Re:Why do we pay sales commissions?
by jacques_chester on Wednesday January 04, 2012 @09:09PM
(#3426985)
> so they aren't really increasing their risk by that much.
The rate of commission is not where the risk lies. Commissions are, from a short-term perspective, risk-free for the business. If the sales staff don't sell, you pay them less; the risk of divergence between revenue and expenses is lessened. The incidence of risk is pushed onto the sales staff.
If expenses are fixed but revenue is variable, then you face higher risk as a business.
In this case Fog Creek are taking the incidence of downside risk on themselves; in exchange for the loss of upside risk they will pay higher fixed wages.
The rate of commission is not where the risk lies. Commissions are, from a short-term perspective, risk-free for the business. If the sales staff don't sell, you pay them less; the risk of divergence between revenue and expenses is lessened. The incidence of risk is pushed onto the sales staff.
If expenses are fixed but revenue is variable, then you face higher risk as a business.
In this case Fog Creek are taking the incidence of downside risk on themselves; in exchange for the loss of upside risk they will pay higher fixed wages.