Should You Eliminate Sales Commissions Like This UK Company Did?

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Remove Sales Commissions
That’s exactly what Thoughtworks, a software company with over 2,000 employees, did early this year. The company eliminated sales commission and placed all their salespeople on a regular salary. Although I doubt the following can be directly attributed to removing its sales commissions, the head of sales and marketing in London, Gary Barnes, did report that:

  • There was a 57% increase in revenue in 2012 compared to 2010
  • Cost of sales increased by only 7% in 2012 compared to 2010
  • Only 2 people out of a 12-person team that Barnes managed quit over the sales commissions

Find out why they decided to do it below.

Why Thoughtworks Eliminated Sales Commissions

Sales process becoming more of a team effort. A great point they brought up was that their technical staff was becoming increasingly involved in the sales process by conducting demonstrations and explaining their products. But they weren’t being paid a commission. This lead to the sales team getting all the rewards on what was essentially a team effort.

Commissions encourage selling only established products and deter selling innovative solutions. It’s easier for a salesperson to get commission for promoting an established and familiar product. There is less selling and educating to do. However, this does relegate the usually multi-faceted role of a salesperson to that of an order-taker. It’s hard to ask them to put their income at risk and recommend newer and more innovative solutions. This presents a very serious risk to organisations as their product-life-cycle runs down. No product lasts forever. Ask Polaroid.

Monitoring sales figures takes up a lot of resources. This is especially true in Malaysia, where the use of sales management software or customer relationship management (CRM) software is not commonplace. I’ve seen companies trying to monitor millions of dollars in sales commissions using nothing but Excel worksheets (without using VBA, mind you) and the SUM function. It’s so easy to make a mistake, and figures tallied by the management and those tracked by the salespeople themselves are hardly in sync. This leads to much discord and serious arguments. Okay, this being Asia, it’s more being sullenly silent in front of the boss followed by three hours of complaining with their colleagues at the nearest coffee shop. In either case, morale dips due to management’s inability to properly attribute and track commissions.

Experienced salespeople less keen to spend time mentoring less experienced staff. Every minute a salesperson spends not selling reduces his chance of increasing his income (which is why they abhor paperwork). An organisation requires well-trained staff, which in turn requires knowledge transference especially from those who have the experience. This leads to a salesperson’s incentives not being aligned with organisational needs.

A commission-based pay structure is known to foster a competitive culture. If your business has a short sales cycle, where orders are easy to fulfil and that requires limited relationship building, then sales commissions still makes sense. But if it requires significant relationship-building, and input from other support staff to close a deal, then maybe you might be better off without it.

It is a significant cultural change, but it might be worth the trouble.

You can view Thoughtwork’s visual deck here.

Do you think removing sales commissions is the way to go? Have you heard of company that has done away with it? What happened?

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