Outsourced Commission-only B2B Sales: The Good, Bad & Really Ugly
What are the Perceived Benefits of Commission-only B2B Sales
Does outsourced commission-only B2B sales really work? Did one successful SaaS company built a scalable sales model with the commission-only compensation model ??
New insights on the nature and application of commission-only as a compensation model to achieve sales scalability.
Insights here are based on the following:
Surveys with hundreds of Commercial Professionals.
A recent conversation with a former CEO of a SaaS company, which he led from cash flow negative to getting acquired for nearly $100M USD (who will both remain unnamed).
If you too want to talk about the models, which could well work for you, use this link to set a time.
Insights from SaaS intelligence and dialogue with the founders Jens and Marius helped tremendously as well.
Here are the some problems the outsourced commission-only B2B sales compensation presumably solves:
Cash flow: no financial expense without success
Talent: commission-only sales reps have customer acquisition abilities that make them supremely confident – enough to take on assignments based purely on commission. Not only do you get talent without risk – you also get the BEST talent.
Avoiding legal mumbo-jumbo and related cost: SaaS companies will eventually attempt international if not global coverage. Taking on employees in all corners of the World involves understanding legislation everywhere. This is complex and costly.
Cheaper: I often hear that working with commission-only or even outsourcing to a commission-only sales outsourcing agency should lower cost.
In the following few posts we’ll explore all of these.
Cash flow Improvement through Outsourced Commission-only B2B Sales
Zero cash flow problems – did one successful SaaS company built a scalable growth model with the commission-only compensation model ??
Probably the main perceived and assumed benefit of working with commission-only sales reps, is that cash flow doesn’t take the hit you would otherwise experience when taking on sales reps as regular sales staff.
Instead the promise of a high commission should offset the requirement for a fixed income on a monthly basis.
Typically the opportunity will be designed such that provided the right amount of deals with a specific average deal value, the commission will be much higher than a regular salary plus commission would be in normal employment.
That’s the theory.
Reality is more complex. For this we need to pull in a little data.
A couple of years ago, I surveyed around 2000 professionals about their appetite for commission-only assignments.
Surprisingly, around 2/3 said they’d be interested in taking on a commission-only assignment.
They also said – and this is critical – that they’d need to be able to fully fund their lives with the compensation from that assignment within a period of 2-3 months.
That’s fine if buying cycle lengths facilitate that.
This is where insights from SaaS Intelligence enters the story.
These insights are based on REAL buying cycles as quoted by representatives.
The basic conclusion is that if you sell any of these kinds of solutions, you will need a minimum of 4 months from the top of the funnel to the close.
Of course, since we’re trying to solve a cash flow challenge with commission-only, we can’t pay commission until the customer has paid.
That’s why the relevant timeline for commission payout is significantly longer, probably by as little as 2 weeks and as much as several months.
Factor in onboarding training, making the story about the solution their own, finding leads, turning them into opportunities, and closing them and you’ll only extend the start-to-payout timeline even more.
The added pressure on the Sales Professionals’ personal financial situations will rapidly reduce their commitment to the point where they’ll leave the assignment.
They may tell you.
They may not.
Either way, they will leave – and leave you mostly without deals to show for it.
Not a winning formula. Your thoughts?
Does Outsourced Commission-only B2B Sales provide the Right Talent Cheaper?
Surprise: Get the right talent, but then cheaper?: Did one successful SaaS company built a scalable sales model with the commission-only compensation model ??
I hear MANY reasons that commission-only business-to-business sales should be beneficial.
One of the more frequent supposed benefits may surprise you:
Commission-only is CHEAPER!
Wait! What? OK, so this shouldn’t take long to tear down.
Sales professionals operate in the labour market.
That market has a price for their services.
They’ll get right around that amount either as employees or external freelancers.
In some cases companies would like to make use of a sales outsourcing company to provide and manage the Sales Professionals.
The sales outsourcing company is making money off of sales outsourcing.
Whatever the Sales Professionals get for their services, the sales outsourcing company will add their profit to.
Those Sales Professionals just became more expensive than market value. That’s OK for the company, since the sales outsourcing company brings experience, processes, and market reach to the table.
But it did not get LESS expensive, measured on the direct cost of the talent.
Commission-only changes this calculation slightly.
By moving the split between fixed and variable compensation all the way to 0% fixed and 100% commission, risk is reduced for the company wanting their products to be sold.
But the risk isn’t gone. It just moved. To the individual professional. Or the outsourcing company.
Risk isn’t free.
That’s why the commission model will need to look super interesting.
Not unlike a get rich quick scheme.
For the company the logic is that they’ll save on non-performers and pay out big to performers.
They forget how much time they’ll need to invest to manage the entire operation.
That time is significant and could have been spent selling. When Sales Professionals leave for reasons mentioned previously, that time will be gone with very little to show for it.
And when those lucky few deals do come in, significant commissions will need to get paid out.
No, commission-only sales outsourcing isn’t cheaper. In fact it could cause the company to shut down entirely through loss of momentum and lack of success.
Hidden Challenges with Commission-only Sales
By now you should have a fair grasp on some of the challenges with Outsourced Commission-only B2B Sales.
There’s a range of other challenges that are less obvious, which we’ll dive into now.
Remember the challenges with finances baked into the length of sales cycles vs how long a commission-only seller REALLY has to achieve success?
Because of that specific challenge, commission-only sellers can never allow themselves to be dedicated to just a single semi-complex B2B offering.
This means your company is sharing that commission-only seller with at least one other company.
Sharing of resources means your company competes for the seller’s attention. The seller will not be entirely engaged. The financials simply don’t justify it. Instead, the seller will opportunistically engage mostly with what delivers cash flow to the seller.
Only deal-closing counts!!
Shared commission-only sales people therefore take longer to develop the kinds of relationships that your business needs to win customers. This translated to a loss of momentum.
The one thing your company needs is momentum.
Unfortunately, all efforts go into hunting low-hanging fruit.
As a result you have less control.
Less control over the sales methodology and the sales processes. Forget about detailed records in your CRM. Forget about learning what works and what doesn’t.
After all, you’re paying for DEALS. You’re NOT paying to LEARN.
You’re also not paying for quality. There’s no time for that!!
In short, you have zero idea how your offering is sold by any of “your” external commission-only B2B sales reps.
Better lower expectations.
Just in case “Plan A” doesn’t overcome the odds overwhelming stacked against it:
Create a “Plan B”.
You’ll need it sooner than you think.
If you want to know what DOES work, then use this link to set up a little time to talk about it.