We’ve all been there: You enter some kind of retail environment—a clothing shop, an electronics big box store, or even a software company’s website—you get a few seconds of peace to look around, and then suddenly you’re being swarmed by extremely helpful sales people. That isn’t the worst thing in the world at face value, but somehow the “helpful” attitude feels like a pretty thin cover for the salesperson’s need to sell you something (ideally an expensive something) fast. It’s not a good feeling—you’ve gone from being a potential customer to acting as a data point on that employee’s pay stub.
Many of us have been on the other side, too: we’ve been hired to move product, but the only way we can reach a salary that will pay the bills is to push hard on the customer, even in situations where they don’t necessarily need what we’re selling. I’ve been on both sides, and it’s hard to say which feels worse.
It’s commission sales—and it’s the norm across the majority of businesses, but especially in tech, where it’s standard for salespeople to earn a base salary of just 50 – 60% of their on-target earnings (OTE). OTE is essentially HR-speak for what a person should be paid given their experience, the industry they are working in, and what they’re selling—in other words, their current “market rate.”
This means that most salespeople you speak to have to earn back 40 – 50% of their salary, every year. No matter the state of the economy, manufacturing issues, natural disasters, or any other unforeseeable challenges, sales teams working on commission still need to meet strict benchmarks—just to earn what they’re worth.
Well, that’s the norm pretty much everywhere else. But at Backblaze, our sales team is paid 100% of their salary. Sounds weird, right? Well, we don’t think so. Everyone else in our shop earns a salary based on the market for their skills—and we think our teammates on the sales team should too. Here’s why.
Humans Are Not Coin Operated
Nilay Patel, Backblaze’s Vice President of Sales, got his start in tech as a Sales Engineer. “SEs,” as they’re often called, use technical expertise to help sales representatives explain how a product will work for a specific potential customer. The main difference between SEs and Sales Reps is that Sales Engineers typically are not commission-based. But they are on the front lines to witness the odd effects that commission-based compensation has on organizations and individuals.
In a recent interview, Nilay related how, at one of his early jobs, the VP of Sales often referred to “coin-operated” sales departments. What Nilay’s colleague meant, in short, was that if you wanted more sales, you simply needed either more draconian, or more lucrative commission structures to incentivize higher sales. Nilay was immediately struck by how disrespectful this phrasing was and what a manipulative managerial structure it suggested. As he sat in on management conversations and hiring panels, he saw the “coin-operated” philosophy evoked again and again, seemingly suggesting that, to motivate a sales team, you just had to dangle their paycheck a few feet ahead of them.
At the end of the day, these conversations weren’t about the mission, or serving customers, or achieving some greater business goal—they were solely about money. Over time, Nilay came to accept that this was just how sales worked across the industry, but he never felt particularly comfortable with the practice.
Commission Impossible
When Nilay returned to Backblaze in 2015 to lead sales of our new product, Backblaze B2 Cloud Storage, he opened up a conversation with Gleb Budman, Backblaze’s CEO, about how commission would work in his new role. He assumed that, because compensation for pretty much every other job in Silicon Valley was commission-based, this one would be too. But Gleb responded with a straightforward, “That sounds complicated, sure you want to go that route?” And the more Nilay thought about it, he realized he didn’t.
Hindsight is 20/20, but even at the beginning, Nilay knew some of the weaknesses that a commission-based sales force would create. The rest, he’s learned with time. And now, at the five year mark of running a no-commission shop, he’s convinced he made the right call. These are the reasons he believed, and continues to believe, it was the right one:
It’s Good for Trust Among the Backblaze Team
We pride ourselves on being a supportive, collaborative workplace, and we succeed: last year, all 133 of us were surveyed and rated the company a 99% great place to work. Partially, this is because we all trust that everyone is pulling in the same direction. When the sales team asks engineering for help with a customer issue, or they need materials from marketing, nobody wonders whether they’re asking for selfish reasons. Because we’re all paid standard salaries, we know that everyone’s working to serve the customer and ensure that all of Backblaze is successful.
“When I ask for help from engineering and marketing, I want folks to feel like my requests are rooted in wanting to help our customers—not to line my pockets.”
James Fleishman, Backblaze Partner Manager
It’s Good for Innovation
In a traditional sales operation, new products are more of something to fear, rather than celebrate. Something new, unproven, and not known to the customer could cut into a team’s sales success, and therefore also their salary. As a result, innovation often encounters friction when it hits the marketplace. Not so at Backblaze, where the sales team is far more likely to get excited about how a new offering might enhance the experience of their customers.
It’s Good for Our Business
Committing to a cloud storage provider is a shockingly big deal. Companies aren’t just buying new software, they’re moving priceless intellectual property into a solution that they need to be able to trust to work, and to last. We’ve provided backup and storage for well over a decade now, and we manage nearly an exabyte of customer data, so there’s little question of our ability to stand the test of time.
But customers also need to know that we’ll aid them in the process of transitioning to our service and that we’ll stand by them as their needs grow and evolve over time. Because our sales force doesn’t have to worry about their paycheck or “closing” a sale, they’re unleashed to give customers the level of care they need to set their business up right and to build a long-lasting, productive working relationship.
When we’re dealing with prospects, we don’t look at them and immediately see dollar signs, but rather an opportunity to better the situation for both parties: they get a solution that works, and we continue to grow our business.
Daniel Lloyd Pias, Backblaze Sales Manager
It’s Good for the Sales staff
One of Nilay’s early managers had previously worked for IBM on the typewriter sales team when the PC was launched. Nobody in the computer sales division wanted to risk their commission on “Personal” computers because they assumed the product would never succeed. So the typewriter sales team got the job… and they were wildly successful. For their first reporting period, they all got to take home a king’s ransom in commission. But once they showed what they could do, their commissions were restructured to ensure they never saw commission rates like that again.
The fact is, no company is going to intentionally create big commission payouts. And when big payouts do happen, they’re going to change the rules as fast as possible to ensure it doesn’t happen again. So, while conventional assumptions would suggest that commissions draw top talent, our results don’t support those assumptions. Nilay believed that smart sales staffers would understand that being able to count on 100% of a competitively indexed OTE is a much better deal than having to contend with unpredictable commission payouts. And the composition of our sales team bears out his belief.
Today, we have a highly collaborative team of people who work together to ensure that our customers receive functional, long-term solutions that work for them. But the collaboration doesn’t end with sales prospects. The team also works cross-functionally among one another, and across the full company, to learn and grow their professional capacity. All of this, and they’re also a hell of a lot of fun to spend time with!
It’s Good for the Customer
Working on commission can be very stressful for employees, especially when they are counting on hitting their OTE to make ends meet. This means the team is focused on their paycheck, rather than their customer’s challenges. According to James Fleishman, our Partner Manager, “the sales team appreciates working in an environment that encourages them to focus on meeting the customer’s needs and not their own.”
A no-commission policy carries many other benefits. It allows Sales employees to utilize the same benefits as other employees. I can go on a real paid vacation, or get an important medical procedure done, without losing 60% of my income to do so.
Crystal Matina, Backblaze Account Executive
It’s The Right Thing to Do
In the “Mission & Values” document every new hire at Backblaze receives, value #1 is “Fair & Good.” We try really hard to be the good guys in everything we do, and part of that is being equitable and fair in our pay structure. It isn’t any more complicated than that. Backblaze doesn’t do anything because “it’s just the way it’s done,” we do it because it’s the right way to do it. (And it just so happens that being “Cleverly Unconventional” is value #5).
Focusing on the Long View
Nilay freely admits that the no-commission model probably won’t work for everyone, but the leadership team at Backblaze is committed to it for the long term. Another one of our five company values is to build a sustainable business that is set up for long-term success. Sadly, this also does not always seem to be the norm in tech. But for us, fulfilling our values requires building a sales team that wants to work together to move our mission forward over the long term, and that means paying people what they’re worth, in full.
So the next time you land on the B2 Cloud Storage page and Victoria or Vincent strike up a chat with you; or when you’re looped into a call with Shaneika, James, Crystal, Mike M., or Alex; or you’re working through a solution with Mike F., Udara, or Pavithra, and you’re wondering—why are these people so kind and patient? Well, now you know.
And if you’re in the process of setting up your own business, maybe Nilay’s perspective will help you think differently about how your sales team’s compensation structure might affect your brand, and your bottom line.
