Maybe you shouldn’t. But it’s worth understanding why sales people in most cases are commissioned, when most other staff at best have modest bonuses, or in many cases a flat salary.

It’s really down to the effect of 1.Easily measured productivity, and 2. Discretionary actions.

1. Sales is easily measured. Assuming you can avoid mis-sales and customer sat issues, a sales person’s performance can be pretty much summed up in one number. A sales person that delivers 20% more revenue than another is 20% more valuable to the company. Not 19% more valuable. Not 21% more valuable. 20%. I would be happy to pay one engineer 20% more than another if I had any confidence in my judgement. Sure I can see one engineer is “better” than another and pay them more. But should that be 19% this quarter and 21% next quarter? Did their coding improve by 2% this quarter? It’s impossible to measure with any granularity for most employees outside of sales.

2. Sales is discretionary. Sales is largely a function of what you put in. That’s true of most activities, but then the activity is not discretionary. Accounts clerks don’t get paid on the number of invoices they process, since they don’t control the number of invoices. Sales people get paid on the number of invoices they generate, because they control the generation. Sales people have extraordinary flexibility on how they use their time – it’s a major appeal of the job for most. They get to choose priorities and the amount of energy they put into what often results in soul-destroying rejections most of the time and occasionally ego-boosting wins. A non-commissioned sales person would spend too much time talking to existing customers, indulge too many “requests for information”, postpone asking for the order until the next meeting. The donkey needs a carrot. Sometimes it needs to be an orange sports car..


Why not commission other staff like Marketing, on say, leads? Because it’s not easily measured.

Leads, by themselves, mean nothing. At SalesSeek, referral leads are more likely to close than unsolicited inbound leads – so what about lead quality? Also the tasks aren’t anywhere near so discretionary. It’s not really a debate as to whether or not you have a website. In this case, paying bonuses rather than commission makes more sense.
The discretionary argument is why the split between base and bonus shifts more to bonus, the more span of control (i.e. senior) the manager has.
Increasingly with web-based sales though, the discretionary aspect doesn’t really exist. Here it makes less sense to commission sales people (of course you can still pay some commission – just move the balance more towards base – it doesn’t have to be black and white).

Companies that start out at the low end like Dropbox often put in place more traditional sales teams and compensation structures as they move into the more discretionary world of enterprise sales. For many startups though, the sales effort is interwined with market and product development. In this case I’d argue a commissioned structure is not as important as team based compensation – specifically equity.
How good the product is doesn’t come into it.

The best sales people I have ever worked with was at Sybase in the 90’s. Sybase was incredibly successful, but not because of its sales people. It was incredibly successful because of its product.

The product, the ease of selling, and a generous commission plan (top performers could earn north of $1M) attracted the very best sales people.

Why did Sybase “waste” this money when they could simply rely upon the product? Because be having the best salespeople, they got 10% more revenue. Perhaps even more importantly, that meant their competitors get 10% less revenue. In that context, they were cheap.

There is a downside, and that is that the more commission you pay, you more you weaken the team bonds. At Sybase, the best sales people spent at least 10% of their time on internal politicking and actual subversion to gain territory – a colleague of mine arrived early one morning to find a sales person rifling his desk “looking for leads” with no trace of shame. Glengarry Glen Ross could have been filmed there. It’s another reason why for early-stage startups I would argue against commission.

Overall, there are good reasons for paying commission to sales people, but it’s worth always asking the question specific to your own company situation.

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