By Auren Hoffman, works at SafeGraph. Originally published on Quora.
Engineers are much better at getting leverage than salespeople … and so you actually need fewer software engineers (per dollar of revenue) than salespeople. This weirdly results on the top salespeople being paid a higher percentage of bookings than any other employee.
Engineers are amazingly productive.
Engineers today are at least 6 times more productive then they were just ten years ago. That means you need 1/6 the number of engineers than you needed 10 years ago to accomplish the same thing.
This is because there are ton of tools that make software engineers much better at their jobs. These tools include code management (like GitHub), APIs (like Twilio), cloud compute (like Amazon Web Services), data processing (like Apache Spark), communication tools (like Slack), alerting systems (like PagerDuty), and so much more.
Additionally, there has been a renaissance change in how to manage engineers (think of Scrum and Kanban boards) and how to organize engineering teams (like MicroServices Architecture).
Engineers are just much, much better than they were 10 years ago. But because you need fewer engineers to accomplish the same thing, companies (especially technology company) are much more focused on only hiring the very best performing people. These companies discriminate on university attended, raw intelligence, relevant experience, and many other factors.
Of course, the average engineer salary has risen a great deal in the last years despite engineering productivity raising so fast … and that’s because every company has recognized that “software is eating the world” and so many companies are investing in software. More companies hiring engineers has increased the demand while the supply has not greatly increased. We’re also in a unique time where the market caps of companies like Google and Facebook are so large that they can invest in engineers.
Salespeople are amazingly not productive
The average salesperson today is really not very much more productive than that same salesperson was ten years ago.
The tools a salesperson uses have gotten better … but many of the core tools (like Salesforce.com) have not changed that much. Certainly mobile applications, email outreach, prospective systems, etc. are better … but not enough to really change a salesperson’s productivity. In fact, the tools for marketers today are far more advanced than the tools for salespeople.
Also: there has been little progress in management of salespeople. They are mostly managed in a similar way than they were 10 years ago. There are a few good innovations (like Sales Development Representatives) and new support (like the advent of Customer Success) … but on the whole, salespeople are probably just 30% more productive than they were 10 years — not SIX TIMES more like engineers.
A salesperson’s productivity is still generally measured in the number of prospects they engage with — and that is very time constrained.
The productivity of salesperson (measured in bookings per salesperson) has barely budged in 20 years. So if your company wants to bring in $10 million in new bookings and your average salesperson does $1 million in bookings per year … then you need 10 salespeople. In fact, most enterprise software companies do a bottoms-up analysis of their bookings based on the number of ramped salespeople they have. (note see many of the posts by Jason Lemkin)
Why comp is so divergent
Engineers get more and more productive and essentially work themselves out of a job. As a company scales, revenue per engineer should skyrocket.
But salespeople do not get much more productive and revenue for salesperson is much more constant over time.
That means that salespeople are always in demand. There is always need for more great salespeople since they are often directly tied to more revenue.
Additionally, very few people WANT to be salespeople. In fact, the people who went to best schools are the ones who least want to be salespeople (they often prefer BD, product, or marketing). And salespeople are the first people to get fired — it is a super stressful what-have-you-done-for-me-lately job. The job can be a grind. So the only way to recruit people to the job is to pay more.
The pay gap is closing
The best engineers still have an opportunity to make significant compensation. As they get more and leverage, the very best ones will increase their earning power.
The best engineers today earn twice as much as the best engineers earned ten years ago. The best salespeople earn only a small amount more than the best salespeople did ten years ago. So while engineers still earn less cash comp than salespeople, that difference is narrowing.
Additionally, engineers also have opportunities to get larger stock grants because they are much more valuable in the early days of companies when stock grants tend to be bigger.
By Auren Hoffman, works at SafeGraph. Originally published on Quora.
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