Commission isn't a Bonus

I grew up in Oracle where on numerous occasions I saw top salespeople take home huge commission cheques. There was a rumour once that the company actually did a deal with a rep to pay him out over 5 years, to ease the conglomerates cash flow. I saw deals close and people walk over to the BMW garage to drive out with new cars as soon as purchase orders were faxed through.

Without entering into a political debate on the merits of capitalism, I want to counter a growing misunderstanding and trend I have noticed within technology companies especially scaling startups in the last few years. This article is focused on Enterprise Sales, but much is still true to SMB and transactional sales.

Selling technology can be complicated, especially to Enterprises. To get a big deal closed it can often be a team sport, Sales Development, Pre-Sales, Legal, Finance, Product teams, custom development, implementation, training, proof of concepts etc…it’s a team sport but the sales guy is often the quarterback. He is on the front line with the customer coordinating the strategy and ultimately gets most of the glory and the remuneration. He is also on the line, having to forecast and live and die by his number.

Too often though in the last few years I have heard people in the wider team jokingly comment to reps…. “So will you be sharing some of your bonus on this?”

Commission is not a bonus. It’s a salary that is performance based.

Salespeople expect to earn their OTE (on target earnings). When a sales professional joins a company, they make an assumption that the quota is attainable and if they are a closer, they will earn at a minimum 100% of their commission. I don’t believe there are many other jobs where consistently half of your expected income is performance related. Even in companies where a bonus culture exists for other departments, it rarely gets to this level in any other profession (other than banking — but how different really is investment banking to sales!)

Much research has been conducted, as for example referenced by Daniel Pink in his book Drive, that incentive-based salary packages for developers or other creative work, does not improve performance. In sales, I still believe it is essential, but must be done in a way that avoids some specific pitfalls. Here are some suggestions for how to do this:

1. Hire Customer Focused Sales Professionals: The most common argument I hear against commissioning sales is that we don’t want salespeople who are only worrying about their commissions, “we want them to do the best thing for our customers and the company!” Here’s a wake up — any sales professional who isn’t thinking about their customer isn’t professional and won’t be in the career very long. This isn’t junk bond trading, it’s solution selling technology. The best sales reps are there to be a bridge between the companies. Even in sales that I would term “transactional” — where your reps are order taking, if your pricing structures and commission plan are correct you and your customers will benefit as will your sales reps.
2. Reward The Right Behaviors: You have to get your commission plan right … want multi years deals to increase bookings or cash flow, compensate for it. Want more customers and not revenue, incentivise for new logo’s. You can also within the plan protect your company from aggressive overselling, penalise reps for customers who cancel or downgrade because it was a bad fit or where they mis-sold. You are in control and it’s amazing how small tweaks can help bring the behaviors you need. A large part of salespersons job is internally selling the deal to his company, a strong sales leader and executive team will ensure you aren’t signing bad deals. The sales guys job is to bring them to you for you to decide.
3. Encourage Self Motivation: Selling is hard and despite how hungry and motivated a young rookie workforce of customer success reps might be it’s tough to send that extra email, to make that 5th follow up call. People don’t want to do the homework and get your head around another company another organisation another political mess in buying a piece of software. Commission can be a great motivator — it is the ultimate gamification… yes a medal or sticker from the CEO is nice … you know what’s nicer … cold hard cash or whatever the heck you want to buy with it! Nothing gets deals closed like commission. That doesn’t mean that your sales team needs to be detached from the the rest of your company, it means you need to build a culture internally that understands that each department is unique. As a father I know that I sometimes need to motivate each of my children differently the same applies to departments in your organisation. A hackathon might be essential for your R&D team, whereas a president’s club or stretch goal bonus might be best for a sales quarterly push.
4. De-risking the cost — commission an insurance policy: B2B selling is a profession with a range of methodologies and like with any human resource, experienced operators can be expensive. Not every solution or industry is the same and it is difficult to always know that the sales rep you are hiring will succeed. At an enterprise level especially, reps will command high salaries, how do you know your are hiring a good fit and not a lemon? Commission is the companies way of de-risking and building a win — win. The company doesn’t have to pay the full cost of the sales executive upfront and conversely the sales guy has time to prove himself. If he is as good as he says, he is will get the upside of over achieving and making a lot of money when he smashes his target, a payoff for the risk he is taking as well. If he isn’t, the company hasn’t forfeited the full expense up front and can boot him in due course.

The best salespeople are actually multi faceted, multi disciplined, brilliant business leaders who ended up in sales… no one grew up saying I want to be a sales guy. The number one attribute I look for in a Sales Rep is business acumen. I want to know when they have a conversation with a customer they will be able to understand and add value to their business. Sales reps are paid well because they need to attain trusted advisor status with your customers. They need to be able to hold value discussions better than your best customer success reps, have the financial acumen of the CFO, the swagger and charm of the CEO, be able to decipher the finer details of limitation of liability and indemnity with the head of legal, as well manage a pre-sales conversion about API integrations with the techies. All this whilst understanding how and when the deal will close.

At the top level, an Enterprise sales executive closing a $100m deals with the C-suite needs to be good enough to be an advisor to the board of that company and as such is paid accordingly. Even at a transactional level you need to add value to the customer, the dollars flow from there.

There is an argument to be made that with the advent of SaaS and the amount of information a buyer has before a engaging in the buying cycle the commission dollars should be reallocated to marketing and building a friction-less transactional order taking mechanism. That may work for a time for some self service bottom up technologies. But I still believe people buy from people and helping them move past the inertia of doing nothing or getting them over the line is important. Sales technicians who can navigate and grow those bottom up deals with help maximize your revenue and your customers ability to benefit from your product. So many people in companies still don’t even know how to get things bought. Sales isn’t just slimey or a bullshitting profession but a deep skill and methodology that crosses many different multifaceted disciplines and dimensions.

I liked to do a little exercise for new employees at a company I worked at to get cross departmental teams to understand more about sales. I asked them how difficult they thought it it would be for me as a senior manager in the company to get a $40K piece of software purchased. How many different stakeholders are involved and how many processes would it need to go through. Only then did they start appreciating the number of different stakeholders and issues involved in making a relatively minor purchase. This was in a startup, imagine a large corporate. Sales isn’t just about selling it’s about helping people buy. Now imagine you wanted to buy that $40K software in your organisation, you want to partner with a sales professional to who can help you navigate your organisation and his, to get the deal done. Do you want that person laser focused on getting it done because of his commission and his full salary depends on it? Or only because he will get a slap on the back and well done from his boss? Salespeople deserve and need their On Target earnings — they are fighting for their salaries! It’s a very big motivator that can continue to serve the customers and the companies and shouldn’t be disregarded.