If sales professionals get commissions on successful sales, why shouldn’t people in procurement get bonuses for cost savings? On today’s Argentus blog, we dig into the argument for whether procurement should get commissions—and what it reveals about the value that procurement offers today.  

Anyone who’s worked in sales before knows the game: typically, if you sign large clients, or sell lots of products or services, you get commissions. Often, sales professionals will take a lower starting salary, banking on their skills to deliver big deals and big commissions. This model, the thinking goes, benefits companies because sales professionals are incentivized to maximize their productivity and earn as much in commissions as possible. It’s been the model in sales for decades, and it works. 

Recently, some interesting talk has been happening in our corner of LinkedIn, all based around a (novel) idea: 

If sales gets commissions for successful sales, why shouldn’t procurement professionals get similar bonuses for successful cost savings? 

Here’s the idea: 

• Say a sales professional in the software industry signs a client that will equate to $1 million in revenue, and takes (say) a 10% commission. 
• Now imagine a comparable situation in Procurement: a Strategic Sourcing Manager in the IT space renegotiates a large SaaS contract, which provides the same services as the old contract, but for $1 million cheaper. 
• Why shouldn’t the procurement professional who renegotiated the contract get a similar bonus to the salesperson, for a similar (or even greater) amount of work, and a similar result? 

The idea is certainly compelling. It speaks to how procurement has long felt undervalued at companies. Despite tremendous advances in the field, too many stakeholders view procurement as a gatekeeper who tells them what to buy and when. And procurement has traditionally been seen as less “exciting” than sales because adding revenue has more psychological appeal than lowering costs, even if they have the same effect on the bottom line.

Paying procurement professionals these bonuses would be a form of recognition of their immense contribution. It would also provide an incentive for procurement professionals to seek bigger cost savings. 

Sounds great. But from our perspective, it’s not that simple.  

For one thing, cost savings are only one metric of success in modern procurement. The old conception of procurement is that it should aim to get the lowest cost goods and services, no matter what. That was the chief source of value. Over the past number of years however, as procurement has become more strategic, the measures of success have broadened. 

Cost savings will always be important, but it isn’t the only goal anymore. Now, top-flight procurement people are expected to deliver much more. 

The benefits of a strategic, modern strategic sourcing function include: 

• Reduced total cost of ownership. The costs for purchasing goods and services isn’t just the sticker price when you initially buy. Total cost of ownership includes the cost to run any equipment or services purchased, or any other ongoing operating cost. This value is harder to capture, and harder to bonus, than simple contract value, but strategic procurement delivers huge value here every day. 
• Improved supplier performance. Procurement can negotiate to get better payment terms and hold suppliers accountable for agreed upon service levels through contract and vendor management. They can work to identify bottlenecks and issues, and get underperforming suppliers back on track. 
• Improved supplier resilience. As we all know, the pandemic brought a host of supply chain disruptions. Companies thrived when they could broaden their supplier bases and make them more resilient to disruption. Top procurement professionals can identify supplier risks, and mitigate them with more varied and sustainable sources of supply, improving the overall resilience of the operation. 
• Innovation. More and more, procurement is a seat of product innovation. Good procurement professionals know their suppliers very well, and can pass on supplier innovations to improve products or even launch new products or categories. 
• Sustainability and ESG benefits. Modern procurement is a key seat of corporate sustainability. In an era when consumers expect more transparency from companies about where products are coming from, procurement has a vital role to play in ensuring that products are ethically and sustainably sourced. This pays marketing dividends to companies who can boast supply chains that are more diverse, ethical and sustainable than their competitors. 

Among others. All of these benefits are very real, even if they can be harder to quantify—and harder to bonus—than strict contract value. 

In our estimation, the best Procurement people will always deliver cost savings. And cost savings are a major part of what we’re assessing when we speak with candidates on behalf of our clients, as part of our recruitment practice. It will always be a major piece of the puzzle. But that’s not all that procurement brings to the table in 2024.  

It also should be said that many top procurement professionals already enjoy hefty bonuses, even if they aren’t classified as commissions. These bonuses are often based on company performance, but also individual performance—which includes cost savings. As we wrote about recently, following the pandemic, procurement professionals have seen increased salaries across the board. In part, we believe it’s because companies recognize the critical strategic role that procurement plays today. All of these benefits are too varied to quantify with a commission. 

Giving commissions for cost savings may increase compensation for procurement, which we’re all for. But it would also narrow the scope of procurement again. Instead, companies should aim to recognize the total value that procurement provides, and compensate candidates for delivering those holistic benefits as well as cost savings. Because those people are worth their weight in gold.

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That’s our take! But what do you think? Should Procurement professionals get bonuses for finding cost savings, the same way that sales professionals get bonuses for signing clients?

At Argentus, we’ve spent many years building the most sophisticated network of Procurement talent in Canada, across industries—people who can capture these varied sources of value and deliver. Our clients rely on us to upskill their procurement talent base, and we’ve even built procurement functions from scratch for our clients. So if you have any immediate or upcoming hiring needs, reach out to Argentus today! Call 416-364-9919 or send an email outlining your requirements to recruit@argentus.com.