Subject: Re: OpenSource: build or buy?
From: hecker@netscape.com (Frank Hecker)
Date: Mon, 21 Dec 1998 13:18:54 -0500

(This is getting somewhat off-topic, but I'll try to make it
relevant...)

Brian Bartholomew wrote re nonprofit fundraisers:
> > http://www.nsfre.org/welcome/code.html
> 
> It strikes me as really wierd that they disavow percentage-based
> compensation and finder's fees.  Isn't fundraising a sales job that is
> as mercenary as anything else?

The image of nonprofit organizations, particularly in certain niches,
has been marred by aggressive telemarketing and/or door-to-door
solicitation campaigns outsourced to third-party for-profit firms paying
fundraisers on commission.  A good example is groups soliciting (or
claiming to solicit) on behalf of local police or firefighter
organizations; in many cases the nonprofit organizations see only a
small percentage of the money raised, most of it having gone to the
third party.  Thus many nonprofits (including the more "upstanding" ones
at which most NSFRE members work -- hospitals, universities, church-run
social services, etc.) have a policy of not paying commissions to
fundraisers (internal or external).

This type of policy is not unknown in the for-profit sector either:
Digital for a long time paid its salespeople a fixed salary instead of
commissions, on the theory that the salesperson was less likely to try
and sell customers inappropriate or unneeded products just to earn a
commission. Many electronics stores have also eliminated commissioned
salespeople, as a way to minimize perceived sales pressure on buyers; I
think some auto dealerships (including Saturn?) have done this as well.

> I would think donors would care what
> percentage of their money goes to the purpose they're donating for,
> and how the nonprofit's employees are compensated is irrelevant.

True for your first point, however in general compensation schemes and
organizational overhead are not unrelated, either for nonprofit
organizations or for-profit companies.  It is very expensive to maintain
a commissioned sales force, especially if you're employing experienced
sales reps, and especially when you add in sales-related expenses.  For
reference, check out the annual reports of software companies such as
Oracle, SAP, PeopleSoft, Netscape, etc.  To take one example,

http://www.oracle.com/corporate/annual_report/html/finstmt.html

in 1998 Oracle had cost of sales and marketing of $2.4 billion on total
revenue of $7.1 billion; if you take software license revenue only, the
cost of sales is proportionately higher: $2.4 billion cost of sales vs.
$3.2 billion total license revenue.  A large part of that cost of sales
and marketing is commission paid to sales reps, systems engineers, and
other commissioned employees.  (Oracle breaks out services revenue and
cost of services as separate line items from license sales; for Oracle
in 1998 services revenue was almost $4 billion against a cost of
services of $2.3 billion.)

If companies could sell effectively without commissioned sales reps then
they would do so wherever possible; this is why there is so much
interest in what companies like Cisco and Dell are doing in terms of
reducing cost of sales by selling on-line through the Web.  Really the
only reason companies like Oracle, etc., still retain commissioned sales
reps is because for certain types of sales, most notably selling
big-ticket items to large companies, having a direct sales force has
historically proved to be the most effective way to sell.

As to how this plays out for FSBs, I suspect FSBs will be less likely
than traditional software firms to have commissioned reps, particular
direct field reps; among other things, the average selling price will be
lower, many of the potential customers are predisposed to buying online,
and many FSB business models don't involve large-scale enterprise-wide
purchase decisions but rather individual or department-level purchases. 
Basically if the average purchase decision is less than $100,000 then
it's very difficult to justify having a commissioned direct sales rep
involved; these smaller deals could be handled by telesales reps, but
even there there's a point at which you'd be better off selling on-line
only.

Frank
---
Frank Hecker          Pre-sales support, Netscape government sales
hecker@netscape.com   http://people.netscape.com/hecker/