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🧠 GEEK OUT

Zero Commission Sales in PLG?!

There’s a long-standing assumption in the B2B SaaS world that commission-based compensation for sales teams is necessary.

It’s the way it’s always been done.

The sales reps of today come up and learn their craft in commission based environments, and those that graduate to sales leadership roles perpetuate the cycle.

It works.

For the most part.

Recently, I listened to a fascinating episode of "The Science of Scaling" podcast, hosted by Mark Roberge. The guest was Nick Dellis, Head of Revenue at Mercury (a fintech startup with a $1.6 billion valuation and rapidly growing customer base of >100K).

The topic was Mercury’s unconventional approach to sales compensation: they don't use commissions at all.

When asked about it, Nick explained:

Zero commission sales is fundamentally opposed to pretty much everything that’s ever been written or said about how to best incentivise a sales team.

It’s a radical departure from conventional wisdom.

A paradigm shift.

For Mercury it’s clearly working.

But could it work for you?

PLG x Zero Commission

The drivers behind zero commission sales comp strike me as being very closely aligned with the things you need for successful PLG GTM.

1. Alignment with long-term goals: Traditional commission structures often incentivise short-term thinking. Nick pointed out:
   
   "I found that when you have a commission plan, it's really hard to get people to do that kind of work, that exploratory work." 
   
   In contrast, a zero-commission model aligns sales teams with the company's long-term objectives, much like how we structure compensation for product and engineering teams.

2. Focus on user and customer value: Without the pressure of hitting quarterly targets, reps can prioritise finding the right fit for users and customers, potentially leading to higher lifetime value (LTV) and reduced churn.

3. Product focus: In PLG, the product itself drives growth. A commission-free structure allows sales to focus on augmenting the product-led motion instead of competing with it.

4. Collaborative culture: This model fosters a team-first mentality. Nick explained:
   
   "You have a team of other people because we have shared goals, but you have other individuals who are not motivated to like beat you... you don't win by beating someone."
   
   This approach encourages knowledge sharing and collective problem-solving.

5. Data-informed decision making: PLG companies rely heavily on data. A zero-commission model encourages sales teams to contribute to this data-informed culture, focusing on metrics beyond just closed deals.

6. Mission-driven team: The model attracts individuals motivated by the company's mission and long-term success. Nick shared:
   
   "It is harder to find salespeople who believe in this model, but once you find them, almost all of them tell us holy crap, this has been life-changing."

7. Go-to-Market flexibility: As PLG companies often iterate on their go-to-market approach, a commission-free structure provides the flexibility to experiment. Commission structures are often a blocker that prevents or delays GTM experimentation.

I’ve reflected on this concept several times in the last few days before sitting down to write this post, and the more I think about it, the more I’m convinced that PLG-native companies - particularly earlier stage - are ideal candidates for this model.

But where to start?

Implementing a Zero Commission Model

If you're intrigued by this approach for your PLG company, here's how I’d suggest you approach it:

1. Align with company values: Ensure this model fits your company culture and long-term vision. Don’t go further if there’s a mismatch here.

2. Offer competitive base salaries: Offer attractive fixed compensation to offset the lack of variable pay. Nick suggested,
   
   "Our pitch is would you rather make 75% of what you would have made guaranteed, or would you rather take a swing?"

3. Use equity incentives: Use meaningful equity grants to align sales team interests with long-term company success. As Nick shared:
   
   "We're hiring really great people, we're going to pay them competitive salary, we're going to give them meaningful equity, and then we're going to go and kick butt together."

4. Communicate clearly: Be transparent about the reasons for this model and how it benefits both the company and your team.

5. Ensure complete leadership alignment: You’ll need to ensure buy in and support from key stakeholders in the leadership team, as well as the board.

6. Know how you’ll manage performance: Develop robust performance metrics beyond just revenue. Nick explained,
   
   "We manage performance the same way you manage performance with a product person... you look at the quality of the work, you still have sales goals, you still have behaviours you want to see modelled every day that build up to hitting sales goals."

7. Apply an experimentation mindset: Approach the initiative with the mindset of learning and experimentation.

8. Start small: If you have any meaningfully sized sales team, going all in on such a big change is a recipe for failure. Start small and prove it out.

Particularly I think that this approach is a match made in heaven for getting started with Product-Led Sales (PLS), or in fact any significant GTM shift that requires intense learning that would typically be compromised by short term commission incentives.

I recall David Barron (Hubspot’s first sales hire) sharing - can’t for the life of me find the source, sorry - that when Hubspot were getting started with PLS they used a draw model where the team had collective goals and would get paid 100% of quota whether or not the goals were met.

Zero comp I think is a more robust and even better aligned version of that.

Potential Challenges

Of course, this approach isn't without its hurdles:

1. Internal pushback: You may encounter pushback from folks - change is hard - particularly such dramatic change.

2. Recruitment: You may face challenges attracting salespeople accustomed to commission-based structures. Nick admitted:
   
   "We've had plenty of conversations of perspective candidates who hear what we have to say and they're like there's no way."

3. Performance Motivation: Without commission, you'll need to find alternative ways to drive high performance. Nick shared their approach:
   
   "The top performers are compensated... they get bigger increases, more opportunities to work on more meaningful projects."

4. Scaling: As your company grows, it’s a good idea to reassess the model's effectiveness. Nick said:
   
   "We may have a commission plan at some point, at this point we have continued to be able to scale the team and improve our results at the same time."

Closing Thoughts

While the zero commission model may seem radical, I definitely think it's worth considering, especially for PLG companies aiming to build a collaborative, long-term focused sales culture. As Mercury's experience demonstrates, it can lead to great results when implemented thoughtfully.

Nick summarised it well:

This approach aligns perfectly with the PLG ethos of putting the product and user experience first.

But remember, there's no one-size-fits-all approach.

The key is to align your compensation strategy with your company's values, culture, and long-term objectives. As you consider this for your own organisation, keep in mind that it may require a significant shift in hiring practices and performance management.

This post comes from the perspective of curiosity about a concept that I think aligns very well with the culture and mindset needed to be successful with PLG.

I'd love to hear your thoughts on this. Have you experimented with alternative compensation models in your sales team? Even if not going quite as far as zero commission across the board. Perhaps you’ve experimented with it for roles like sales assist? What challenges or successes have you encountered? Does this approach align with how you think about PLG?

Leave a comment or hit reply and let me know!

Check out Mark’s full interview with Nick here:

PS: For the RevOps folks out there thinking that zero-commission sales feels like a step too far but you want to better design and manage all your plans, QuotaPath is a killer product well worth a look.

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