So have we.
My thoughts? Commission-based sales is almost never a good alignment between sales people and the company. Almost always sets up unintended consequences and leads to local maxima before reaching global optmima.
Also, if you're a software product company, you end up with the "doers" (software people, support, etc.) earning far, far less than sales-people, which causes them to get fed up and leave.
Yes, we're a business and we have to make money, but without great software developers we won't have anything to sell.
Put everyone on salary and then have company-wide profit sharing (that is equal amongst the divisions/people) tends to align everyone's interests.
I don't understand this point. The sales person is the one making sure everyone else gets a paycheck. Why should they be treated equally? They are the stars of the show, not the developers, or management. If people get fed up, then let them. Code does not sell itself.
Your take on this sounds just as wrong to me, as the one you quote. Wouldn't it be better to take a more holistic view and realize that both the "sellers" and the "makers" are equally important? Sure, code doesn't sell itself, but a salesperson with no product to sell doesn't do anybody any good either.
The number of resumes I've seen of professional sales-types who've bounced around companies every year is astonishing.
Many companies give new sales people about a year to perform and replace them after that. I've seen entire careers of failed sales people who've lived the no consequence life of this year at a time roaming sales guy. It's a huge red flag. Once they leave a company, they simply flood their sales network with resumes until they land someplace for another year. Rinse and repeat.
Likewise if the sales person is good and they're printing money, they're likely to stay at that place and keep the fat commission checks coming unless they get a killer offer someplace else.
Being a shitty salesperson is ludicrously easy, being a good one is unbelievably hard.
Right, but somebody made those products. If that had not happened, those sales people would be useless. My point is that you simply can't disconnect one side of the equation from the other.
No products == no sales
No selling == no sales
product + selling == sales
great product + crappy sales = :(
It always depends, of course. There are great products that sell themselves. But then, for those products, you don't need commissioned sales to begin with.
Or even the employee who literally hands out the checks, if you want to go even more ridiculous. Truly the star of the show is the paycheck delivery boy.
A lot of companies would die if they lost their whole design team.
A lot of companies would die if they lost their whole support team.
Picking and choosing your industry and your company sample gets you all of these.
If you're large enough to have an accounting team, you're going to hurt if they disappear all at once.
As for needing marketing and engineering, so what? Good account managers are hard to find. They more or less have a license to print money. Also, their job performance correlates with their own avarice; what's rarer than a good account manager is a good account manager who's in it for love not money. All you accomplish by docking their pay is ensuring that you get the most adverse selection. The good ones will just print money somewhere else.
This is just a small part of the reason why we've foregone salespeople in this company entirely. :)
In contrast, I have seen very significant deals closed by executives without a direct rep on the account, but with appropriate technical support.
Actually, everyone in the company is involved in ensuring a paycheck happens. Bundled into every sale is: the branding (trust, demand, anticipation/expectations, etc) that the marketers created, the product that the builders (developers, designers, QA, etc) created, the steadiness of cashflow that accountants/finance people ensure, etc. All are important moving parts which deserve consideration when sharing the company's incremental success.
It's a symbiotic relationship and should be treated as such. What value does the salesperson offer without a product?
I wish. You've never sold software to the state then... I've seen a lot of vaporware being sold (and if they win the bid, then they scramble to get the lowest common denominator made).
In terms a salesperson would understand: Negotiating Power
See how long a company lasts without its engineers.
Then make sure to pay the engineers what they want
to prevent that from happening. Or they'll find a job
with someone who will.
Oh yeah, how much engineers want is :
More than the sales spivs
In terms a engineer would understand: Negotiating Power
See how long a company lasts without its salespeople. Then make sure to pay the salespeople what they want to prevent that from happening. Or they'll find a job with someone who will.
Oh yeah, how much salespeople want is : More than the propeller heads.
My point is that you (like many others) seem to think the gravy train will last forever. It won't.
It's not like your sales "superstars" are a rare breed. Every unemployable schlub from humanities can apply for a sales position. But a dev is a rare breed: you have to suffer through years of math and C++ to become a dev. The ROI isn't worth it if devs play and get treated like glorified janitors.
They can get a job for somebody who will pay, like a hedge fund, or they can start their own businesses, or they can change field to something where they are rewarded for their talents - financial engineering is an example, IP law is another.
But playing by your rules is a losing game. The only way to win is to walk away.
I said you have twisted values and ridiculous expectations, which you do.
 http://businessofsoftware.org/2009/09/are-sales-people-diffe... (discussion in comments is good - Neil Davidson is cofounder)
I find the opposite happens. Managers become uneasy as the best salesmen approach their salaries and the either find a way to stiff them on earned commissions or outright force them to leave.
As a doer, I was always flabbergasted at just how much sales guys could get for the stuff I made (which I wouldn't have felt comfortable selling for 1/10th the price).
That is why they are in the profession of sales, isn't it!
I'm sure there are plenty of examples and plenty of companies no one knows about that do this as well. One of the differences here I think is in size and distribution: ThoughtWorks has 2000+ people in 27 offices across 11 countries.
Sales commissions are good because they align what the company wants and what the salesperson wants.
Sales commissions are bad because sometimes the company wants something (pushing a harder product, etc.) that isn't in the salesperson's best interest.
ThoughtWorks' solution was to eliminate commissions, thus pushing for a salesperson role that was less of an advocate for the product towards the customer and more for an advocate for the customer towards the company.
Maybe I'm oversimplifying things, but the sales staff the author describes isn't sales -- it's marketing. Which is good! But fills an entirely different niche. One of the issues the author talks about is that the sales staff were promising things that couldn't be delivered, but I only see that more exacerbated by this approach.
What's the disadvantage of scaling commission based off of company goals? (Selling a less demanded product yields more commission). This is, from my understanding, how more institutionalized salesforces operate, and seems like a more gradual solution to the problem.
I don't think there's any maybe too it. I think it's quite clear that the OP isn't suggesting to abandon sales completely in favour of marketing. So, yes, I think you're oversimplifying to a strong extent.
What is being discussed is all about incentives for sales people, to motivate them to do what's in the company's best interests. If it were in the company's best interest to simply get a sale no matter what, regardless of how much damage that sale does to the company, then the standard commission based approach makes perfect sense. But what do you do about the deals where the salesperson does the normal "used car salesman / snake oil pitchman" act, scores the sell by promising a lot of shit that's not realistic, and then it ultimately costs the company more money than the sale price, to fulfil the deal?
Or maybe it's not that bad, but maybe the scenario just creates a debacle that leaves a bad taste in the customer's mouth and ixnay's any future deals with that customer. And if your firm emphasizes lots of up-selling and cross-selling and tries to optimize "lifetime value of the customer" then you want to start the relationship off on a strong note, no?
This argument isn't against sales commissions, it's against bad salespeople. Obviously any sales approach that values get-rich-quick over providing long-term value for the company is going to be dangerous. Smart salespeople recognize that a relationship with the customer is the most important thing -- not despite commissions, but because of commissions. There's a sales cliche that goes along the lines of treating the customer like a cow to be milked instead of a cow to be slaughtered: if you're trying to optimize the lifetime value of a customer as a business, then that also means maximizing the possible commission from that customer, no?
(And, furthermore, the point I'm raising is -- are those smart/good salespeople going to be disinclined to work at a company without commission? I really don't know.)
OK, I can buy that, but I think it's creating more of a binary situation than exists in reality. Surely the "goodness" or "badness" of salespeople, in this regard, is on a continuum? If so, wouldn't choosing the best incentive structure be most important to the ones who aren't solidly at one end or the other?
I guess in my mind, what the author is doing is creating a structure that minimizes damage done to the company by bad salespeople: and I wonder if an unintended consequence of that is limiting the abilities of great salespeople as well.
Do you have any numbers for that? At all?
Also, why do we need to pay bonuses to encourage salespeople to be motivated? I don't get paid per line of code, or even by features shipped. Surprisingly, I don't just stop coding and wait for someone to throw more money at me. I work because it's satisfying, and I know I will receive a promotion and other recognition if I consistently perform well.
edit: Someone linked the Fog Creek blog post about "Why do we still pay commission?", where Joel has exactly the same opinion. It's kind of demeaning to salespeople to imply they're just chasing a quick buck.
These seem contradictory to me. How can you know the latter given the former? Where do your stats for the comparison cone from?
Sorry if I'm being terse, I'm on my mobile at at moment...
Now time might ultimately prove me wrong, but it is encouraging to see other firms exploring this approach.
In any case, it's much easier to try this model and then add in commissions later on than to do the reverse.
If the incentive is money, people make more money. If it's not, they don't. It's that simple. Everything money related works this way for a reason. Sales, real estate, trading, mortgages, whatever.
And I am pretty sure that no one wants their sales team to make less money, right?
What you're really looking for by eliminating commissions is discipline. Not selling the product in a way that puts you under (like Oracle nearly did in 1990-ish). That requires a strong leader to guide this, not changing the core incentive AWAY from making money. Oracle fixed their problem by changing their accounting.
I'm not a sales person, but my understanding from sales people is that the best ones work on commission. If you were told that the best engineers required equity, would you make your company equity-free? Didn't think so.
 - http://en.wikipedia.org/wiki/Oracle_Corporation#Sales_practi...
For software intensive companies where the product is the business, perhaps sales commissions don't make sense. But there are many companies where tech is either outsourced or not the differentiator in terms of competitive advantage, and therefore salaries/commissions skew towards the salespeople making the most. There are certainly issues that can crop up in that case, but the incentives can help.
Tldr of the article: http://tldr.io/tldrs/512258d5ace532876b000003/eliminating-sa...
Yet, at the same time, I'm making a switch from tech to entrepreneur and I believe that sales is a lot about telling a story. In general, you have to make your clients believe your product or service is a great deal and that you don't make any money on the deal. (which is impossible)
So, how do you sell a product or service at a decent profit without becoming slimy? Or how do you run a company and give incentives (and disincentives) to employees that lead to both short and long term growth, customer satisfaction, employee satisfaction and sustainable profit?
Good question. I've come to believe the answer isn't a one size fits all. Most businesses (especially tech businesses) are businesses of scale. Short-term growth is especially important in the beginning of a company, but sustainable growth is the ultimate goal.
For example, the traditional relationship is between the companies and the sales person representing that company. This is because the relationship is, in reality, between two individuals. This happens all the time in the startup world, we just don't call it commissions.
edit: realized I'm not the first to suggest something similar. Haha.
Yeah, weird place.
Further reading: Optimizing Sales for Happiness
I always thought that salespeople were paid well was because, fundamentally, it's a shitty job.
I used to think sales and marketing was at par or below engineering. My thinking changed over the years thanks to something I saw first hand. My previous employer had a large, all hands on deck, one week long conference every year. As an engineer I would observe how our sales team would interact with clients. Clients, especially the bigger ones, would treat them very badly. Our sales members would put on a cheerful face and continue with their jobs. I would have walked out if I had been treated like that in public. I can only imagine how bad the treatment is when its in private. I've been much more polite to salespeople, even to pushy salespeople, ever since then. I actually take time to reply to (generic) emails for products that I signed up for a trial offer.
There is no simple answer here. You can hire smart salespeople that care about the company and know when to walk away from a bad deal. That comes from corporate culture too though. For all the lip service about good sales and partnering with clients at the end of the month or quarter most of my employers have not given one shit about anything except getting the deals done. It's not salespeople that creates bad sales, it's management. We just do what we are paid to do.
If you create an environment where the sales force is expected to bring in only deals that are good for the company, and pay the sales force in a way that allows them to walk away from bad deals without worrying about the mortgage that month, it can and will work. Commission can be a part of that setup, but it can't be 75% of the comp plan. Pay the sales force a base they can live on during a bad month, with commission or bonuses that reward them for bringing in the right kind of new business, and it can be a win-win set up. It's not rocket science.
Still we couldn't quite get over the hump to profitable and growing.
For a few years we had a professional sales guy who handled a number of clients. He was paid like everybody else, base salary plus bonuses. However, he always felt uncomfortable not getting a base + commission like he was used to. One thing that was noted was the "drive by" approach to sales he used. Customer interaction was fairly limited, relationship building was minimal, meetings of any sort were kept on strict time schedules (and no longer than 1 hour).
This ran counter to how the rest of us moved software. He did "ok" compared to the rest of us in short term sales, but not a single one of his customers stayed on as long term customers.
Enter a new CEO, he brought in a professional sales team, and restructured the sales operation to a base + commission model. Very quickly one problem became very apparent. The hours worked on a sale by the a sales guy were quickly dwarfed by the hours worked by the rest of the staff to support him. But when the sale was made, he kept the entire commission.
This became a really big problem as the new sales guys would start new custom demo building efforts without regard to how much time it took the rest of the staff to support him. To him, his 2 or 3 1-hour meetings, a half dozen emails and a phone call or two didn't change if the demo took 8 hours to put together or 120.
Sales were also still not up-to-par. The sales team blamed the lack of support, the support team resented the flippant treatment by sales. Something had to give.
The new CEO was absolutely opposed to getting rid of commission entirely, he felt that it would limit his ability to recruit new sales talent. So I proposed a middle ground:
- any designated sales person "owned" their account and were guaranteed some money out of a deal closing
- if he made the sale completely, 100% on his own, he kept 100% of the commission. This was to encourage them to start respecting how much work went into the support he received and for them to better learn the product line they were pushing (we had a problem where every salesman needed a support engineer in every sales meeting to answer 80% of the questions the customer posed)
- if he required even 5 minutes of anybody else's time, he lost 40% of this commission, to be paid to the person who helped him. This was to encourage the sales staff to collaborate and get the most out of their support person, and to encourage the support person to collaborate with the sales guy -- effectively reintroducing the "everybody is a salesperson" back into the company
- if more than one person had to help, the 40% was split between those people, this again further encouraged collaboration, skill building (so the support person wouldn't have to rope in additional colleagues) and the need for the requesting sales person to actually learn about the functions needed to support his sales effort and who had those skills
In the end, the sales guy, rather than being a brash, drive by, finger pointing irritant to the company -- rewarded for everybody else's work -- had to learn to lead micro-teams for each sales effort, or learn the products back and forth and serve themselves.
- small sales efforts ended up being handled solo, the sales guys started to get really good at estimating LoE for a sale. One guy ended up specializing in these and handed off larger sales to the rest of the sales team as he didn't want to coordinate people...he kept selling so it was fine
- larger LoEs automatically pulled in a few core people who ended up more or less as sales engineers for the sales staff, we became much more careful about sizing sales vs. LoE so we didn't waste now 2 or 3 people's time
- support staff loved getting extra checks every quarter, motivation was up and resentment was down
- sales guys became much more part of the team than slick lone-wolfs
sales were up record percentages
What went wrong?
When more than one support staff worked on a sale, it became unclear how to split the 40% at times.
There were still sales where the support work dwarfed the sales guy's work, and/or times when the sales guys thought they could game the system by delegating virtually all of the sales process to a support person, then collect their 60% for virtually no work (this happened under the old system when they made 100% too) the 60/40 split didn't always make everybody happy.
It introduced quite a bit of complexity into the sales process. Pre-commission, we were free to just focus on the sales process, post-commission there was endless negotiations over commission splits, payout times, etc.
If I had to do it over again, I make the rules this way.
Sales people would be payed a normal competitive salary, no commissions until they've at least covered their own cost to the company, then commission pay outs as before.
Actually, I'd still setup a commission-free system, but with generous bonuses to outstanding members of the team.
It does definitely happen in the software industry. You find someone responsible for acquisitions and you tell them: "Look man, if you buy 200 licences of this I'll get a commission and I'll give you under the table a kickback of 25% of my commission". You're a fool if you think this doesn't happen and there are some very famous names in this industry where sales people are known to behave this way.
The good move is to completely suppress them but the problem is that your competitors may be employing sales people using shaddy practices so you'll, sadly, all too often not be competing on merits.