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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.
When you hire someone to write code, they have no idea how much profit you are going to make off of them. Same thing when you pay someone to cook/wait/do carpentry/be a reception/ or do 90% of other jobs.
But when you pay someone to be a salesperson they know EXACTLY how much income they generate. It's not that hard to estimate how much profit they are earning for the company. This puts them in the single best employee/employer bargaining position.
So bosses HAVE to give sales commissions. Otherwise all the good salespeople quit and move to the competition who is willing to do it.
Salespeople have the best leverage, so they get the best deal. In exchange they have to give up safety. It's single most capitalistic employee job.
excitingthingstodo.blogspot.com
Just another example of stodgy people trying to hold on to antiquated business models. I agree people should be compensated for their work. However, there is a plethora of available information out there now. I heavily research most everything I buy and already know what I want when I come in to the store. By the time I pick my product I'm more interested in the best price.
The source of the paid article is a16z.com, which sounds like a phishing site but it's actually some crappy VC's blog.
So you subscribe to the 'if you build it, they will come' philosophy? Good luck with that.
How about we compare sales commissions to a common one in the US that is paying the waiters and waitress with tips? After all, the costumer is paying either directly through tips or through sales commissions. I imagine it will put a lot of stress not to have a steady income like I have. Also, I do not get hefty bonuses either.
Isn't it really just about motivation? Every role has different motivation. Some benefit from additional compensation. Think about bonuses for meeting certain goals, or for being utilized a certain percentage of the quarter, or make a certain number of sales. A good organization understands what motivates their employees and matches it to business needs. Would it be great if we could all just be paid a nice wage, do our jobs well, and go home? Sure. But there are people who will slack and do the absolute least, and there are people who will see a bonus/commission/etc as a great objective to shoot for.
Coming from an engineer background, I think we often harass sales people since they are the non-technical ones in our teams, but we all have our own version of this.
I will shred my adversaries. Pull their eyes out just enough to turn them towards their mewing, mutilated faces. Illyria
It's certainly a lot more beneficial to the customer in almost all situations...
--- Most topics have many sides worth arguing, allow me to take one opposite you.
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.
-"Those who fought today will die tommorow."-
Sales commissions are used to breakdown moral conventions using greed. A person might not be willing to normally lie to a client or sell them some shit they don't need. But once they get used to the bonuses, they'll do anything to keep them coming in.
But sales isn't about what's more beneficial to the customer, unless it increases, um, sales...
“He’s not deformed, he’s just drunk!”
Of course, it's a slow news day. Everyone is watching the Apple press event. Expect a flood of stories after the event.
Not that slow, J.J. Abrams signed on to direct Episode IX today.
I was hoping the George Lucas would direct Episode IX and have Jar-Jar come out of carbonite to bring balance to the Force. :P
Most jobs give zero benefits for being good at what you do. Lousy or amazing, your monthly paycheck is identical.
“Peter Gibbons: The thing is, Bob, it's not that I'm lazy, it's that I just don't care.
Bob Porter: Don't... don't care?
Peter Gibbons: It's a problem of motivation, all right? Now if I work my ass off and Initech ships a few extra units, I don't see another dime; so where's the motivation? And here's something else, Bob: I have eight different bosses right now.
Bob Slydell: I beg your pardon?
Peter Gibbons: Eight bosses.
Bob Slydell: Eight?
Peter Gibbons: Eight, Bob. So that means that when I make a mistake, I have eight different people coming by to tell me about it. That's my only real motivation is not to be hassled; that, and the fear of losing my job. But you know, Bob, that will only make someone work just hard enough not to get fired. ”
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.
I've got your "healthy sales culture" right here. Quantified. Metrics-based. Competitive. The textbook case!
Maybe we can compete to sell the anonymous submitter a fire to die in.
Welcome to the Panopticon. Used to be a prison, now it's your home.
Accrued commissions. They only collect as the money is collected from the client.
Alternatively: Chargebacks, but accruals are simpler.
My advice to you: Find a new job. That one will never change. They want you to believe 'it's like this everywhere', don't believe them. I regret waiting so long to bail from a similar situation, many years ago. There is no better time than NOW.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
The problem here is not the salespeople but your companies compensation plan.
Commission should be paid on margin, not on revenue. Thats just bonkers.