Fog Creek Software
Discussion Board




Paying a Sales Guy

Continuing from http://discuss.fogcreek.com/joelonsoftware/default.asp?cmd=show&ixPost=167813&ixReplies=16 but with a new spin:

I will most certainly need a sales guy to make my concept work. First I will sell the product to my personal network of contacts. Once I have a small base of installed customers, the sales guy takes over and I can continue to develop features.

The question here is, how do I compensate him? My product will cost $x (setup fee) + $y (monthly fee). What percentage of this should the sales guy get?

Vertical_Man
Tuesday, July 27, 2004

Are you going to pay him only on commision?

Unlikely this will work for a product that costs less than $20,000.

Pay base salary plus commision. Have bonuses. Graduate the commision rate so that the more product he sells in a year, the more % he takes of all the products he has sold.

Dennis Atkins
Tuesday, July 27, 2004


1. Don't pay comission.
This causes your salesman to be focused on the short term and on extrinsic factors. I.e., instead of having an approach of
"I love what I do. I enjoy helping customers find this solution. I'm fairly compensated" they will be thinking :

"How can I get another sale so I can buy my new car.  Hmmm.... or mabye a trip to the Bahamas... oh... I'm sorry Mr. Customer, did you say something".

There's lots of pscyhologica and business writing to BACK THIS UP.

Punished By Rewards comes to mind.
Also a column by Norm Brodsky in Inc. Magazine.


2. Have you finished your software?
It recently wasn't finished:"Of course it's premature since the product hasn't been developed"  (back in early July).

If you don't have  PRODUCT yet, do NOT WORRY ABOUT compensating your salesman.

Good luck. May the compiler be with you.

Mr. Analogy
Tuesday, July 27, 2004

Mr. Analogy,

Of course I haven't finished my product yet. But, I do believe in thinking through my complete business plan, and this is but part of the mental exercise to see if the whole thing will fly. :)

Thanks for your input! I really value everybody's suggestions.

Vertical_Man
Tuesday, July 27, 2004

A good one is going to cost you about $100K salary but multiply that by an overhead rate of about 2.5. So he has to sell about a quarter mil to make you any money. Set some kind of bonus plan for anything in excess of the $250K, but do it quarterly of course. If he misses the target in the first two quarters, he gets just one more quarter to make it up or he's gone, because if you reach year end and he hasn't sold $250K he's costing you money.

old_timer
Tuesday, July 27, 2004

Actually you need sales guys to be greedy...well at least according to Eric Sink.

http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnsoftware/html/software03242004.asp

enjoy!

Prakash S
Tuesday, July 27, 2004

Does Nordstrom's pay commisions?

Dennis Atkins
Tuesday, July 27, 2004

Prakash is right - read Sink's article. It's absolutely correct. I would say more but that article tells you all you need to know.

Dennis Atkins
Tuesday, July 27, 2004

I should probably qualify my goal here a bit.

My immediate goal (1-2 yrs) is to get to 100k in profit. My thinking is that it could be split 50% with a sales guy.

I am not considering (at the moment) that the company could grow more than that. It could be possible, but I won't bank on it. However, 100k to maybe 200k is very possible.

Given that... How do I approach the sales guy aspect?

Vertical_Man
Tuesday, July 27, 2004

Yup, read the article already. Now this is the discussion aspect. :)

Vertical_Man
Tuesday, July 27, 2004

Hire the last guy who sold you something you didn't want, and pay him in the same manner he gets paid now ;-)

Edward
Tuesday, July 27, 2004

You need to pick up a copy of The Product Marketing Handbook for Software and read the section on compensating your sales personnel.

Tuesday the 27th
Tuesday, July 27, 2004

Thanks Tuesday, I'll check it out.

Vertical_Man
Tuesday, July 27, 2004

"Actually you need sales guys to be greedy...well at least according to Eric Sink."

I agree with a lot that Eric says, but, Eric is wrong about this , in my experience.


Who have YOU bought from?

1. A pushy car salesman who's focused on making the sale?

2. A knowledgeable salesman who cares about what your needs are?

3. The annoying Radio Shak guy that tries to sell EVERYBODY a cell phone plan?


In order for the Bonus to have an effect, the salesman has to actually be thinking about it. Thus, he's more interested in the customer's wallet than the customer. And CUSTOMERS SENSE THIS.

If you know a salesman is on commission (or sense that he is) do you TRUST him?

I don't. And if I don't trust him, how can he POSSIBLY sell me anything?  He MIGHT bully me into it, but then I'll just return it.

Treat your customer the way you'd like to be treated and  everyone is happy.


If your saleman is motivated by a joy in helping connect a customer with a product then he's turned on 100% of the time. If he's only motivated by a bonus (and why provide one if it's not expected to motivate her) then he's turned on only when the check is signed. And the CUSTOMER KNOWS THIS.

Mr. Analogy
Tuesday, July 27, 2004

Mr. Analogy, you do not agree with the idea of incentivizing the salesguy for customer satisfaction? (Mentioned by Eric, if you search for "satisfaction" on that page.)

Tayssir John Gabbour
Tuesday, July 27, 2004

"The Monk and the Riddle"

Ewan's Dad
Tuesday, July 27, 2004

Mr. Analogy:

You seem to imply that if the sales guy really wants the sale, he'll be pushy. That's only true of *bad* sales people. Good sales people try to get the sale - which rarely translates into being pushy, but fits well with the 'greedy' model.

To the OP: Go read Cialdini's 'Influence'. And make sure your sales guy has too, when you hire him.

Mike Swieton
Tuesday, July 27, 2004

Even good sales people need a commision. It helps focus on what's important - selling. If you want a tech support person, hire one.

MilesArcher
Tuesday, July 27, 2004

"I will most certainly need a sales guy to make my concept  work." 

So long as we're discussing Eric Sink's article, which of his three reasons justifies your hiring a sales guy and making a huge change in the structure of your little company?:

Reason #1: Nobody really wants your product.
Reason #2: Your product is very expensive.
Reason #3: Your product is no longer being improved.

If none of those three apply, Sink suggests that you're likely better off without any salespeople at all. 

So why is it that you think you need a salesperson?

Herbert Sitz
Tuesday, July 27, 2004

"If your saleman is motivated by a joy in helping connect a customer with a product then he's turned on 100% of the time"

You're either a troll of from Mars. Good salesmen work on commission, period.

Anony Coward
Tuesday, July 27, 2004

"I agree with a lot that Eric says, but, Eric is wrong about this , in my experience."

Actually, Eric is completely correct - if your salescritter is paid a commission, he'll do whatever it takes to make sales. When his number one priority is to get your cash and remove you from sight as quickly as possible, "pushy" is about the best you can hope for.

So, if you want your salescritter to maximise customer satisfaction, make the commission dependant on repeat business, instead of initial sales. You'll get an instant "how can I make this customer so happy that they'll willingly give us more money?" instead of "how can I get this customer's cash then make them go away?"

Tragically, most businesses are focussed on the short term, and consider "next week" to be extreme long term - leading to the pushy "get their cash then move on to the next sucker" approach.


Tuesday, July 27, 2004

"make the commission dependant on repeat business, instead of initial sales"

Excellent point. However, unless this fellow has more than one product, there won't be any repeat business.

What you WILL be interested in long term is happy customers who recommend other people. However, the lead time for that can be Y E A R S.  I've had customers who ordered 4 YEARS after finding out about us.

Mr. Analogy
Tuesday, July 27, 2004

The problem with giving a bonus is that you will ONLY GET what you give the bonus for.

I agree with Eric: don't hire a salesman unless you really need one. With only $100k projected sales (and 50% going to you), you can't AFFORD the *expenses* of a good salesman, much less actually pay him a salary.

Excellent article from Inc. Magazine.
http://www.inc.com/magazine/20030501/25416.html

This is by Norm Brosaky. Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc. 100 company and a three-time Inc. 500 company. 


Want to stir up controversy among a group of business owners? Ask them what's the best way to compensate salespeople. It's like throwing raw meat into a den of lions. You can just sit back and watch them go at it. Over the course of 25 years in business, I've developed my own system for handling sales compensation. I've also become convinced that the way most companies do it is a recipe for trouble.

I'm referring, of course, to the practice of paying sales commissions. Unless you're very careful about how you use them, they almost always have the effect of undermining any sense of unity and common purpose in a business. How? By putting the salespeople in a separate category, by making them stand apart. Granted, sales commissions aren't the only culprit. It doesn't help that most companies put the salespeople in separate offices, hold separate meetings for them off-site, and treat them far more gingerly than other employees at performance review time.

But commissions play the largest role in distancing salespeople from other employees. The result is a lot of animosity and resentment, leading to inevitable conflicts. The accounting people complain that the salespeople make special deals with customers and then don't inform the people who do the billing. The operations people complain that the salespeople make unreasonable demands. As the owner, you're constantly having to mediate between departments while resolving disputes among the salespeople themselves over who has which territory, who handles which customers, and who gets the leads coming into the office.

You also have to cope with the great fear all owners have that their salespeople will leave and take customers with them. That's actually more likely to happen with a commissioned sales force than with a salaried one. For salespeople on commission, the customer represents security. As long as they have that connection, they think they have a means of earning a living. Consequently, they have a strong interest in making sure the customer belongs to them rather than to the company. They resist letting anyone else have a relationship with the customer

Read the rest at Inc.com
http://www.inc.com/magazine/20030501/25416.html

Mr. Analogy
Tuesday, July 27, 2004

Build a company that makes a profit, one you're actually doing that start taking on staff to make it bigger. In other words start selling without a salesman.

Mr Jack
Wednesday, July 28, 2004

Have a commission but not on upsales.  The most annoying thing ever created was the upsale commission.  If I want to buy X, that should be good enough, don't try to also sell me Y or I might not buy X after all.  Just have the commission work like this:  you get a bonus per unit of X sold, but the bonus is a fixed dollar amount.

sir_flexalot
Wednesday, July 28, 2004

Operations people always seem to fixate on the large bonuses that it's _possible_ to make as a salesman, while completely ignoring the fact that, as old timer mentioned, most salespeople will be fired if they fail to meet their revenue target two quarters in a row. Lots of upside, lots of downside. I don't really see a problem here.

I work in the financial sector with the slimiest salemen to be found anywhere. I don't usually like them, but I acknowledge that they are a necessary evil. I can have the best investment product ever devised, but I still need sales people to raise assets for it. IMO, if a salesman is executing a well designed sales plan, he should be working his ass off. Sales is very hard work, if you're really trying.

Oh, as somebody else said, if there isn't at least a possibility of making at least $100k, you likely won't be able to hire anybody good to work for you...

Anon_this_time
Wednesday, July 28, 2004

I will most definitely start without a salesman. Like someone mentioned, since I am a domain "expert" in this area, I have a network of contacts that I would first pitch the product to. I would imagine that more than a few of them will bite. (If not, my business dies before it takes off.)

Someone asked why I need a sales guy. After the initial acquisition, I will need to focus on development of the product. I will probably have about one year of work to do before the product is full featured. If I have to sell at the same time, I just don't know where I will find the time to do it all. Oh yeah, did I mention I have a day job that I don't intend to quit until this thing is at least mildly profitable?

Back to the product. My initial customers will essentially work with a beta product while I continue to develop. I think this will work because of my personal contact with those people.

As for what I'm looking for in a sales guy, he should be in the same position as me... youngish guy willing to take a chance. He will basically be a partner in the business.

I'm not trying to grow a Microsoft here. Don't forget, all it would take is 100k in sales to make me a good salary. (The expenses are nearly zero for this business.) I project it might take about a year to get there. Then, in one more year, sales will be 200k, and that's a good salary for both me and the sales guy! And then there is still significant upside.

The primary motivation here is to get out of my Dilbert hell working in cubicle land! ;-) Even if I can replace my current, it would have been worth it.

Vertical_Man
Wednesday, July 28, 2004

> Even if I can replace my current, it would have been worth it.

Er, that should be "current income".

Vertical_Man
Wednesday, July 28, 2004


Any professional salesperson will insist on commission. True pros won't settle for salary.

Huh?
Wednesday, July 28, 2004

Also, establsihed sales people won't work contingency (they get paid only when a deal closes).

We've wasted our time with guys who *said* they could sell, were willing to work contingency, and did squat in the end.

anonymous financial IT guy
Wednesday, July 28, 2004

*  Recent Topics

*  Fog Creek Home