We are a “sales incentive free” organization
In my previous role at a large internet start-up in India, I experimented with many forms of sales-based incentives. It was based on a very unshakeable belief — incentives drive behaviour. And how I was wrong. By a margin.
Founders and VP Sales of tech startups would know how fun it is to play around with sales incentive formulae. There’s a weird kick in creating a sales incentive formula on paper and then day dreaming about the reps’ behaviour changing once it is rolled out. In fact, it does happen when one starts out.
Until it stops happening. No matter which way one changes the formula, the expected change in behaviour and outcome is hard to come by. I’ve spoken to >200 Founders and VP Sales since the inception of Sales Design Institute and a similar pattern has emerged.
In this post, i’m not going to get into much detail of why this happens. I have my own theory based on my experiences. But that’s for another post.
What I am going to share in this post is our decision to make Sales Design Institute a “sales incentives free” organization. Yup. We do not have sales-based incentives for either part of our sales team - hunters (those who acquire new clients)or farmers (those who manage existing clients). And this has been the case since we started building our sales team. So it wasn’t an afterthought.
This does not mean that our team does not have targets. Of course they do. But they don’t earn any extra cash based on every sales milestone over and above their base target. There’s no incremental personal gain in upselling or cross-selling to a client. There’s no incremental personal gain on exceeding targets. In short, we’ve removed the biggest reason why sales reps would optimize for themselves any transaction with a client.
This also does not mean that we do not have variable pay. Yes we do. But we are in the process of implementing it in the way it is done for other non-sales functions like HR or Finance. While we are still in the midst of deciding the exact method, you can broadly think of it as a rating system which will blend self-rating, rating by clients and rating by manager in some reasonable ratio. The frequency is yet to be decided but we are pretty sure it will not be monthly like in the case of sales-based incentive — neither the calculation, nor the disbursement.
How’s it working so far? So far so good. We’re happy with what we are seeing. Not just that, we have removed the “overhead” of calculating and disbursing sales incentives every month. Anyone who has done that will know what a tedious exercise it is.
In fact, since we’ve already taken this decision to be a “sales incentives free” organization, we do not negotiate fixed salaries with candidates. We let them know upfront that we aren’t going to offer them a sales-based incentive. They usually ask for a fixed pay that they need to live a comfortable life and we tell them whether we can afford it or not. There’s no bargaining.
We don’t know how well this approach will serve us in the long term. But right now, we have a good feeling about it.
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