Paying commission reduces performance
Updated: Jun 8
Commission is a double-edged sword and can stop your sales team doing what you need them to.
We see this most often in businesses where the owner-manager is not from a sales background and assumes that commission is the only thing that will motivate their sales team, unwittingly creating a perverse incentive (The Cobra Effect is a classic example of this).
The reality of business is that there are tasks in every role that just need to get done and sales is no exception; maintaining CRM systems, updating account databases and researching the market are all crucial tasks in sales teams but a commission scheme incentivises people to dedicate their energy to closing deals. Eventually, this will catch up with them, but when it does, your business could face a very dry pipeline!
So if you have no commission schemes, the salesperson will treat every task as part of ‘business as usual’ because it’s just part of the job and it’s doing the right thing.
However, slap on a derisory commission and it’s made explicit to the salesperson the activity is work (!), how poorly you value that work and even worse, how poorly you value the salesperson’s effort to do that work. Now thoroughly demotivated at the offensively small commission, the salesperson doesn’t do the work which they would have happily done without any commission!
The truth is that how we – and yes, that includes sales people - are motivated is complex (read Drive: The Surprising Truth About What Motivates Us by Daniel Pink) and commission is a blunt tool that needs to be applied judiciously to highlight key sales focus areas for the business not as a blanket renumeration tool.
The crux of this problem is that incentivising behaviour rather than outcome is what a good commission scheme should endeavour to do. And what works is likely to be unique to your business and your sales team. However, in our experience, there are a few things that are always worth thinking about:
Keep the scheme simple – don’t overcomplicate!
Make sure that you understand your sales team – are they inherent risk takers and enjoy the thrill of potential upside or do they prefer more certainty?
The portion of a sales rep’s total pay from commission should reflect the certainty/uncertainty of the product’s sales cycle. Finding the right balance of salary and incentives is important.
Make sure that the scheme achieves your goals as a manager – fundamentally, does it give you confidence that your team will go out and sell for your business? Can you monitor this appropriately and reward them fairly?