Kill the Commissions
Nate Wolfson could hardly believe his ears. For as long as he had run Thrive Networks, an IT outsourcing company in Concord, Mass., salespeople had been paid almost entirely on a commission basis. The system seemed to be working fine: Revenue at the 35-person firm was up from $2.7 million in 2002 to $3.6 million in 2003.
But Jim Lippie, Wolfson's director of business development, and sales director John Barrows had just presented a radical new idea. Rather than being paid individually, the two men proposed that Thrive's sales staff pool its commissions and be compensated collectively. "I was shocked," says Wolfson, who admits a personal stake in the matter: In addition to wearing the CEO hat, he also is a member of the company's three-person sales department. His own commissions were on the line.
But Lippie and Barrows presented a compelling case. Each of the three salespeople, they emphasized, possessed different strengths. Lippie was a proven lead generator, a master networker who brought in a dozen potential customers a week. Barrows's talent consisted of meeting with prospective clients and generating compelling proposals. And Wolfson was the closer, the guy who could soothe last-minute concerns and make sure the papers were signed. Eliminating the competition between the three and integrating their talents, Lippie and Barrows argued, would result in a kind of three-headed "supersalesman," increasing the likelihood of more deals -- and more money -- for all concerned.
Wolfson was intrigued, if skeptical. And it's not hard to see why. As long as there have been sales, there have been commissions. It's one of the great themes of American business: the salesman as lone wolf, motivated by competition and driven by self-interest, determined to reap the lion's share and leave everyone else in the dust. For managers, the traditional, commission-driven sales model is simple and easy to implement. What's more, it tends to work.
But Wolfson was aware that his current system had its flaws. Of the nine salespeople hired since Thrive was founded in 2000, only one had lasted more than six months. Between the endless networking, cold-calling, meeting with prospects, and closing transactions, people simply burned out. What's more, because the emphasis was on closing deals rather than developing a pipeline of business, cash-flow problems were not uncommon. Lippie, for example, felt little incentive to hand off leads and lose 50% of a potential commission when he would claim it all if he sealed the deal himself.
In January, Wolfson took the plunge. Now, each team member receives a base salary and shares commissions based on reaching a monthly team goal. They also can earn more for meeting or exceeding individual goals for generating leads, say, or closing deals. In the first three months since implementing the new system, the number of sales meetings increased by 67%. What's more, deals now take 30% less time to complete. "This is the first year that I've been able to take a vacation in the springtime," Barrows says. "I have confidence that the pipeline won't completely dry up while I'm gone."
Wolfson now plans to add similar three-person modules in offices nationwide. It won't be easy. For the system to work, Thrive needs people with the ambition and egos of great salespeople who can still play well with others. The contributions of off-site staff also could prove difficult to monitor. "The company needs to set up a benchmark and detailed accounting within the team to compare the results of their efforts before and after the change is made," says Tom Hopkins, a sales consultant in Scottsdale, Ariz.
But Wolfson is confident. When it works, he says, the new system is like a relay race. Each team member is busy at either the beginning, middle, or end of the sales process. "We're all better off, and the company is too," he says. "None of us could have brought in as much business working individually."