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What if Sales Reps Didn't Get Commission?

What if Sales Reps Didn't Get Commission?

A Harvard Study Looks at Bonuses and Sales Productivity

June 25, 2024

Good Morning! Welcome to the last week of Q2, where sales quotas get crushed and stress levels hit their all-time highs. It’s time to make those quotas disappear faster than the cream cheese on bagel Fridays. Good luck out there my friends. 🫡

In today’s Follow Up:

Sales without commission? 💰️
A cold outreach tool 👀
Sales email tip of the day 🧠
Sales news around the internet 🖥️
Sales jobs, job market & a meme 😂

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What if Sales Reps Didn't Get Commission?

Sales is one of the few careers where you can say ‘I’m in it for the money’ and it’s totally acceptable.

It’s also one of the only jobs where you get rewarded for your performance, rather than just time spent on a task.

The commission structure of a sales job is what attracts most of us to the career. And that’s why a sales job without commission sorta sounds like America without beer…

Can it work? Maybe. But it just doesn’t feel right…

A bunch of smart folks from Yale and Harvard decided to put this theory to the test by conducting a study that looked at how much commission motivates salespeople.

Here’s a quick background:

They followed 348 salespeople from a Fortune 500 who sold durable office products.
The study took place over three years (1999-2001).
They compared performance vs compensation plans that included:
- Base salary
- Commissions on sales
- Quarterly bonuses
- Annual bonuses
- Accelerators for exceeding quota.

Here’s what they found. 👇️

💰 Bonuses Work

Turns out, salespeople like bonuses. A lot.

When companies use a mix of base salary, commissions, AND bonuses, their sales increase nearly 20%, compared to commission-only plans.

That’s like an entire extra day of selling every week.

📊 Bonus Structure

Quarterly bonuses are the best.

They serve as "pacers" to keep salespeople on track to achieve their annual quotas. Removing quarterly bonuses decreased revenue by 9.2%.

Having both quarterly and annual bonuses was more effective than just having annual bonuses. However, increasing bonus frequency to monthly made things worse.

Salespeople tend to have a ‘present bias’. They value immediate rewards (quarterly) more than future ones (annual). This makes frequent (quarterly) bonuses most effective.

🚀 Accelerators

Accelerators or overachievement commissions reward sales reps with a higher commission rate on sales that exceed their quota.

This commission structure prevented top performers from slacking off after reaching their targets and got them more excited about surpassing quota.

Removing accelerators in the study would have reduced revenues by 9.5%.

As the famous quote says…

Show me the incentive and I'll show you the outcome.

Charlie Munger

TLDR: Bonuses work, but use them wisely. Mix base salary, commissions, and bonuses for best results. Quarterly is better than yearly. And always reward reps for exceeding quota.

Are you happy with your current commission structure?

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Sales Tip of The Day 💡

If you’re using a link for your cold email CTA, keep the CTA between 4-8 words.

Schedule a call with me here.
Book a call with this link.
Let’s schedule a time to talk.

A study looked at millions of cold emails and found that using 4-8 words in your CTA resulted in the best click-through rate when compared with CTA’s that were shorter or longer.