The very notion of "cost centres" vs "profit centres" is incoherent. If a function is necessary for the longevity of the business, it is a profit centre. If it is not, it shouldn't be part of the business.

Treating business units that book revenue as "profit centres" only makes sense if the revenue they book is entirely due to goods and services supplied by magic elves. Otherwise, <em>the work done to enable that revenue to be booked is part of the profit-generating business</em>. Letting internal cost accounting say otherwise is a recipe for bad business.

So the first part of the solution is to drop the cost/profit dichotomy, and actually have CEOs focus on understanding their business. This is an unrealistic suggestion, I know, but I can dream.

>The very notion of "cost centres" vs "profit centres" is incoherent. If a function is necessary for the longevity of the business, it is a profit centre. If it is not, it shouldn't be part of the business.

Wow, that hits close to home. I think I'll be using that line in the future, thanks!

Most corporate accounting and MBA-think is incoherent.

Companies full of ego maniacs eat themselves alive from the inside out. It takes a while for small problems to become big problems, but I think the Apple of 2025 is going to look more like today's Hp or Yahoo than the Apple of 2015.

> a low-base / high-commission model is proven to attract and incentivize talented reps and drive out the low performers

I'm interested in hearing how this is proven. I've seen incentivized sales reps close deals that damaged the company, just like I've seen "successful" marketing campaigns that eventually killed their products.

If you use bookings as your metric for bonuses and then turn around and use bookings to measure whether the incentives are working on a per-worker basis, you'll miss a lot of negative effects. If sales starts overpromising the product, sabotaging each others' deals, or even chasing after bigger but short-term customers, you could see the metrics improve as the company falls apart. And then there's the fact that, even within a department, you'll hopefully have a group of people with diverse motivations.

That's why I'm curious about how this model has been "proven".

Which is why you have sales guys close the deals, and have a sales executive who is compensated based on the performance of the company to approve them and set the comp model for the sales team.

Your variable comp model can't be just a straight % commission, or else your sales reps will go chase enormous contracts that may be bad for your company. If you want to target smaller deals, weight their comp more on number of deals closed. There are hundreds of metrics you can use to judge your sales staff, and getting it right is hard. Your sales strategy needs to be driven by your business strategy, which should decided upon at the highest levels of the organization.

There is an art to creating variable comp models. You need your metrics to line up with your strategy. A star will deliver the numbers no matter what they are; while a low performer won't. The model is proven, but the details are up to every company.

I completely agree there are negative externalities to focusing purely on next-quarter's bookings. But specifically around attracting and retaining salespeople who deliver bookings, if you pay basically nothing before they hit quota, and then piles of hard cash as they rack up the numbers, you tend to starve out the under-performers.

It's not 'proof' by any stretch, but I was recalling this article while typing the original comment: http://www.saastr.com/a-framework-and-some-ideas-for-your-fi...

I feel like sales commission plans can take a surprising amount of time to really damage a company. Yes, you want to weed out the weak performers. But in SaaS, it's too easy to reward sales when they're actually disrupting product strategies and making everyone else's work harder.

I don't entirely recommend this book, because I feel that its arguments are not as well supported as they should be, but it is at least an interesting scan: http://www.goodreads.com/book/show/541132.Punished_by_Reward...

Here's an anecdote: at my company, sales reps start with an average base for their first year, then move to a low base (like 30-40k + commission + kickers) afterward. In an average year, our top sales folks have the highest comp of all but the very top (CxO and a couple EVPs) executives, usually in the 600-700k USD range. The Eastern US VP of Sales works out of the same office I do and has a $2m home.

Just to give you an idea of why this model is attractive ... and also why there is such huge churn in Sales. If you don't succeed pretty quickly, you're going to be broke.

It does seem like a common metric for small to midsize companies, that your #1 salesperson should earn as much if not more than the CEO. It's funny because CEOs will say, without a second thought, those are the dollars they are happiest to spend.

What makes the rockstar saleperson's commission so much happier spending compared to the rockstar engineer's salary? I think simply the ability to measure the ROI on those dollars. The day anyone figures out how to directly measure ROI of engineering dollars with the same "obviousness" as sales quotas / commissions, it would completely change how we hire and retain engineers.

I once lost a battle over whether a particular feature would go into a piece of software because while everyone agreed it would drive sales, another group within the company would have gotten the credit for them.