Published 29-04-2021
| Article appears in April 2021 Issue

Stop paying salespeople commission

28-04-2021
Ballistix Justin Roff Marsch

 

The founder of international management consultancy firm Ballistix has written a book in which he calls for a sharp rethink of sales. He outlines some of his views here. The first four chapters are available free from his website: https://info.ballistix.com/sampler-request-industry-update.

 

When you move your salespeople from commission to salary, they will not leave. (That’s assuming that they continue to receive the same net income, of course.)

However, you will gain the ability to manage your salespeople like other team members.

Specifically, you will be able to determine who exactly you want your salespeople to approach, and with exactly what proposition. You will also be able to determine their rate of work.

In other words, you will be able to manage your salespeople, just like you do all other team members.

Of course, if you think your salespeople are optimally productive, you can leave things exactly as they are. However, if you’re looking for a significant lift in productivity, sooner or later you’ll need to accept that commissions have to go!

Piece-rate pay

I’m not arguing that salespeople’s pay should not be variable. Good salespeople should obviously earn more. My position is that pay should not be tightly coupled with production.

In past generations, folks in manufacturing were compensated on a piece rate but we got rid of piece-rate pay when we realised that the output from the plant was NOT the sum of the output from individual workers.

If you want a significant lift in salespeople’s productivity, you need to convert sales from an individual to a team effort. You need specialists who originate opportunities, who design solutions and craft proposals. And you need salespeople to focus exclusively on selling conversations. In such an environment, sales bookings are the output of a tightly coordinated team, not the sum of individual rates of work. Commissions must go.

Motivation

I’m often asked, if salespeople don’t earn commission, why would they be motivated to sell?

The answer is that salespeople, like all humans, are born motivated. They sell because they are salespeople. If your salespeople (or any team members) are exhibiting a lack of motivation, you need to identify and resolve whatever organisational design problems are sapping their natural motivation.

Cost containment

Some financial folk will argue that commissions reduce financial risk. Nothing could be further from the truth. In this day and age, you can’t pay salespeople 100% commission—it’s always a mix of base and commission.

If we assume that a percentage of hires won’t work out, you’re committing to pay unproductive hires their base for as long as it takes to amass sufficient evidence to support your decision to release them. Typically, this takes around 12 months!

If you hire salespeople, pay them their market value from day one and put them in a structured environment where they operate at the same rate as their colleagues, you will be able to identify and remove bad hires within 6 to 12 weeks.

How, then, do you set salespeople’s salaries?

You set their salaries the same as you do everyone else in your organisation. You pay them their market value. If their productivity increases, they’ll hit you up for a pay rise and you’ll feel compelled to grant their request.

If you want a starting number for negotiations, visualise someone in your organisation who you think would be good in sales, then imagine what you’d have to pay to find someone with the same set of attributes.

What about bonuses?

The whole reason for getting rid of commissions is to eliminate the tight coupling of output and pay. It makes no sense to eliminate commissions and then smuggle the same bankrupt idea back into the organisation in the form of bonuses.

If you have an organisation-wide bonus play then, sure, include salespeople in it. But don’t create a bonus plan for the sales team.

Sales should be mandatory, not optional!

RELATED NEWS

  1. By St.George Bank The global pandemic has triggered the age of transformation for Australia’s manufacturing industry. While economic conditions have never been tougher, the pressure of disrupted supply chains coupled with new market demands has created unprecedented opportunities.
    The manufacturing...
  2. Brothers Dan and Tim Murphy, together with Stephen Flannery and Dominic Neate, are all stakeholders in the promising and innovative company, Durst. They recently acquired another manufacturing business, Austral Alloys, and are energised about its potential prospects. 
    Earlier this year, an...
  3. A new global-leading medicine manufacturing facility is soon to be designed that will produce vital nuclear medicines and support 1000 highly-skilled jobs across the country.
    Replacing an existing facility in the southern Sydney suburb of Lucas Heights the site is the base for the Australian...