Why Must You Pay Sales People Commissions? (a16z.com)

An anonymous reader shares an article: Sales is highly competitive work. That word -- "competitive" -- is the key to a high-performing sales organization. In order to be great at sales, you must outsell the competition. The competition might be a product from another company; it might be an internal project at the target company; or it might be the undying desire of the target customer to do absolutely nothing, which is often the toughest competitor of them all. At the end of the day, it's all a fight. And how do you get the most fight out of an organization? By offering a prize. As the old boxing saying goes, "This is prize fighting. No prize, no fight." Prizes and competition are critical to building a healthy sales culture. So what's an unhealthy sales culture? One that's governed by politics. Sales people must sell into highly political environments to succeed and that's why they don't want to live in one. If you do not evaluate and pay on what sales people sell, then what do you evaluate and pay on? Getting along with others? Kissing the boss' butt? Talking a big game but delivering nothing? Sounds like politics and sales people instinctively know it. When a CEO says, "we're going to evaluate you on things consistent with the culture" the sales person hears: "we are going to toss out objective financial metrics for the subjective will of the king." Great entrepreneurs are great innovators, and innovators love to innovate. But before you innovate on sales compensation, make sure you understand the strengths of the old system.

Comments

Even a "Sale" means different things, complicated

[Faizdog]

I once worked at a medical diagnostics startup where I got a really interesting view into the world of sales. I was the technical individual responsible for training the sales team ( I knew the tech and was good at explaining it in laymans terms). I also went out with them on sales calls. Very different from what my real job was, but I learned a lot about a different world.

In any case, these observations are obviously limited to that particular experience, but I think can generalize.

The sales people had territories. There was also always fighting about what was in which territory, if you had a major cancer center in your area, you had more chance to be successful.

Now a "sale" was when a doctor ordered our medical test. The sales people had commissions on those sales, and the plans changed over the years, but usually there were tiers, 0-X tests, commission is one number, X-Y tests sold, different (I think higher but forget) commission, etc.

Now what does it mean for a test to be sold. Is it simply that the doctor ordered the test and their staff sent in the form to our lab?

We were trying to get reimbursement with insurance companies worked out. What if we didn't get reimbursed on that test? It's a loss for the company, but the sales person sold it, their job is done, reimbursement is a separate departement. What if though the reason we couldn't get reimbursed is because the test is not very useful clinically for the patient, but the doctor ordered anyway because they were friends with the sales person, or she was very pretty? Now it's a potentially bogus sale.

What if it's a legit sale, and clinically valid, but the patient's sample due to some wetlab processing issues can't have our assay run on it, so we don't make money?

What if we get the order form for a "sale" but never the actual specimen? Is it still a sale?

We spent months and years dealing with these and other issues. It was always very complicated, especially since we were a startup in a somewhat new area, so all the rules or "industry standards" were defined.

Again, very specific to our situation, but provides an example of how a "sale" has different definitions, and sales people want their commissions.

For another, say software product, a sales person may sell, but there is a 3 month evaluation window. They could argue hey I got the foot in the door, I did my job. You make a sucky product and the client won't keep it, or our customer reps can't improve service. For the company, that's not a true "sold" product bringing in revenue, but the sales person did the job they had.

At the end, our startup went out of the business, partially due to the fact we spent A LOT of money on sales commissions for orders, some which were invalid or our reimbursement team couldn't get insurance to pay for.

Re:Must?

[Anonymous Coward]

Really? Why?
Maybe you don't work with sales people. Maybe you just think sales people are like everyone else only with sales tacked on.

You are wrong.

I work with about twenty sales people in the print industry and I wouldn't trust any of them to mail a utility bill for me. Sales acts like a filter for psychosis and only the sick ones remain working. everyone who wants to be ethical heads for the doors sooner or later.

Why is this? I think it's because salespeople are judged mostly on how much money they bring to the firm. Sales guy A is better than Sales gal B because he brings in more money. But that measurement is, believe it or not, subjective and sales people are lying, manipulative bastards. I know one salesman who continually held back reports on some of his sales each until the very last HOUR he could just so the rest of the team would think he was doing worse than he was. Then, at the last moment, he'd spring a couple hundred thousand in contracts and look like the best guy in the shop. He was made the VP of sales for Christ sakes because his numbers were always so much better than everyone else's. Did the others complain? You bet. Did they copy him? Yes.

All's fair in love and sales.

Please don't start with commissions. Sales people should be paid a freaking salary like anyone else. I know for a fact that every one of the sales people in my corporation get a commission on their sales and that every one will negotiate with customers for the highest possible contract amount with the promise that it will never come to that much. The sales person collects commission on the submitted contract, the production plant gets screwed because the sales person helps the client dispute every charge, and the client walks away with a half priced job. Everyone is happy with the exception of the corporation because they can't figure out why the production plants can't meet the estimated costs of production.

Commissioned sales is killing my company.

So, maybe you don't work with sales people. That's okay. I wish I didn't. It would be a nice break from working with Satan's Own Boys Team.