I saw this post by Neil Davidson about sales people being different that discusses how sales people are compensated and why he is moving to a salary model instead of commission. I’ve never been a sales person, but I’ve had the interesting time of working with them at a mid sized company as well as having a sales person of our own – yes, interesting is the word!
At the mid sized company the compensation plan for sales people changed each year. Basically they were able to “draw” against earnings to provide them with a reasonably stable revenue stream, and they would get x percent of sales. If they went long enough without selling they’d be let go and the company would be out whatever draw had not be recouped to date. It’s the percentage of things piece that was a pain. After you work with anyone that is paid commission only for about 15 minutes you’ll understand that they will only do things that lead to revenue. Anything else is either postponed or just not done, including customer service that doesn’t benefit them. That leads the company to tweak the plan to encourage various behaviors; finding new clients, growing existing clients, increasing the bill rate, etc. Where I worked it wasn’t just a one time sale, it was a relationship that could easily continue 10 years or more, so there was a phase out of commission. Sales person might get 5% of sales the first year, then 4%, then 3%, then it would be become a “house” account and a sales assistant would do all except the most important conversations with the client.
As you might imagine the formula was a little more complex than that, and I was lucky enough to have one developer who owned that process each year, it could easily take 45 days as they came up with a new formula, tested it, back tested it, and then the standard pain when payments changed to the sales people. You think you scrutinize your dinner bill? It’s their money, they really look over their commission statement!
As I look back I think it was just a little uglier and complex than it needed to be, but the overall process was healthy. Businesses change, rates change, what sells changes. Nothing wrong with revisiting the compensation plan once a year and adjusting to fit the needs of the company while still making it interesting for the sales team.
My more direct experience with a sales person was similar. Because he was paid a straight percentage, he tended to only work the big clients and the big deals. Profitable for both sides, but over times led to only a couple very large eggs in the basket. Not much interest in smaller clients because it was a lot of work for not early the same amount of money. That’s short term thinking, and the only way we started to fix it was tweaking the compensation plan. Of course it’s short term from my side of the fence, from the other side – well, I still think it is, if you’re planning to stay in one place for a while and want to keep things moving and growing.
Not all sales people are created equal, and you can’t pay them equal, whether it’s salary, commission, or both. A great sales person is probably 2-3x more effective than a good one – and they know it! They can bring in the money but only if you pay them. Otherwise, they move, because there are always jobs for sales people.
If you read Neil’s post – and you should – he’s got some good reasons for changing to a salary plan. Not clear if that includes a bonus plan and if it does, I’m not sure it’s really a true change, but fair enough to try. I’m not sure it will work, because for salespeople….it is ALL about the money. That’s how they keep score, how they feel validated. Different for geeks, for us it’s being paid a salary in the range that people with our skills, but it’s really about solving problems and shipping software.