at least consider the systemic consequences of
commissions, rather than just extolling the assumed virtues in a circular
argument. What is their impact on product? On support? Engineering morale? On
the customer experience itself? Just a myriad of effects not even considered
here when commissions are looked at in isolation, the system be damned.

It's probably very true that it's not plausible to do anything but commission-
based sales in this market, and competing with other companies offering so
much more money for the same job is just not worth the effort. But it's lazy
to assume that their isn't a better holistic model, taking into account the
whole company system, and not solely myopic sales metrics.

Edit: is Pluralsight a big enough counterexample? Maybe some food for thought
from Aaron Skonnard here: [https://www.inc.com/aaron-skonnard/why-sales-
commissions-don...](https://www.inc.com/aaron-skonnard/why-sales-commissions-
don-t-work-in-the-long-run.html)

~~~
tlb
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.

~~~
calinet6
This assumes a specific philosophy of how companies work (good individuals)
while an alternative model of good working systems is also effective. A
systems view is less dependent on good individuals.

As W. Edwards Deming said, "A bad system beats a good person every time."

~~~
tptacek
I've read articles from credible people talking about building commission-less
sales cultures and I like the idea.

But from experience in a few different companies, one of which involved me
directly working with a decent-sized sales team, adverse selection is
empirically a major issue.

Among the things I feel like I've learned is that the sales people who are
most engaged with the product space and can converse most intelligently about
the product you're building are _not_ necessarily the people who are best at
actually driving revenue, and that a fledgling product for which the numbers
don't exist to guarantee a pretty steady stream of commissions will drag very
intelligent-sounding ineffective salespeople out of the woodwork.

There seems to be a species of salesperson that has evolved to sell executive
management on continuing to pay them while blaming the rest of the company for
their inability to close deals, rather than selling prospective customers on a
product. I've had the misfortune of working with some of them. At the time,
they even had me on their side! It's really quite creepy in retrospect.

I'd go way out of my way to avoid attracting the sort of salesperson who is
driven by anything other than transactionally closing deals as quickly as
possible, just to avoid the possibility of having to work with someone like
that again.

~~~
calinet6
That's a much less lazy argument. Horowitz should take notes.

------
aj7
A couple of things I learned in a career in sales and engineering: 1\.
Salesmen make most of their money pushing and closing on a hot product with a
true advantage. This is easy big money, and it's a lot lot of fun. During this
mode, when they come to town, they screw the secretaries in the marketing
department (back then.). This mode can't last; market saturation and the
competition intervene. The company is wasting a lot of money during this
period on commissions, but the good times can build some loyalty in the sales
force, but not much. Top salespeople leaving for the competition when this
period ends is common. During this period, the sales manager should fire at
least one salesperson who is above quota, but who is slacking off and not
making the one extra call. That salesperson doesn't get it, and a rookie with
a good understanding of the sales material can do great in this environment,
and for cheaper. 2\. Sales greatness is measured by stolen sales. By this, I
mean that if looked at objectively, better specs/price, or historically,
customer is used to buying from company, in many sales situations, one company
starts out with an advantage. A great salesperson can reverse that advantage,
and in doing so, outcompete his counterpart. THIS is why you pay a commission.
3\. A salesperson is different from anyone else in the organization. He has to
look the customer in the eye and ask for the order. And deal successfully with
what follows. The people in the Apple Store are not salespersons, and are not
paid as such. Imagine: 737 vs A320. Capiche? 4\. Salespeople have contempt for
engineers, whose heroics make them rich. Bad salespeople don't hide this
effectively, and get fired. 5\. Good salespeople know: "The customer is the
star." Not his product, not his company, and not him.

------
tensor
I suspect that developers are not so much upset at salespeople getting
commission, but rather why they get paid so much compared to developers.

Personally I don't buy that sales skills are so much more difficult to find or
are in higher demand than software development skills. Some of the difference
in equity certainly has to do with the higher risk of getting fired for poor
performance in sales.

But beyond that it's probably that sales and business people are motivated
mostly or only by money and thus have spent decades as a collective optimizing
getting more money for themselves. In contrast, developers and designers are
motivated by accomplishing and creating good things before money and end up
not focussing on optimizing money making.

If developers were compensated like lawyers, I doubt they'd be so worked up
over salespeople getting commissions.

~~~
peteretep

        > I don't buy that sales
        > skills are so much more 
        > difficult to find or are in 
        > higher demand than software 
        > development skills
    

Sure, and sales people don't understand why the entire engineering function of
the company can't be done on eLance for $10/hr.

We can talk about 10x developers all we like, but if you sit in a sales
meeting of many companies you'll find there are 10x sales people whose
presence is easily measured.

~~~
tensor
There may or may not be 10x employees in either camp, though I don't quite see
what that has to do with the income difference. Should a 10x salesperson earn
three times what a 10x developer earns? If so why?

~~~
peteretep
Management can easily recognize who the 10x sales people are, where 10x
developers may be a myth.

------
csours
Putting prediction hat on before reading article: "because your competitors
pay commission"

> Company A pays commissions and, if you do what you know you can do, you will
> earn $1M/year. Company B refuses to pay commissions for “cultural reasons”
> and offers $200K/year. Which job would you take? Now imagine that you are a
> horrible sales person who would be lucky to sell anything and will get fired
> in a performance-based commission culture, but may survive in a low-
> pressure, non-commission culture. Which job would you take?

There it is.

~~~
quickthrower2
Survivorship bias. If you were wrong you wouldn't have posted :-)

~~~
csours
Hush, you!

------
savanaly
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 do similarly for managers and engineers if there were a
discreet _non-gameable_ measurement of their output (I'm sure you don't need
much imagination to see why paying per JIRA task completed wouldn't work).
Unfortunately there's no such measurement system, so the best solution
companies have found so far is pay them a salary and try to incentivize effort
through bonuses, raises or promotions.

~~~
scarface74
_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.

~~~
peteretep
This can be easily worked around. In a previous CTO role we started talking
about development costs coming out of sales commissions, and the problem went
away.

~~~
yoz-y
I would LOVE this to be done everywhere.

------
gozur88
If you didn't pay commissions sales people would start coasting once they made
their numbers. Imagine you have to make a million on sales per quarter, and
three weeks in you strike gold in the form of a $1.1m contract.

Sure, you get bonuses for exceeding your numbers, but you could spend the next
two months slacking off, which would probably be worth the lost income.

Worse, from the company's perspective, you might try to make sure your new
prospects don't close until next quarter, just as a little bit of insurance in
case it turns out to be leaner than this one. You're already drinking the
coffee - what's the rush?

Sales is a tough job. It's a lot of travel, a lot of rejection, and a lot of
stress. If I had to do sales you can be damn sure I would expect a lot of
compensation.

~~~
tptacek
The theory of not paying commissions is that salespeople will be incentivized
the same way other employees are. You don't code on commission and tend not to
coast once a revenue number is hit.

~~~
gozur88
I've met quite a few software developers who pad their estimates heavily and
then coast when the job is complete.

~~~
arximboldi
Which is great for everyone. The company gets predictable estimates, the
developer gets a stress-free life. A shorter but unmet deadline is worse for
everyone, specially the company, even if the product is still delivered sooner
than the padded deadline.

------
sidlls
I like how he inadvertently admits that engineers are compensated less well in
part because they mistake their jobs for something fun they'd do anyway.

~~~
Finnucane
Yeah, certainly there are a lot of programmers writing software because it's
fun for them. They're contributing to FOSS projects because they believe in
them. Are they doing what _you_ want them to do just for fun? Probably not.

~~~
mturmon
I agree with your observation, that was a badly broken analogy within the OP.
Of course the OP can "guarantee your sales people never sell enterprise
software for fun."

But I'll bet those salespeople take more than a passing interest in buying a
car, tending an estate sale, dividing up household responsibilities, or
negotiating a lease.

------
osullivj
I have seen one scenario where engineers get sales commissions: quants in
investment banks. Typically in banks traders will get 3% of PnL before costs
are stripped out, or 10% after costs. Traditional sector coverage sales will
get a volume based commission. This always leads to tension between sales and
trading as one is compensated on volume and the other on margin. Etrading
sales get sales credits on channel volume, not sector volume, which is often
another source of tension. And finally, the quants coding up new pricing
models may get sales credits on trades priced with those models. No doubt
there are some interesting comp models at automated or systematic trading
hedge funds where there's no real distinction between traders and coders, but
I have no first hand experience there.

------
koolba
Best advice I've ever heard on this subject is never hire just one. Sales
teams need competition to thrive so it is to be at least two people.

------
Spooky23
Two reasons -- you don't want to pay salespeople who don't sell anything, and
you want to attract salespeople with technique and a book of business that
makes them sell more.

The best salespeople I typically work with have built a relationship with the
clients. I take meetings with them because they do not waste my time and they
understand my company's needs. I'm more likely to take a call from company X
if I know the rep from past business.

On the counter-side, I've run into many, many salespeople who bounce around
and suck. They focus on doing the dance and checking boxes in Salesforce
instead of actually selling product and dump their internal corporate drama on
the customer. They bounce because they miss their quota and get canned.

------
megiddo
What an enormous echo chamber. I moved from senior dev to sales.

My contract is 100% commission, because it aligns performance with business
requirements. Good sales is every bit as difficult as good dev, maybe harder.

The only people who think devs are not well compensated are devs who can't
negotiate or are marginal.

If you've never told an interviewer to go fuck themselves over stupid
questions or whiteboarding in an interview, you're probably not making an
effort.

~~~
AstralStorm
Try negotiating your salary in a corporation, see how well it works, then
attempt censure.

People find it easier to up the salary by moving instead of negotiating and it
is not due to lack of skill. Otherwise they wouldn't be getting raises that
way. You essentially did that by moving to a managerial job. Some people
become contractors to expedite this process.

The whole structures are designed to prevent you from negotiating. From
useless reasons to not give one a raise like easy to misinterpret and
worthless KPI, through bureaucracy preventing even slightly risky projects,
office politics, levels of indirection, use of statistics on personal level
etc. Even if you are great you may have real trouble showing that you are. So
people hop jobs. When hopping, what matters is the resume and salesmanship
indeed.

Only very small companies don't have those bureaucracies and instead they
cannot just offer you what they don't have. Unless they have huge VC funding,
but that can also evaporate bringing it back to job hopping.

Even measuring the effect of your work is difficult, much less selling it,
even less so in a way that bypasses all the layers of junk.

------
neilwilson
I'd let the sales person generate the $10 million elsewhere and get the
commission.

Because I can guarantee you that you'll make more profit from the low pressure
sales.

Commission based sales leads to a turnover based culture and as the saying
goes - turnover is vanity; profit is sanity.

If you want to align sales people, give them equity and pay a dividend.

Or run a cooperative. Then everybody gets a share of the spoils.

------
basseq
"Sales is the highest paying hard work and the lowest paying easy work."[1]

With sales, you want to pay for performance and pay for outcomes. And with
sales, it's easy to measure quantitatively and simply. Good sales people love
it and make good money—bad sales people don't get paid and/or leave.

 _This is the ideal world._ As a employer _and_ an employee, you wish all your
departments could be measured and rewarded like that.

Not everyone is cut out for sales, and that's fine, but the model works and
works well. Examples where it _doesn 't_ work well (e.g., over-promising,
over-paid) are companies that have poorly balanced incentive commission plans.

[1] [https://www.nasp.com/article/FF282761-5D6C/sales-is-the-
high...](https://www.nasp.com/article/FF282761-5D6C/sales-is-the-highest-
paying-hard-work-and-the-lowest-paying-easy-work.html)

------
lunchables
>I guarantee your sales people never sell enterprise software for fun.

And I guarantee you your programmers aren't working on your enterprise
software outside of work. Conversely, your sales people are practicing the
exact same activities (social interaction, manipulation, etc) outside of work
on their personal time.

~~~
ghostbrainalpha
Saying they practice _social interaction and manipulation_ for fun outside
work, so they shouldn't receive extra incentive is possibly the worst argument
I have ever seen on Hacker News.

A prostitute would gladly sleep with a star NBA player for free, so should
she/he not be compensated for sleeping with an aging/overweight and smelly
client?

I enjoy playing high quality video games in my free time like Zelda. Should I
not receive composition for bug testing the latest mind numbing Bejeweled
mobile game crap at my job?

What I am saying is this... everyone interacts with other human beings. There
is a large range in the quality of those interactions. Businesses must
incentive heavily someone to make them actively seek out the most difficult
and profitable of those human interactions.

Because someone chooses to interact with another human in their free time does
not mean they shouldn't be paid for it.

------
JamesBarney
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.

~~~
RcouF1uZ4gsC
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
probably has generated billions of dollars of value, but it has not really
accrued to the programmers. In addition, open source allows companies to get
very valuable intellectual property without having to write it themselves or
buy it from someone. Basically it devalues the cost of software and there the
value of programmers.

~~~
aggie
> 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.

~~~
ryandrake
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.

------
CommentCard
There's a simpler explanation: people are afraid of rejection. Sales is
difficult because it requires acknowledgement and constant interaction with
rejection.

It takes more of a psychological toll than engineering, and some people don't
want to deal with it, or do not have the personality to brush off repeated
rejections in order to get a sale.

------
staunch
Why? Because sales people are good at sales! Their whole job is negotiating
the highest possible compensation for the value they provide.

Apple doesn't need sales people to move millions of their products into "the
Enterprise," and neither does any other company with products as good as
theirs.

It's just that most companies make shitty "Enterprise software" and then try
to push it with aggressive sales tactics.

There's more than one way to succeed, and making great products is a lot more
interesting than a cocaine-powered salesforce.

~~~
ghaff
Except Apple actually does. [1] Yes, it's relatively limited but Apple has
selectively hired sales people for enterprise sales.

[1] [http://www.techrepublic.com/article/apple-posts-huge-
gains-i...](http://www.techrepublic.com/article/apple-posts-huge-gains-in-
its-25-billion-enterprise-business/)

~~~
staunch
Ah, technically correct, the best kind of correct ;-)

It's true they have some people who will talk to you if you're a big customer,
and even let you use the VIP room, etc. But, it's nothing like the model that
A16Z promotes, where you push bad products with aggressive sales people.

------
alexasmyths
Their contribution to revenue is so direct that this kind of bonus can be
incentivized in a very valid way.

Engineers at Google get 'bonuses' as well, all of them, so you could very well
ask 'why are they paid bonuses'.

If Engineers could be incentivized so directly, I'd imagine they would be.

~~~
0xbear
Google actually had to dial down the bonuses circa 2011. For one thing, to
keep the comp looking competitive, it makes sense to have a larger component,
because until this rebalancing bases were unimpressive there. For another too
large a bonus creates more competition than one would like in the engineering
discipline, where the overall success depends on people working well together.
So they just cut the bonus in half and added it to the base.

~~~
matwood
I’ve personally seen this in action, and it leads to all sorts of issues in
engineering where the team output is really what matters.

------
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.

------
askari01
Sales is very important, a salesperson can sell shitty app and still make
money, meanwhile i have seen some really good softwares n products being
dumped for lack of budget. So I think hardworking smart salesman deserves to
be paid well. And marketing is very important.

------
QuantumGood
Agree that value is derived from all contributors to a project, but the
value/income from a project is gated most at the level of the sale.

Projects can be created but not sold, or sold poorly, deriving little to no
value for the organization. But great salespeople can even sell projects that
have not been created (not always a good thing).

Also, where does the money come from to pay someone? With a sale, it's clear:
The salesperson went out and harvested money directly. With everyone else,
it's derived through politics, formulas and philosophies.

------
Chiba-City
Salespeople also come in tiers with overlapping recruits and cattle calls. The
recruits get bigger or quicker commissions on "who-they-know." Some cattle
call younger salespeople find a mentor or get lucky. But attrition rates are
high. I brought in IBM fed sales head for a talk years back. IBM only adjusted
base salaries once around 1974 or so. They just let them die on the vines
otherwise when sales go down.

------
The_DaveG
Solid article, there is a middle ground that is missing, that or a base plus
bonus of the team. Some of the best sales teams I've ever know work based off
a bonus for the whole company meaning they have a huge incentive to help the
other members of the team get better and collaborate for the betterment of the
company.

This will create the best sales team, but will not attract the top X% of sales
people.

------
unabridged
It comes down to quality of product vs competitors. Where you have a very in
demand brand, you can get away with no sales people (eg Telsa).

In a field where your products are indistinguishable from competitors, you
need to pay for sales people.

And in field where your product is probably worse than cheaper (or free)
alternatives, you have a company entirely made of sales people (eg Oracle)

~~~
idlewords
Tesla has a sales team, you're just not looking in the right place. Their
sales team works with investors, and sells them on a story.

~~~
unabridged
Definitely but I think goes into the marketing/advertising category. But
either way almost every other car company has an end sales person used to jack
up the price, while tesla can sell cars at a fixed price off a website. And
this is solely because of the perceived quality of the product.

~~~
idlewords
My point is that Tesla can lose money on every sale. Other companies don't
have that luxury, and so need salespeople.

------
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.

~~~
mcmoose75
You could make the argument that in (growing) startups, this is closer to the
way things are- engineers create value over longer time periods (and efforts
are often harder to tie directly to economic value creation). Equity-based
comp is a good way to compensate for these kinds of efforts.

------
gersh
You gotta be careful with commission-based sales people. They will promise the
sun, the moon, and anything to close the sale. While this may work for some
products, it can lead to pissed off customers.

Commission can encourage a short-term attitude that doesn't consider the long-
term relationship with the customer.

------
cerebrum
I would be interested in an experiment. Do sales with comission and without
and compare the results. Also consider that without having to pay comission
you could hire more salespeople for the comissionless model.

I bet that there should not be a significant difference in the amount you are
selling.

------
lordnacho
Here's something that's only touched upon:

Sales people can vary a lot in the amount of money they bring in, and the
variance isn't necessarily explicable by things in their CV. In other words a
guy can talk a good talk as well as have a positive record, but when you drop
them into your org, you're taking a chance on whether they manage to get
anything done. (Which is true for devs as well, but people tend to think
-wrongly- they know how to identify devs.)

So paying them on commission is necessary because if they fail you want them
out and you cannot afford to pay them anyway. If they do well they share in
some of the upside from the uncertainty crystallising to positive.

------
chayesfss
Problem is, only 1 in 10 or less salespeople are any good. Most are just there
to try and get some easy inbound leads and close those off. Very few will
actually try and do some work around finding projects, different ways into a
company. It's ridiculous that salespeople will get 10-15% of a deal when they
typically don't know jack shit about the technology. Honestly I think todays
new companies would be wise to allow companies to sign up directly and save
themselves 10% of the price. Yes these same companies would have to bolster
their corporate staff to ensure redlines are done, etc but the world would be
a great place.

------
cdevs
I could go on and on about how my company screws this up. First, even though
they get commission they also get large base pay despite a salesmans
performance which makes the salesman stop working around making 70k a year,
second horrible tracking of what the deal in each contract will cost our
company in developer hours and hardware etc etc so they get paid full
commission on a $20,000 that ends up being $4,000 revenue. What our company
needs is a strict standard but it's a endless loop of oh salesman can make a
sale if you can create this so stop what you are building and welcome to the
chaos.

------
jondubois
Sales people have it the best; they are partially responsible for creating
market bubbles by overpromising results/features in order to get sales... Then
when the bubble which they created reaches popping point, stock prices
collapse and companies go bankrupt; engineers lose all their stock options but
sales people are fine because they already got their commissions.
Overpromising allows them to get all the upside and none of the downside.

The only downside is that sales gets more competitive at the peak of the
bubble; so it's harder to get those big commissions.

------
hyperpallium
> I guarantee your sales people never sell enterprise software for fun.

A funny line, yet his "sales people" are really consultative problem solvers.
Such people probably would apply their skills in areas such as community
projects (e.g. sporting clubs, hobby/user groups, scouts, school, church),
politics (e.g. local councils) and charities... for free.

These probably bear about the same relation to selling enterprise software as
an engineer's side projects have to _making_ enterprise software.

~~~
notahacker
> Such people probably would apply their skills in areas such as community
> projects (e.g. sporting clubs, hobby/user groups, scouts, school, church),
> politics (e.g. local councils) and charities... for free

They wouldn't necessarily volunteer to deal with the absolute tosser at
BigAccount, make the 4am call to Asia or spend their entire time at the
conference trying to find new customers as opposed to having a leisurely chat
with someone who isn't going to buy though. For similar reasons, engineers who
would happily write code all day for free get very highly compensated to work
on fixing bugs on the somewhat similar but less exciting corporate CRUD app.

------
sjg007
Well you have commissions or stock options. I think you get one or the other.
Then again the best sales people probably get both.

------
quadrangle
No chance of this happening, but the ideal is on the other side: customers
should refuse to buy from anyone who gets a commission. The conflict-of-
interest is too strong. If customers all really understood that, then all the
sales tactics that get commission-based sales people to be so rich would stop
working. Then, you wouldn't need commissions.

------
madshiva
Totally wrong in my point of view. If you have a good product it will sale by
itself, only poor product need aggressive sale people to sell them.

It's not about who is selling, but what are you selling?

My father is selling product, did a very nice job, but because he did too much
result, get is commission removed or downsized but yeah the commission is the
solution...

------
mherrmann
I recently read the author's book "The hard thing about hard things". I
understand many people here will be familiar with it. To those who aren't, I
recommend checking it out. It finally made me "get" VC and what it's like to
work on VC-backed startups. (I'm bootstrapping my companies.)

------
ryanmarsh
Are there any examples of competitive sales organizations that don't pay
commission of some kind?

~~~
calinet6
Not competitive exactly (it's not necessary when you don't have commission)
but Pluralsight: [https://www.inc.com/aaron-skonnard/why-sales-commissions-
don...](https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-
in-the-long-run.html)

~~~
robocat
Thinline responded to that article in another post:

Interesting last comment (from November 2016) to the original article:
"Important Update * I am currently employed at Pluralsight, and I feel
obligated to point out that the author of this article, our CEO, no longer
believes or stands behind any of the content in this article. Pluralsight does
not operate under the Deming philosophy. As of January 2017, Pluralsight will
be implementing sales commissions again. We have reverted to the typical high-
pressure, high-stress quota models found in most companies.

------
hashkb
I agree, I think, but the points are made so badly I cringed as I read. Every
point is made by begging the question. It's dripping with pro-sales bias.
There's no content here, just preaching to the choir.

------
k__
I have feeling sales people have too much leverage in general.

Almost every company I worked for had a sales CEO. God, they are software
companies! All the successful software companies have engineers as CEOs...

~~~
erikb
Engineering is about providing a tool/service that fulfills a customer need.
But in the end it is not about making customers happy, as most engineering
focussed blog posts would suggest. In the end it's about getting this very
rare ressource called money in amounts big enough to pay your regular costs
(for instance your engineer) while maybe even making a profit.

In some regards the battle for money and solving customer problems are
interdependendent and can happen together by coincidence, but they are not
necessarily connected. For instance a few months ago I was forced to pay a
four digit lawyer bill (could've been bigger) in exchange for the lawyer
actually telling me face to face he's not willing to work for me, after
signing the contracts. Still can't do much about it.

What the sales people provide as value is a high spirit of competition for
money, together with an acceptance for how immoral and shitty this world is.
And these two skills are also valuable for climbing up the Ladder. The desire
to live in a comfortable fantasy world of people helping each other all the
time is not good enough. Therefore most of the CEOs are managers or sales
people and not engineers.

And your companies, while maybe being shitty in the engineering department,
may have still made more money than some engineering lead corp.

------
erlend_sh
I'd rather have a sales person that is as much a part of the team as anyone
else.

Daniel Pink's ["To Sell Is Human"]([http://www.danpink.com/books/to-sell-is-
human/](http://www.danpink.com/books/to-sell-is-human/)) makes a strong
argument against commissions, which is echoed in these articles:

[https://hbr.org/2012/07/a-radical-prescription-for-
sales](https://hbr.org/2012/07/a-radical-prescription-for-sales)

> Mitch Little began questioning the received wisdom on sales commissions in
> the late 1990s, shortly before he became vice president for worldwide sales
> and applications at Microchip Technology, a large semiconductor company
> headquartered near Phoenix. He oversaw 400 salespeople whose compensation
> plan was the industry standard—60% base salary, 40% commissions.

> “That made sense 40 years ago, when the Fuller Brush salesman went door-to-
> door,” Little told me. “But the world of business-to-business sales has
> shifted fundamentally.” So in an act of sacrilege for a onetime sales guy,
> Little killed commissions altogether. He established a new plan in which
> salespeople received 90% of their compensation in a high base salary, and
> the other 10% was linked to corporate (rather than individual) measures such
> as top-line growth, profits, and earnings per share.

> The result? Total sales increased. The cost of sales stayed the same.
> Attrition dropped. Retention rose.

[http://www.nytimes.com/2013/11/21/business/smallbusiness/for...](http://www.nytimes.com/2013/11/21/business/smallbusiness/for-
some-paying-sales-commissions-no-longer-makes-sense.html)

> The proponents of ditching commissions believe they foster negative
> behaviors, such as focusing on an individual’s profit over the company’s,
> emphasizing short-term outcomes and encouraging unproductive competition
> among sales representatives. Even companies that pay commissions can face
> costly turnover as representatives chase more lucrative offers.

[https://blog.fogcreek.com/why-do-we-pay-sales-
commissions/](https://blog.fogcreek.com/why-do-we-pay-sales-commissions/)

> In the year since we dropped the commission system our sales have gone up.
> In fact, four of the last five months have been record months. We can’t
> reasonably say that our record sales were caused by this change, but we can
> reasonably say it didn’t hurt, and that’s worth having a hard think about in
> your own company. There is no guarantee that this will work for everyone,
> but it’s unlikely to be a disaster either.

> Our salespeople all estimated that they were spending about 20% of their
> time just keeping track of what money was due them. There was constant horse
> trading. And, most worrying, we created a heavy disincentive to do all the
> service stuff that makes customer service shine. Why would you want a system
> that sets up after-sales service as competition against new sales,
> especially if you have a small sales team? Reputation and retention, after
> all, are both paths to revenue.

> Removing commissions has changed the sales team. It has taken their focus
> off their compensation. They have all that administration time back for more
> useful things. They take a longer view of the value of a prospect, and are
> less worried about who is going to buy right now. They feel less stress
> about taking vacation. They don’t quibble among themselves over accounts.
> And best of all, they feel more integrated with the company.

~~~
MrBuddyCasino
The Fog Creek link is 404: [https://blog.fogcreek.com/why-do-we-pay-sales-
commissions/](https://blog.fogcreek.com/why-do-we-pay-sales-commissions/)

------
jlebrech
coders should get commision

------
ericfrenkiel
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's compensated accordingly. It doesn't matter if
you crushed your numbers 2 quarters ago. It's the reason why there's a saying
that a sales rep is always just 6 months out of a job.

~~~
alttab
> 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.

~~~
ericfrenkiel
Having empathy for fields outside your own is exactly why this article is
written.

It sounds like you only have a single perspective, which is fine, but having
more perspectives would help you move beyond being so rigid in your thinking.

~~~
iaabtpbtpnn
The parent didn't display any rigidity of thinking, they simply criticized
your inaccurate characterization of engineering work... a point which your non
sequitur reply does not address.

~~~
ericfrenkiel
> By comparison...

is the operative phrase.

Your fallacy is conflating engineering work and an individual engineer's scope
on said work.

Projects can fail, engineering teams can face delays - all common things. But
an individual engineer is very unlikely to lose his/her job over it, in
contrast to a sales person missing on his/her quarterly number repeatedly.

~~~
skj
The point under contention is whether or not the completion of the project is
completely under the engineer's control.

