Sell or Starve. Eliminate The B2B Base Salary
The enterprise B2B base salary paid to sales reps is entirely unnecessary.
Enterprise software and SaaS people are vastly overpaid for what they do at the very time that customers are moving urgently away from engaging with a rep.
Why do companies pay 6 figure base salaries to sales reps at the very time customers say they do not want to deal with a sales rep at all?
Why do companies pay base salaries to order takers who “sell” to companies who have to buy their products, are dependent on outrageous maintenance costs and have to deal with them no matter how much they wish they did not.
There is a growing trend to replace reps with e-commerce functionality at the transactional level, as there should be. Next step is to reduce, then eliminate most base salaries for enterprise sales people. Works in many other industries, it will work in enterprise tech sales.
It is ridiculous that a software sales rep makes more money than a brain surgeon.
Why Such a B2B Base Salary?
Why do companies pay reps, who are mostly order takers, a base salary at all? Take Oracle, VMware, EMC, Dell. Everyone knows who they are and what they do. If you are a rep there, you are pretty much assigned accounts and a revenue flow. Just show up, wear the logo-wear, answer the phone, sit through endless QBRs, dial for dollars with the leads that come and 80% of your revenue is pretty much assured.
Many of these reps know exactly what their sales are the day they get accounts assigned. Get a good list of accounts, bunch of renewals up this year, maintenance, training or other services sold to the customer who is virtually owned by the incumbent vendor and the year is made.
Sure, it isn’t all the revenue management wants. They always want much more than a sales force can produce. That is why the average tenure for a vice president of sales is 19 months.
But today, if a sales vp has a $20 million annual quota, 80% of that will come in no matter what he or she does. It is that last 20% that is the fight. It is that last 20% or more, they pray, they can get into the door with their sales force.
If you are a CEO, why pay a sales force a high base for that 20%, thus giving up any chance of profitability?
B2B Base Salary = Legacy of Venture Funding
Well if you are VC financed, screw the profit, it only messes up the valuation model. Growth, growth at any cost and often those costs are 70% of revenue. They can even be over 100% with cheap VC money that just wants this dog to get an exit event so they can move on to the next sector.
The vp of sales today is not much more than someone who sits behind a wide screen looking at sales activities in some mindless process, like MEDDIC to see if their hapless reps performed each activity in the correct sequence. They manage sales monkeys, such that any literate monkey could do the job.
For decades, the best reps avoided sales management as long as they could. Nobody would give up a great income, independence, your own schedule and no office politics to sit in an office and deal with daily corporate nonsense.
That has changed dramatically. Now a rep starts out a “sales profession career” dialing for dollars calling the poor guy who downloaded that white paper. Then they travel to inside sales or renewals, another place where they sit at a monitor and have their ears grow into their phones.
Then comes that great step, the outside sales rep. They graduate to that exalted place where their success or failure is dependent on how well-known their company is, how dependent the customer is on the product and what accounts are assigned.
Of course they go through a GrowthPlay type training where they learn a useless mantra they will say over and over again, being a sales robot in front of their customer.
Unfortunately, that customer heard similar mantras from the last 3 sales reps who pitched. They all attended the same GrowthPlay waterboarding.
These sales survivors want to get into “management” because the ugly drill of working for over-VC-funded DevOps or SaaS firms eats them alive. Every quarter is a mad dash to one more deal, can we get the deal moved into this quarter or the sky will fall? The incessant pressure is to make some arbitrary, VC-mandated sales goal such that even being the brain-dead transactional sales manager who manages this madness seems better.
And those in front of the customer, those who finally got that coveted face-to-face meeting, are getting paid a 6 figure base even though it was the mechanization process in their sales department who put them there.
So why not do it with an e-commerce phone robot and apply that base salary to making the product better or the price lower?
We call on the C-suite of companies every day. During the conversation they always ask “can you help us get rid of Oracle?” Sometimes they say that before “hello.”
Almost as often we hear, “can you operate without VMware?”
That friends, is not-so-happy dependence on a vendor (called “partner” in vendor parlance) and it appears these execs seem to feel they are being exploited by the vendor.
So if we have sales teams who are basically selling to a customer who has to buy, why pay them a base salary at all? I mean, anyone can do this job.
Why not reduce the base salaries here to say $50,000.
Sell or starve. That is the proper incentive if you are any good.
Sure, there would be turnover, but there would also be a ton of people who would take the job. And how hard is it really to meet with a customer and tell them if they do not buy new products their ELA (enterprise license agreement) will up their maintenance by 20%?
It is time to consider the concept of disincentives as well as incentives. It is time to reduce the sales force to the best of the best who are able to have their bases cut in half or more, their commission rate doubled or tripled, and revenue start to have some connection to profitability.
The days of endless, very cheap VC money will end. Already we read stories about how over-funded VC DevOps startups like the cross browser testing firms, Chef, Puppet, XebiaLabs and scores of others will never get a profitable exit. Then Perfecto proves the case getting sold for scrap after their CEO said they were an IPO candidate. More coming for this loser sector.
(Here, here’s that article)
When $100 Million is Not Enough
It is just as bad in the sales platform space with scores of SaaS companies competing with products where no rational person can see much difference. Each one manages mindless steps in a “sales process.” Each one sends out SPAM to some unfortunate person who got caught in a DiscoverOrg filter. They send the SPAM in such a way that it looks like it came from a real person with a crafted message. Right!
I just finished an experiment. I contacted a half dozen of the leaders in this ridiculous field. Downloaded the white paper or attended the webinar. Then it came, the dreaded call from the kid wanting to know if I had questions on the white paper.
And I used my corporate email. And then it came. The email after email, with that personal crafted message.
Now there’s a proof point here. These are the guys and gals who lead the industry in account based marketing. These are the ones who tell us how much these sales platforms increase sales. These are the ones, making ridiculous base salaries, who SPAM you to death.
And the result? After a 6 week process, all of them looked the same. None showed any value. None gave me more that I would get with a CRM system I could build myself.
Their messages looked like they came from an email robot. And they did.
Yet, all their reps had large base salaries.
Every one of these companies is unprofitable and has taken in many millions of VC dollars. It is VC dollars, and dilution, that set a bar so mediocre reps show up and have a 6 figure income guaranteed.
Those days are going to end as this VC money dries up.
The survivors will be the really great reps who do not need a base salary, or not much of one, because they can produce in any market. For the rest, well, they will have to become brain surgeons to make that kind of dough again.