Equity would get complicated, quickly. Profit sharing seems to be an easier route.
I'm not sure I agree with sales being in product development. You run the risk of having a sales person champion an idea as the greatest thing on earth, only to find out the market size is exactly 1. The salesperson should, however, be concerned with the customer's satisfaction long after the deal is signed.
> we're talking about salespeople hired to scale up a proven business model, not entrepreneurs exploring different ways to make money.
I don't think it was intended, but that's a condescending statement. That's like saying "I'm looking for developers to just write some code, not find ways to do it better." A good salesperson should be looking for different ways to make money for their client, their company, and effectively (profit sharing) themselves.
Additionally, most sales managers are promoted sales people, not necessarily cunning business people. A "known process" rarely exists.
ps, I'm a big fan of your blog and contribution here, so please go easy on me.
I don't want to speak for John, but this is my answer to the same question: "Sales isn't rocket science, it just takes someone who is comfortable talking to people...and when you're selling something you believe in, that's really easy to do."
That's a really good question. The short answer is, "it depends."
In my mind, the problem is that commission is an incentive to do whatever it takes to close the deal -- especially if you're in an uncapped commission with accelerators. For example, if I'm paid 10% on my first $300k in new business, 15% on $300-499, 25% on 500+, I'm doing everything I can to hit $500k, right?
I (the commissioned salesperson) would lie to my mom if I'm at $490 with a $12k deal on the table. I'll lie to you, and I'll tell you things about our product/service that aren't true. You'll do this one project with us, I'll get my gigantic commission check, and then you'll a) never come back b) tell everyone you talk to about us and c) not affect my commission check. I'll also put on my resume that I "exceeded monthly quotas" and smile. Remember, I'm here to get paid. That's why we're in a commission-based role. [edit: Please keep in mind that I'm giving accounts of what I've seen, not necessarily what I've done. I wouldn't lie to my mom. Others would.]
I believe you can mitigate that problem by paying out over a term, or upon certain achievements (deployed, customer gave us a positive rating, etc.). However, what additional problems does that create in your organization? Is it good or bad to have the salespeople managing (micro or otherwise) the delivery ("selling is not delivering")? Does that compensation model get too complicated?
Call me an optimist, but I wish companies would hire people that want to truly evangelize their widgets, put them on a base salary, and then measure performance. Sales isn't rocket science, it just takes someone who is comfortable talking to people...and when you're selling something you believe in, that's really easy to do.
Long time HN contributor, first time I've felt the need to go anonymous.
I've been in sales my entire professional career, but always commissioned based. I've worked in SMB with small teams and enterprise with massive teams. I feel like these are related points (to paying commission), but you may have a different opinion.
First, commission is like crack. Once you get a taste, it's hard to kick. Earning potential is outrageous. I was the highest paid employee for two years. I made more than the founders, anyone on our leadership/executive team, and anyone that built what I sold. That last point kept me up at night, so I eventually found a way to redistribute the wealth. I stayed in sales because I couldn't imagine "how anyone could live on that little" (< $100k). It's hard to quit.
Second, crack either transforms people or attracts a certain personality type. I've never been surrounded by so many disloyal, self centered, unethical, and maniacal people. Ever. I've also caught myself crossing boundaries I would have never previously considered -- until I thought about how it would push me over the accelerator and significantly increase my commission. I have met some people with strong character and ethics in sales, who are great salespeople, but they're a tiny minority.
Third, those ethical breaches typically result in misrepresentation of the company/product/service you're selling. Commissions are typically paid on a contract, not on the lifetime value of the customer. I firmly believe the commission-based sales people are potentially the most damaging thing to your company. Set an inaccurate expectation to close the deal? As a sales person, you're on to the next one. Results in high churn and damaged credibility, neither of which affects the salesperson's commission check.
Last, sales people are typically the least knowledgeable in the organization about the company/product/service they're trying to sell. I've always been in, uhm, technology as a service(?), but neither of the companies I've worked at have any desire to hire people who understand the technology. They hire salespeople that have "consistently exceeded quota" and "increased customer spend by x" or some other sales achievement. That's great, dude, but you sold fucking vacuum cleaners. What do you know about the product those guys in the dark rooms are slaving away over? Why are you the best person to go out and represent all of us in the market? Speaking of, I've yet to interview a salesperson that's come in with "here's a list of my previous clients who will vouch for my integrity."
For those talking about large sales team, I can personally assure you all of the negative aspects mentioned in the post become even more apparent with scale. Poaching leads, generating fake orders, tarnishing the company to exceed quota ("total lack of ethics")-- it's all there, and it's easier to hide in a bigger pond.
I know you need to move units and generate revenue, but I agree, why do we pay sales commission?
I'm not sure I agree with sales being in product development. You run the risk of having a sales person champion an idea as the greatest thing on earth, only to find out the market size is exactly 1. The salesperson should, however, be concerned with the customer's satisfaction long after the deal is signed.