Who bears the risk? When is a commission appropriate for a sale?

I’m a little disturbed about this, but the business of publishing has been invading my dreams recently. Even on vacation!

I woke up in Stuart, Florida, thinking about the price point at which it makes sense to have a salesman for a publication, and about the risk and reward in the sale.

Generally speaking, my experience — and the experience of my colleagues in specialized publishing — seems to be that you need a price north of $1000 before you can support a sales force. And preferably much more than that.

But in my dream I was thinking of something else. I was remembering a conversation many years ago, when certain staff at a publishing company wanted a commission on sales. The owner was usually against commissions, and I agreed with him.

The way I saw it, he was the one taking all the risk in the publication. He created the infrastructure that allowed us to support the publication in the first place. He paid the author. He paid the marketing expense. The whole thing was a gamble with his money.

So why should somebody else get a commission, just because they play a certain role in the process?

I think it depends on the purpose of the commission. In my recollection of the conversation at that company, people felt it “wasn’t fair” that they were doing all this work and the owner was getting the benefit.

They were completely wrong about that. The salesmen had an inflated view of their own importance. They weren’t “doing all this work” in a vaccuum. There were editors and layout professionals and artists and authors. There were customer service reps and fulfillment professionals and managers. The success of the publication depended on them as well. Why didn’t they deserve a commission based on sales?

They were working on a salary. They weren’t sharing the risk in this particular new launch. The company paid them to do a job whether the publication was a success or a failure.

It’s true that at one level they also shared in the risk. If the company failed in all its efforts, they would lose their jobs, and if the company succeeded in all its efforts, they would be in a growing company with possibilities for advancement.

They were several steps removed from the specific risk / reward of an individual publication. Which was, in my opinion, entirely appropriate. They were no more due a raise or a bonus if the publication succeeded than they were due a fine or a demotion if the publication failed.

So I think the “fairness” argument was a bunch of moonshine.

However, bonuses and commissions can serve another purpose, which is to motivate performance. If a salesman knows he will get a cut of the sale, he is likely to work harder to get it.

That’s fine, if that’s the agreement. As a matter of custom, that sort of structure is typical for many sorts of positions — just as it’s customary to tip a waiter, but not the guy who sells you a suit.

But there’s no reason to assume that’s the only way to do things, or even the best way.

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