Here’s a Bad Idea: Commissions for Complex or Consultive B2B Services
A commission-based compensation arrangement is not a good idea when it comes to B2B marketing and business development. At least not when the sale of complex and consultive services is at stake.
Not good for the business owner, not good for the sales and marketing consultant, and not good for the client.
That said, it’s not easy to rule out commissions; they occupy a huge space in the popular imagination. And to be fair, they still make enormous sense for many kinds of B2C, and for some kinds of B2B, transactions.
Selling cars, to take the classic example.Another classic: selling consumer goods through direct mail marketing. Or services that have been neatly productized into software packages.
Quantifying Value Creation Through Consultation
But even there, with software, we have a gray area.
Take a product like the newly popular Tableau, a productization of a consulting service called data science, which can roughly be described as the business analysis of large data sets through visualization and mapping. In theory, you could incentivize Tableau salespeople to sell more based on commissions earned (whether the company actually does this, I have absolutely no idea).
But though the transaction is “Tabelau software for money”, the sale is still consultive in nature. That’s because the salesperson needs to develop a close enough understanding of her prospect’s business to understand whether it is appropriate to to attempt to close a sale. Tableau may be a fine product but it doesn’t necessarily make sense for any customer and any time. How does one make this determination – whether it makes sense? Through consultive sales.
That means developing an understanding and a diagnosis that’s quite a bit more complex than “has a temperature of 101, must be a fever”. Factors need to be considered in determining whether a prospective Tableau client has a fever include:
- Business process analysis that asseses the prospect’s “data ecosystem”
- Market analysis that asseses opportunities that could be pursued through improving internal and external data analysis
- Organizational and behavioral analysis that asseses whether prospective customer effectively evaluates information available to them
And what’s the inevitable by-product of this kind of consultive sales? Strategic, actionable business insight – whether or not the sale is made.
Quantifying the Value of Consultive Selling is Impossible
How do you quantify the value of that insight? How do you define where it starts and where it stops? You can’t.
In way, this is a rehashing of the age-old problem of attribution among sales teams. Who do you give credit to for a sale, or if you have to divide credit among multiple parties, how do you do so?
Answer: you don’t, because you don’t compensate this kind of value creation with commissions. Instead, you let a senior experts make subjective determinations of the value created by their understudies. In other words, you reward performance with a salary (or fee), not commissions.
To a business owner, the commission makes a lot of sense, especially to that type of person who likes to reduce problems to formula. And to be honest, I used to like the idea when I ran a services firm. Why not incentivize and motivate a marketer to produce results in the forms of leads or closed deals? It seemed so simple.
And the concept is going strong. In fact, at least once a week, a prospective client pitches me a business development opportunity predicated on a commission arrangement.
Here’s how those proposals go: I provide my services as a marketing strategist, or copywriter, or both (these are really the same thing, but that’s for another article); they compensate me based on numbers.
The added benefit for them? They don’t have to make an upfront investment in my services. Meanwhile, the benefit to me is being able to scale my revenue based endlessly.
How to Re-Frame The Compensation Conversation
But that’s a risk on the part of the marketer, isn’t it? If they product or service being sold involves any kind of conversational transaction, how do I know how well it’s going to perform. You’d be surprised how often conversational, story-telling dynamics enter into business to business transactions. Even when the product in question is a consumer packaged good, like dog food or hair brushes.
That’s because almost all sales transactions are partly emotional. But it’s also because reality one series of blurry lines after another.
For example, you’d think a wholesaler selling hairbrushes to mass market retail chains would have a fairly straightforward sale – but that’s never the case. There are kinds of unquantifiable intangibles that affect the sale, from likelihood of prompt delivery, to long-term reliability, to depth of market-testing. These are ultimately subjective values that a merchandise buyer attributes to her merchandise wholesaler.
So your job as any kind of complex services provider– or buyer – is to get better at making subjective valuations of your services. That’s how to arrive at your compensation model. Whether you bill hourly or by value is another debate, but it’s very unlikely that a commission structure makes sense.