The most common questions involved with hiring of independent reps relates to their compensation. Here are key elements to determining commissions for independent sales reps. There is no standard flat rate or easy answer. Fortunately, there is a very important guideline to keep in mind:
Nothing motivates sales better than an attractive commission schedule.
“How do we pay our manufacturer’s reps?”
A commission-only compensation plan is the best way to pay sales reps. The best method being a straight percentage of the sales price. There are a few different ways to handle this, however, most sales reps prefer a commission based on a percentage the sales price.
If there are no fixed sales prices involved, a company might go with a percentage of gross margin.It is worth pointing out that independent sales reps are in fact independent. As a non-employee, they don’t have much stake in what the price of a product is. In fact, a higher price may interfere with their goal of selling as many items as quickly as possible.
If they have the flexibility to negotiate the final sales price, it makes sense to base commission on the gross margin. This both encourages your reps to sell at a higher price and discourages them from selling low to close a sale. Provide your independent reps with an incentive for their financial well-being and your products sell the best price.
With any independent contractor, enter into a Sales Representative Agreement which clearly defines the commissions to be paid. Well written agreements eliminate disputes and hard feelings with sales reps.
Four Key Factors that Influence Sales Commissions
Depending on the industry, commissions can vary wildly in range. Other factors can influence commission including:
- How much customer service do your sales reps need to provide to customers? If you expect your sales rep to provide functions beyond simply training, assisting with installation, testing, and so on, you should raise your commission rates.
- Do your sales reps only provide leads, or do they close sales? Plenty of companies only require sales reps to bring in leads, and prefer to close the sale themselves, and act as account managers. This preference should probably reduce the commission rate to reflect the independent rep’s level of involvement in the actual sale.
- Does your product generate repeat business? When a principal’s line is disposable or consumable, meaning that repeat business exists, commission can often be lower unless it takes time to service the account, generally because the customer does not need to be sold on the product every time. You also have the option of offsetting the lower commission by paying a higher percentage or a bonus for the first sale to a new customer.
- What types of expenses tend to occur for new businesses? In many cases, the front end costs of acquiring new customers can be fairly high, and commissions should reflect this to ensure that sales reps receive an appropriate return on their investment.
What is typical commission percentage for sales
One of the top questions we hear is “What is the average commission rate for sales reps?” In general, most manufactured products prompt a commission rate of anywhere from 7% to 15%. For commissions as a percentage of gross margin, (sales price minus direct expenses) a standard range is anywhere from 20% to 40%. To increase the sales incentive, sales managers often use a sliding scale commission rate tied to the volume of business generated by a sales rep.
Be sure to also factor in any support services. If additional sales necessitates the need for additional support services or inventory, that plays a role in the sales rep’s return on investment.
Most service-based products that do not require manufacturing expense tend to have commissions that can run upwards of 50%. Be cautious in calculating the equitable commission in these instances, as it will have a significant business impact! For service-based products, reps can sometimes be under the impression that as there are no manufacturing costs. Or they assume there is very low overhead. Factoring time expenditures into your commission schedule allows your business to reap a good return on investment.
Commission splits are another important consideration. Sometimes territories are divided by geographical location, or by industry type. You need to define:
- Any provisions on commissions that come into effect if the independent rep sells to a customer outside of their territory
- What sort of commission split your independent reps should expect if someone else sells within their territory.
You can’t always anticipate these issues in advance, and it is very important that all independent sales reps always have adequate incentives to continue performing up to the expectations of their employers.
Contact Commission Only Sales Reps
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I have a question: when a sales agent finds a customer for the supplier, and the customer gets in contact with the supplier, how does the sales agent make sure that the supplier pays him comission on ALL orders they get from the customer?
“Make sure” is based on trust, and supported by a solid contractual relationship. In many cases this means that you have a written Sales Representation Agreement, that spells out the details of what you get paid for. You can also ask for sales reports for your territory, to help you understand what is happening.
how much sales% of total sales should someone get in the auto accessories industry. the profit margin is about 45%
and there is no base salary.
lets say on average the sales sells about 20,000$ a month
what % of total sales is a good rate to give?
Generally we give a guideline of 10 – 15% commission.
I own a small consignment shop and would like to hire a sales rep. I have read 5-20% is the standard commission rate to pay the contractor. Wondering if between 10- 15% is appropriate for a consignment shop that only sales clothing?
We usually give a rule of thumb between 10 – 15% for most retail. However, in consignment, the range may vary and that is what you might be seeing.
In today’s economy, when the market is so saturated and competition too tight, a sales rep can’t predict the success of sales. I would love the option of getting a small fixed amount paid per month (something about 500 dollars) so that the company shares partially the risk taken by the sales rep. The sales rep might provide the company by a weekly report to document the activity. What do you think about this?
All things are possible. A base with commission is a common thing. However, when you have a guarnanteed base, you are losing some independence and becoming a little bit of an employee. That goes both ways: it will be a value to the company to have the reports, and it is more worth your time to prepare them if paid. If you are taking on an unproven line, then it is more of a no-brainer that the company should take on some of the risk; with established business, not so much.
When all is said and done, it depends upon your market: do other reps in your position receive a guaranteed base? Do you have the sales performance to justify the risk sharing?
In a startup SaaS environment in Silicon Valley California with a commission-only independent sales rep:
1) what commission % is reasonable based on deals which when closed would bring annual recurring revenues of US$50,000 per client (financial) to the organization. Once 2 are closed, then similar deals should replicate with other large financial clients over time.
2) If a US$5,000 monthly salary were introduced, what change would this make to the commission percentage?
3) Since revenue is recurring, would ongoing recurring commissions be reasonable? If not, for how long?
Reasonable commission depends upon your volume. For most situations we give the guideline of 10 – 15% of invoice. Salary plus commission deals are common. We think of them as a base, or minimum amount. But a big difference between pure commission and a salary is that you are probably thinking of that rep as working exclusively for you as an employee. This is very different from a 100% commission rep carrying multiple lines. The entire dynamic is different, with too much detail to get into here.
You should take the viewpoint of the rep in getting a feel for the overall commission rate. That is, what is the expected livelihood of the rep, and does your plan allow the rep to achieve that, whether as an employee dedicated 100% to you, or as a multi-line rep having other lines.
Ongoing commissions are a big motivation for the rep, and we encourage such arrangements. Various time periods can be negotiated for the phase out periods. There are successful arrangements having indefinite periods, and those having phase out periods. A great rep that is making you rich should also become rich, so don’t get hung up on the concept that “the rep isn’t doing anything down the road.”
Hi Thanks for taking the time to answer my questions. The cimpany I work for decided in Sept that they were going to straight commission 25% plus medical benefits. My question two fold. First, less than 30 days notice was given to change over from salary plus cocommission to straight commission and is that legal? Two if a customer returns products either a. within 30 days or b. after 6mos cn after a year (there is no time policy in place for returns) and now the rep is on straight commission are they allowed to deduct from current month commission? Also they are paying taxes and medical costs outof this check as well.
Both of your questions (notice period for changes of commission and how returns are handled against commissions) would be determined by the Sales Representation Agreement that you have in effect. You do have one, don’t you?
As far as I know, neither of these are matters of statutory law, but I could be wrong. You should check with an attorney to see if your rights have been violated.
Hello, I would like some advice please.
I am considering an outside sales position commissions only not an employee of the company with an IT Consulting firm, selling computer product. I have a few clients that I can refer and they would buy from this IT company on a weekly basis. This is what they offered me but not sure it is fair. 3% of net selling price. Here is their verbage.
” On an average deal, you would be getting 3% of the net sale amount. For example, on a 100k order, you would be netting 3k. Our total costs (at 20% mu) is 80k, leaving 20k of profit. Subtracting 3k from the 20k leaves us with 17k. We did all the work, carried the paper, and paid you 15% of our profit. I feel that paying out 15% of our profit for a referral is very fair.”
Thank you for your help on this.
It all depends on your annual volume. And how much of your sales are due to this one line. How much would your yearly sales be? Could you live on a 3% commission on that?
Some examples:
1. Your annual sales volume is $10 million. 3% is thus $300,000 You could be comfortable with that.
2. Your annual sales volume is $1 millions. 3% is $30,000. Probably not an adequate compensation, unless you also have several other lines.
In addition, it also depends upon whether you are just providing referrals, as you state, or getting a lot more involved. If a lot more of your effort and time turns out to really be required, then it is not “just a referral” and has to be taken into account.
Please don’t print my last name. This company should gross maybe 100mil per year in the next few years with profits in the 90 mil range. The product that we produce was from a brainfart that started in my garage. My partners bought in to my company with no Out of pocket cash. They were brought into this company for their Marketing skill, which is actually paying off really well. They are movers and shakers of the industry that we are involved in, and this company is producing tons of money. My partners should make at least 500k on the plan that is in place. I don’t feel the need for the double dip. Not to mention the 5 mil that they will both earn next year based on profit.. Mark
I am a 50%owner of a small company that won’t be small much longer. I have two partners and both are involved in are involved In the same industry. Both act as sales agents, for our company and also for theirs. We just started selling nationally and actually internationally with our only product and should. Profit margin is thru the roof. Company is doing well. When my partners make a sale, they want 10%. Main wholesale company will do maybe 1 mil in Purchases this year and maybe 10 next year. We have been selling On the different coasts this year and have existing customers. My Partners feel that they should receive the commission from their existing sales and also from the sale to the wholesaler. The wholesaler’s selling price is 50% of the msrp. The wholesaler cost Is an additional 35% from the 50% of the msrp. I don’t feel that they should be able to double dip, that 10% should be enough. The business in Europe should be about 12 mil next year. One of the partners feels that the call came in from Europe from a friend of his and that the friend should get 10% of of the gross sales and that he should also get 10% because he made the sale. One call would earn the friend 1.2 million a year for the foreseeable future. I feel that is excessive and don’t fell that we should pay anywhere near The 1.2. I have to tell you that the profit margin is in the sky. personally I believe that if we do 20 mil in business and the least partner makes over 5 mil that he shouldn’t expect to add commission to the money that he already makes. I believe that we should take all commissions and give them to the employees for working as hard as they do…
@Mark – I am not sure that I follow your explanation. Are you saying that there is a 10% commission on a sale to the wholesaler, then they also work for the wholesale and sell the product again for another commission? That is a bit odd, but if they are adding value in both parts of the chain, then they might be deserving for both contributions.
But it seems to me to be double-dipping in the following way: it seems that there is a commission on the sale, and also a share in the profits for setting up the deal with the wholesaler which usually go to the owners. So it almost seems as thought they are looking for some ownership participation.
One way you might react is to propose a commission on the sale, and if they want to participate in the ownership revenue stream then they should buy in to the business.
Or I may still be reading this wrongly. There might even be conflict of interest issues.
Do you pay a rep a commission based on MSRP or MSRP less any volume discount that the end user gets? MSRP is$100. Volume discount is $10. Do you pay the rep a commission based on $100 or $90?
While their are many variations on practices, the standard arrangement is to pay commission based on invoice price. That is the “real” price of the deal.
I am a startup veggie burger company. Just myself and a helper. We make them in a rented kitchen and can only put out 240 patties a day. I need a salesperson to get me more customers. My customers, at the moment are restaurants and grocery store deli counters. I see us selling to cafeterias also. What kind of pay schedule do you recommend for the salesperson? Thank you.
It sounds like you are looking for an employee as a sales person. If so, we would not comment on a pay schedule. However, if you are looking for an independent sales rep, then 10 – 15% commission on sales would be typical.
I am a manufacturer of a small product that a customer buys repetitively over the years. I understand the % amounts, but how long do you pay the rep? if the rep brings a new customer, do i pay the rep on that customer’s sales for as long as they are a rep. Is there a normal time limit?
Both practices are common: (1) declining/eliminating the commission over time, and (2) commissions continuing indefinitely. You have to judge for your marketplace whether giving the rep a stream of residual income helps you in the long run to motivate that rep to continue bringing in new business. By paying them a stream of money, are they making you even more money? Or not?
Great. Thanks!
First of all, great article and answers. I am a startup book publishing company that sells curriculum workbooks to schools. I’ve done my research as best as I can to determine a competitive price for my product. I’m trying to design a commission program. I’m considering doing 20% of the sale. However, I wanted to give the sales rep some latitude in pricing by allowing them to offer the customer up to a 10% discount if they feel that will help this close the sale. My thinking was that for every 1% they gave the customer in a discount, they would give up that 1% in commission. (ex. If they offered the customer a 5% discount, their commission would be 15%. My thinking is that the sales person would be incented to only use this discount when necessary and when it was advantageous to them and me vs. too easily giving away the discount.) By doing this am I providing a disincentive to the salesperson? I want to be fair and give them favorable conditions in which to sell. Thanks,
My first reaction is that 20% should be attractive to the rep. Sometimes reps will take a cut in their own commission to make the sale, so this gives them greater latitude to do that. So it seems fair and favorable to the rep. I can only say that if you have priced properly and 20% works for you, then give it a shot.
Hello,,,
Learning a lot and have a couple questions 🙂
I’m a new manufacturer of musical custom instruments. Some would call “boutique” or “custom”.
I’m about to talk with a rep with a lot of industry contacts all over the USA and he can place my product in multiple stores.
Q#1
Once a music store is on board, how is payment collected and is there an extra fee for new ACCTS or is it generally one flat fee across the board?
Q#2
Is it better to pay commision based on placement fee per item or general commission based on percentage?
Q#3
This guy has a lot of experience, and a lot of contacts,
We build hand made items with no assembly line. How are lead times factored in?
@Will – you have some good questions.
I am currently a full time salaried employee with a mid-sized commercial printing firm for about 10 years as a customer service rep handling multiple large and small accounts internally. With the loss of a few larger accounts this year and reduction in sales, I have been approached by management to help bring in sales by providing outside sales as well as continue to manage the few larger accounts that I have managed for years. What would be the best salary/commission for this scenario, as I do not want to make less than I do now, but wouldn’t mind making a commission on new sales/accounts that I acquire myself. Guaranteed Draw Against Commission?
Any assistance is greatly appreciated – thank you.
@Kathy – I don’t think I can give really specific advice to meet the needs of your case. However, I can say that you have to come up with something that works for you, obviously, but also something that works for your employer. That is, they would not want to do something that does not make sense.
From the viewpoint of an independent rep, there are certain generalities for commission rates that have been discussed on this page. Those guidelines would apply. So one way that might help you come to a conclusion would be to consider what it would cost in commission if you hired an outside sales rep to in effect outsource the particular function. That would give you a ceiling on the cost, as keeping the function “in house” by having you provide the service should give some savings to the employer as it could be more efficient.
Draw against commission then can be worked out, as it is really just the method of payment.
Thank you
I am an independent commissioned sales contractor and get paid a percentage of the gross profit. My customer was Past Due on a $45k invoice so the company I work for sent them a new invoice adding a 1.5% service fee. My customer refused to pay the fee of $675 so the company I work for deducted the $675 from the cost of the job reducing my commission on the job by $395.
Can you tell me if this is legal?
Thank you
We cannot provide legal advice. However, your relationship with the company is a matter of the contractual agreement that you have in place. (You do have a written agreement, don’t you?) If the contract allows for that, then that is what you have agreed to. If not, then you have to go by the terms of the contract. You should consult a lawyer for specifics.
I work in a furniture store and sale furniture what is the norm commission rate a salesperson should receive ?
On this blog and our parent site RepHunter, we only work with 100% commission independent sales reps, who generally do not work in a store. Are you an employee of the store? If so, that is not our area.
Hi Jas,
I am a start up company with a unique product and training for Aestheticians in the spa business. I will need to hire commission base sales reps across the country to sell this Home Study Course or the On Site Training. What commission do you recommend I offer and is there anything else I need to include or be aware of? I am starting this with no reserves to pay salaries, insurance etc. I need independent beauty sale reps.
Thank you
Robin
In retail areas 10 – 15% commission is very common, all things being equal. This topic is well-discussed in this thread.
There are many other considerations, especially for newcomers to the rep channel. I recommend you create a free profile at our parent site, RepHunter (https://www.rephunter.net). Then you will have access to our Training Tools, which gives a lot of information on how to avoid the pitfalls.
A good friend of mine hired a salesman to help bring business in the door. With A agreement of 1000 dollars a month and 10 percent, after 90 days of receiving nothing to quote except from one place which said he could not compete (guessing with China), he terminated his contract. That business comes back and sends over more things to quote and request a evaluation process. Former salesman insist on being present like the termination never happened. Friend says no and you can cancel that evaluation at anytime because you know longer represent the company. Friend was is planning on still giving him a percentage, if he ever get a job from that buyer, though the contract states that he does not have to. Question is, What should he do?
It is good that there apparently a contract in place. The contract governs the relationship. When parties do not agree on the meaning of a contract … well, that’s what lawyers are for.
I work for an independent rep group in the building materials industry. As a sub rep what percentage of the commissions should I receive for my territory?
You should check with other sub-reps in your industry as we don’t have expert knowledge as to the split in every industry. However, as a very general rule of thumb, a 50% split might be reasonable. But as I said, your mileage may vary.
Thank you for the quick response.
Cheers!
Hi Jas,
First of all I would like to commend you for your dedication to this thread! It was nice to scroll down and see a current reply!
I’m heading a new technology start up where we will be selling advertising space within our mobile app. The Rep will educate the potential client and hopefully close a deal. The client pays a monthly subscription for the advertising so I wanted to know what is the typical commission structure? Does the Rep get a residual commission every month while the client is active?
Sorry in advance if this was already answered.
Thank you Jas!
Thanks for your kind words. We try to respond quickly to all questions.
Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself. It is understood if you are creating a new channel, that there may not be others who are in a relevant position.
One way that might help your thinking: what commission will allow the rep to make a decent income? Naturally this depends upon what percentage of his volume is from your line as compared to other lines. If you are below that level, then you are not being fair.
Greetings,
I am considering an independent sales consultant position with Property Guys. Can anyone tell me from experience what the pay structure is?
Thank you!
While it would be best if other readers with direct experience chimed in, I will at least give you some general guidance. We often give a rule of thumb of 10 – 15%. However, that is slanted towards parts of the channel that are closer to the end consumer, and does not take into account ticket size. Of course with larger tickets the percentages may go down.
Hi, I fairly recently started my own medical device company and have picked up a few lines. I want to know if it is ok and if so, the best way to offer a rebate to a customer in order to close a deal after I have exhausted any discounted pricing from the manufacture? Am I able to just give them a check from my company account? Bottom line, I am taking a cut in my commission to facilitate the customer relationship by passing along a savings and closing the deal when I have a competitor trying to take the business. I have heard of this being done in the field but wanted to see what your thoughts are since I am fairly new at this.
Thanks so much for all the helpful information you provide.
In a totally free marketplace such actions on your part would only be constrained by the contractual agreement you have with your principal. In some cases, you have agreed not to do this, so you should check your contract. If you have any issues with your contact in connection with any such restrictions, you should consult an attorney.
Thanks Jas for all the comments above, I have read though them and have learnt quite a bit from the discussions. I live in France and have an exclusive distributorship and agency for a product from my home country of Australia. It is a unique product not yet in France with absolutely no competitors. My problem is I don’t speak good enough French to do the presentations, although I already have all the marketing tools, brochures and a sample and have done market research for this product. It’s an untapped market. The product retails to communes or private clients for outside spaces in excess of $7,000-15,000 per unit and so far there is great interest just by my own marketing. My expected net profit is around 33% allowing for import, taxes and transportation. I also need to allow for the fluctuation of the euro-$Au and have a 12 month no price increase.
This week I have been approached by two prospective agents. France is a large country and it is also impossible for me to service all the regions. So now I need some advice…
I came across your website and forum for help on a commission structure basis. I know it’s somewhere between 10-15% but my question is do you think I should start at 10% and increase it after the first year? Of course it is a new product in a new market in Europe, much needed and much wanted, particularly in the south during summer. Would you advise to take on both and hit the market quickly and with an impact? I have checked each of their background in sales and both have lived in Australia, are French and know the product very well, they also are very confident that it will sell very well here. They live in different territories.
I am very comfortable with the import, marketing side but difficult to do the presentations, close the sales etc without the language skills.
Sorry if it’s a bit long winded but I have been battling along alone with this for almost a year attending trade shows and trying to get it off the ground. It’s not the product that’s the problem, it’s me!
Our rules of thumb on commission rates are geared towards the North American marketplace. They might not be as applicable in France. Yet if you have found eager reps and they are aware of your rates, that implies that it would be workable.
Regarding the increase in rates later – this would be an intuition but I would think if it works for you to give more later, it might just as well work for you to start at that rate and give the reps maximum incentive. On the other hand, with a large ticket item such as yours, rates of 10% would also be excellent compensation, depending upon the number of sales per time period. You have a start up cost, but so do the reps.
One way to get a better handle on it would be to take the expected yearly sales, the resulting expected commission, and decide if that is reasonable compensation for the amount of time they are devoting to your line. For example, if they worked on your line “half time”, then is their payout adequate for the half year of work.
What is the average commission for an independent western hat representative? I have the opportunity to represent a hat manufacturer and need to know the answer for this question.
Thank you!
As we have answered many times before, we does not have expertise in many specific fields, including the one you are inquiring about. But our rules of thumb for a wide range of retail lines is 10 – 15%. It can go higher in special cases. We suggest that you network with other reps in your industry. If you are finding that difficult, perhaps you can get some contact info on reps from the customers. Often this kind of information is not readily shared, but you might get lucky.
There are extensive discussions on commission rates in the Manufacturers Rep group of Linkedin. You might also give that a try.
We are interested in finding sales reps who have expertise in the sporting goods profession. We are manufacturing a line of high-end Lacrosse sticks and heads, to be launched this year. Does your 10 – 15% commission apply in this field? I am very glad to pay generous commissions to those who earn them. The sales function is extremely important and sales people should be rewarded appropriately.
We will also be selling on our website – and because these days online sales have hurt the brick & mortar world I will also pay a commission on online sales to the rep if the sale occurs within their territory. The theory is that word of mouth is generated by sales, so if a rep did well in his territory a degree of that word of mouth would drive sales online.
Would you by any chance know of rep(s) who would be interested in this product?
Our 10 – 15% guideline is very typical. On retail, it might go towards the high side, depending upon volumes. We also run across commissions that go much higher. Say 25% and more.
Regarding “knowing of reps”: this blog is not intended as a networking platform. Our parent site RepHunter at https://www.rephunter.net however specializes in helping companies find sales representation. Searching our database for “sports” (admittedly a broad search, which needs refinement) gives 236 reps who have recently updated their profiles.
Please use our “try before you buy” to check us out for yourself.
I am looking for independent sales reps around the country who would sell big data solutions as SaaS model. They would be required to service these accounts. What is the typical payout for these type of positions in the big data industry?
We don’t have in house expertise in this field. However, I do have a connection in the industry and will see if I can get some good info for you. In the meantime, perhaps another one of our readers might chime in with specifics.
In general, the rep needs to make a living from all of his lines. Often we use the benchnark of 10 – 15% commission, because that translates into “a living” for the rep. However, in your field, if the dollars are large enough, such a rate might be too high. You might be able to take this line of thinking and back into a rate.
Finally, as always, talking to the rep will give you an idea of expectations, as well as put boundaries around what you should expect. Why not start such conversations with the reps?
Hello, I am looking to hire an outside manufacture sales rep for an electronic company. His responsibilities would be to get our products into large big box retailers such as Costco and Walmart ect. After he opens the account we will hire an inside person to service the account. My question is : how much commission do we offer him? Also, once he opens the account he wants to sign a contract to receive commissions from the account for X number of years since he will open the doors for big box retailers he wants to reap the benefits. Is 1 year fair or more? Also how much commission is fair for him to get us into big stores?
In general it is reasonable to reduce commission if the account servicing is not the reps responsibility. So our usual guideline of 10 – 15% would have to be reduced. This would be a negotiation point. Cannot give you more specifics than that.
Regarding residuals after opening the account: this is definitely the incentive that motivates the rep to build your business, and is money well spent. One year would probably be a minimum but could go more. You have to decide if you want to motivate the rep to keep opening more lines for you that justifies the cost to you as compared to the revenue streams brought in.
There are not many “reps” in this industry, mostly direct salesman. Then there are the actual manufacturers as ourself and the used equipment/resellers. The salesman came from this reseller world. they find some place really cheap to make the product, then mark it up crazy. The salesman we are trying to work with went out on his own and is used to that system. We however are not some job shop but a company with a product line that manufactures it. we are not interested in what he had done in the past and as for value added, he has no Technical skills. That is where we come in with the customer. We take over the conversations of sizing the equipment, what to put on it and actual field measurements. The rep cannot do any of that. So, our feels are straight forward, A flat commission and we take over the billing. In addition, we want to make sure the customer agrees to our terms and conditions of sale for liability purposes. The rep has T&C that basically make him liable for Nothing. That does not sit well with me either. This is our first go around so probably will take some further talks and the help of our attorney.
@Carmie: I am not sure if there is a question, or whether you are just making a comment. Assuming you are asking our opinion of this arrangement, I would say that agreements can really vary as to how they work. My best advice is that whatever you decide to do, put it in writing to reduce opportunities for misunderstanding.
Could you please describe your industry in more detail? It might be possible to help you find other reps more to your liking, but only with some idea of what you are looking for.
TO correct, the units cost $60,000+ can be up to $500,000 on a large project. In this example the rep, took our price to him (which included his 10%) and turned around and added another $15,000 to the order. Now he is expecting to receive his 10% in addition to what he marked it up. We are now telling him that all billing goes through us and that we retain control of that. Of course he disagrees because he may feel he can get more. Are we not looking at this correctly? Should we be billing for these units anyway?
While adding a markup in the channel is not that common, any kind of business arrangement can be made. Such agreements should be spelled out in your Sales Representation Agreement, which should have a legal review.
In your case, it sounds like the rep intends to be a reseller of your product, plus also be commissioned, rather than being a pure sales agent. It would be more normal to be one or the other. My thinking is that either the rep could be providing value-added services that would not be available through the pure rep, or alternatively that your pricing or commission level is wrong.
I am wondering if you have experience with other reps, or could network with people in your industry to get some input from other reps to run a sanity check on pricing, commission levels, and reseller verses pure sales agent.
We are entering the Ind rep sale realm and are having issues structuring the commission with a very aggressive salesman. We manf large capital equipment. The rep had previously worked for a competitor and now went on his own so he has a lot of contacts but also keeps pushing for more. We offered 10% of our list price. Which we also requested to be copied on to quote to the customer. This equipment takes 6-8 weeks to build and usually $60+ per unit. We found out on one order that after we also added his 10%, he turned around and added more to the sale price, so is “double dipping” in our eyes. He is now making as much as we are and in our eyes that is not how it should be. We as the manuf. have all the Overhead and costs, he has himself and travel. So, we came back with a solution that all billing be direct from us. He quotes, makes the contacts, etc but then the sale is through us. Is that a proper procedure? Where can I find some good resources on structuring these sales?
Your website is helpful. We are manufacturing a high end stand up paddleboard which will have a dealer cost of $1400. We want to hire reps in various regions to call on surf / watersports retail shops and establish dealers for our product. Reps will receive ongoing commissions as the shops takes deliveries. What is a fair commission based on the dealer cost?
Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.
One way that might help your thinking: what commission will allow the rep to make a decent income? Naturally this depends upon what percentage of his volume is from your line as compared to other lines. If you are below that level, then you are not being fair.
Hi,
I’m wanting to grow my comercial cleaning business. And I would like to hire a rep to sell business, but pay them via commission only. How would you suggests I do that. I would want then to be a lead generator and I will close the deal.
These cleaning jobs pay on a monthly basis for one year in most cases.
And if I train the sale rep on closing a deal. How should I pay them for this as well.
Thanks for your help.
You can certainly have a rep assist you with selling. This blog is all about how to do that! Your questions about how to do it are a little too general for other than general responses. You can learn a lot about how to work with reps by becoming a member of our parent site, RepHunter, at https://www.rephunter.net. You can join for free by creating a profile. Then you have access to our Training page, which has several documents which are quite valuable to someone starting out with independent reps.
Generally reps are paid on a set commission on the invoice price. You can adjust your commission rate to include all of the other services you are asking the rep to provide.
I am interested in communicating with Dorothy, who posted an inquiry on November 1, 2013, regarding (quote)
“starting my own business. I’d like to rep high-end fashions and accessories from Southern California designers/style into elite shops in Canada, or take elite North American designer fashions into elite select high-end boutiques in South America.”
I design and manufacture high-end, one-of-a-kind jackets featuring finer art embellishments, and am investigating marketing options. Do I need a subscription to this site to contact her?
@SuKazjackets – I replied to you privately on 13-Jan-14.
I am considering a sales rep job in the HR consulting, training and executive coaching industry. I would be cold calling, renewing business with former clients, etc. The company is currently doing $1M in revenue with the owner handling all sales. All of the consultants who provide the services are 1099 employees. I’ve been asked to suggest a compensation plan. In this industry base plus commission is typical. I could use some advise on % for new sales versus renewals. I was thinking perhaps a higher base/lower commission for first 3-6 months to allow for ramp up time. Any thoughts?
It appears that you have two questions:
1. New sales vs. renewals
2. Ramp up time for new reps.
There is some interaction I think because the assumption that a rep starting out would have all new sales to start with, and more renewals later.
Yet I think the differences between the two separate questions might shed light on a sound program for you. In general, it seems common that the principal wants to think that the rep should be compensated less for follow on sales. That is kind of like thinking that the rep gets paid for units of labor expended by the rep. Which would be less.
Yet we advise adding another perspective to that view: the perspective that you are in a partnership with the rep, that you would like you business to grow, and that the rep must be “happy and motivated” to achieve for you what you desire. So the rep needs to be compensated to create this motivation. We have often commented on this aspect in other posts on this blog. Basically, residual income makes it worth while for the rep to create a new business channel.
This thinking suggests less of a disincentive for the rep to keep producing is better in the long run.
On the second question, it does make sense to offer the rep a higher base during the ramp up period, to cover for the lack of initial sales. As sales improve one hopes on a hockey stick pattern, the smaller percentage is going to result in much greater income, and less need for the base. That is my thinking.
What is a reasonable commission to expect in return for selling cleaning, janitorial and property maintenance type services? Some accounts are worth upwards to 20k – 75k annually. Some are small $200. – $400. jobs.
What is reasonable? Thank You!
Typically commissions are in the 10 – 15% range. Please read the many similar questions and answers on this page.
Can anyone tell me the commission for a sales agent representing natural health products? (if not that, food and supplements). Thanks!
Typically commissions are in the 10 – 15% range. Please read the many questions and answers on this page.
we are a fairly new company selling gps tracking to commercial fleets, we sell both the device as well as monthly service. Our intention is for sales reps to make $20 per unit (at $80-100) and residual monthly income… ranging from 10-15%. Is it standard to pay residuals to reps for life of account or can we cease residuals if rep no longer sells X number of units a year?
I would not say the is a hard and fast “standard” as arrangements vary. As I have commented before, you should realize that a good rep can make you a lot of money, if the rep is properly motivated. It is typical for it to take a long time for a rep to create a channel for your product, so that rep could see between 6 months to a year if you are not an already well-established business. What would motivate the rep to put in such a large amount of uncompensated effort? Residual income!
So the continuation of future sales is how the rep is often compensated for his up-front effort. Even if it seems that the rep “did nothing” in connection with repeat business. Just as the principal wants to “earn a living”, so the rep is worthy of his labors.
In many cases the rep continues to be more involved than the principal thinks in building a relationship with the customer. If the rep is cut off from residual income, why should this happen?
On the other hand, it is often done that residuals are gradually phased out. This depends upon the long term relationship that develops and if it continues to be mutually beneficial. One way to deal with this would be to put in your Sales Representation Agreement language that covers the periodic evaluation of ongoing revisions.
I am starting a business relationship with a private sales rep. We are almost finishing a contract thanks to his contacts, but I do not know the correct commission for him. He set the meeting up and we both went to the potential customer’s meeting since I am not fluent in the local language. This is going to be the first sale of many to come, and also, because it is the first, it is going to be a small quantity. The quantity will grow monthly by around 10% percent. Can you advice me in how to proceed with the commission, please? I was thinking about a 5% commission for the first sale and 2% for the following as I would not need his help anymore but I feel responsible to share the future sales because they started thanks to him.
Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.
You should realize that a good rep can make you a lot of money, if the rep is properly motivated. It is typical for it to take a long time for a rep to create a channel for your product, so that rep could see between 6 months to a year if you are not an already well-established business. What would motivate the rep to put in such a large amount of uncompensated effort? Residual income!
So the continuation of future sales is how the rep is often compensated for his up-front effort. Even if it seems that the rep “did nothing” in connection with repeat business. Just as the principal wants to “earn a living”, so the rep is worthy of his labors.
In many cases the rep continues to be more involved than the principal thinks in building a relationship with the customer. If the rep is cut off from residual income, why should this happen?
Bottom line: 5% and 2% seems low unless you have talking about very high dollar sales.
How much would a lead generator make for a straight commission based pay OR a combination hourly/commission? This is for simple lead generation consisting of greeting, answering some simple product questions, and booking an in-home consultation. Average time with each potential lead is 5 minutes. The product, if purchased, could be $1500 – $4000. Mostly a one-time sale, although there is a chance of repeat business. Any suggestions would be appreciated.
@keclee: While I cannot give you a rule of thumb, I can suggest how to think about it.
It is common for commissions to be in the range from 10 – 15%. Of course this depends on the industry, volume, length of sales cycle, and so on. And in your case, it depends upon how much work is done by the lead generator. it would be very different between as you said “greeting, and answering questions” and researching followed by going out proactively to get those leads.
In any case, try thinking about it this way: consider how much commission would be appropriate for a “full-service” rep, that is one not just providing the lead, but performing the consultation, closing the sale, and even performing after sale followup.
Then assume you have a rep business based on the full commission rate already determined. Considering that the rep is assumed to have a viable business, evaluate all the reps costs. How much would such a rep be willing to pay to outsource just getting the leads? This would be either some fraction of the reps total commission, or possibly even a flat fee per lead. Such a calculation should enable you to ball-park how much that part of the service is worth.
I own a recurring-service based business and have never used a sales rep before. Billing is based on man hours, not by the job, and vary from pay period to pay period, making it difficult the know the value of the prospective client. How should a percentage based commission be structured?
@Dinis: While I cannot give you a rule of thumb for your business, I can suggest how to think about it.
It is common for commissions to be in the range from 10 – 15%. Of course this depends on the industry, and the volume. You said $300 profit but you did not indicate the volume of transactions. In any case, a first step might be to consider how much commission would be appropriate for a “full-service” rep, that is not just providing the contact, but doing a lot of the work.
Then assume you have a rep business based on this commission rate this is a viable business for the rep. Considering all the reps costs, how much would such a rep be willing to pay to outsource just getting the contacts? Such a calculation should enable you to ball-park how much that part of the service is worth.
@Becky,
We give background information on how commissions are set in the first post on this page: https://www.rephunter.net/blog/determining-commissions-for-independent-sales-reps/. Please read that over and if you have further questions, post again.
I have asked a friend if ever she had a chance to get me some contacts for my promo items business. How much is a contact worth if I sell and make a profit of 300.00 with his contact and how much should I give him if this client comes back. Once the contact is made I do all the rest from A to Z sell the items , artwork , e-mails back and forth, ordering , paying the invoice making the invoice and all the accounting? She does this part time should I pay her a flat rate for every contact she gives me and I get a sale and then give her a commission if they come back?
Having run a small business practically by myself all these years, i now have the need to hire an independant sales rep. it will be hard for me to do without teaching him/her how to run the business. How do i prevent that they will not venture on their own?
In general, you cannot prevent people from going into a competing business. However, you can enter into a Non-Compete Agreement with them, that stipulates that in exchange for sharing confidential information about your business and other details about how you will enter into a cooperative arrangement, they will not create a competing business. Such an agreement is very commonly used, and may be adequate for you.
However, Non-Complete Agreements may be difficult to enforce. That is, if the other party breaches the agreement, then you have to sue, and some provisions may be hard to enforce. Yet even with these drawbacks, such agreements are very widely used and should be what you want to do. Often a Non-Compete Agreement is combined with a Non-Disclosure Agreement.
Google “non compete agreement” and “non disclosure agreement” to get started. In addition, you might want legal advice.
I am trying to write a contract for an independent sales rep whose only job is to set up appointments with target clients. I will close the business. Once a sale is made, I will pay a commission. Repeat business after the first sale is usually comes to me directly. I want to pay the rep something for some number of sales after the initial sale as they made the business possible. How should I word this in the contract? How long after the first sale does the rep continue to make a commission? If others give me referrals to the same client, how do I ensure that the sales rep does not feel slighted that I went around him?
You have asked three questions. I will share my thoughts.
1. How do I word the provision about paying the rep for some number of sales after the initial sale. Since I am not an attorney we cannot provide the actual contact for you. Having said that, what you want to do is first decide on what you want to be the deal. Do you want it to be X number of sales, as you write? Or do you want it to be a certain dollar number of sales? Or do you want it to be sales over a certain time period? Once you decide, then put those terms directly into your contract. It is best to have legal counsel on the construction of a contract. You can obtain such advice very inexpensively by signing up for a “pre-paid legal” service. Just Google “pre paid legal service”.
2. How long after the first sale does the rep continue to receive a commission? Since your rep is not a “full-service” rep because you are closing the deal, the normal considerations here might vary. However, there are two ways to approach this. One way presupposes that this rep is continuing to create a good income stream for your company over time. In that case, the rep may be exerting a lot of up-front, uncompensated costs while building your business. And so the rep expects to get compensated for the up-front work on his part by residual income. In that case, you might want to pay the rep for as long as they keep working for you, and sometimes even for a time period after the relationship ends.
On the other hand, if you are thinking of this relationship as a short-term arrangement, and the rep is not putting in a lot of uncompensated effort, then you might consider it less of a commission and more of a fee-for-service. In that case, the period could be much shorter.
3. How to deal with referrals to the same client? I am assuming that the others have already given the referral as otherwise the question is not relevant. This question is similar to the concept of “exclusive territories”, in that it asks whether the rep gets compensated for work he did not initiate. Whether you choose to compensate the reps in this case, or “slight” him as you say, depends upon how you want to motivate your reps.
Think of it as the rep running a business. Does he make enough from your relationship to justify him being highly motivated? If so, then there should be no problem. If not, then you might not be able to keep that rep or keep him delivering for you.
I am interesting in starting my own business. I’d like to rep high-end fashions and accessories from Southern California designers/style into elite shops in Canada, or take elite North American designer fashions into elite select high-end boutiques in South America. I am fluent in English and Spanish, I am confident in my ability to form relationships, grow and build relationships, make contacts and service clients. I have extensive experience in Sales, and am able and experienced in extensive travel, I worked previously as an auditor with a very large territory and travelled 90% of the time, so I am comfortable travelling for extended periods and at length. I am looking for some guidance on how to get started, other companies that exist I can model my business after, and an estimation for revenue I could potentially expect. Any insight would be greatly appreciated.
I was trying to get some input from associates in your fields, but that appears not to be forthcoming at this time. Your questions go beyond our expertise. You might find some independent reps who have some insight into your questions, but I am not sure that would be the best source of information. You would be better off connecting with people in your line of business.
When you are ready to make connections with independent reps, our RepHunter site at https://www.rephunter.net is an excellent way for you to find and connect with independent reps.
I am considering working for a clothing designer who also own a manufacturing company overseas. I would be their National Sales Rep -hiring other reps throughout the country. They have one local rep who is in an apparel mart who does not go out and cold-call – the rep has gotten the designer 25 accounts over the last year. Is that good? I didn’t think so – but – whatever- There is no contract with this rep – I have a lot of contacts in this market and LOVE to cold call – I want in our negotiations to take over this whole territory so I can see what a ROAD WORTHY REP can do. These numbers will give me an idea of how to work with other reps throughout the country. Is this the right way to think? Also, I love being commission based – What would a National Rep make on commission working with “other” reps. Look forward to hearing your thoughts.
What you are asking is outside of my direct expertise. However, I have a contact with somebody in your industry. I will run this by them and see if I can get any insight.
Feedback received from my contacts in your industry indicate that a good rule of thumb would be 12% for commissions. Regarding sub-reps, a split commission somewhere between 30/70 and 50/50.
Hello,
What about when you are representing a school and you are getting a commission on the enrollment of new students in a particular class/program? What will be the adequate commission .? Let s say the fees for that class are $4,000 and it is a specific class so there is no additional class involved. In other words It is just a one time commission.
Thank you for your feedbacks!
This sounds a special case. I would first look at our usual guidelines (10 -15% commission) and then adjust for the amount of work you would do to get the account. If it is more than normal, then a more than normal commission would be justified.
Here is another way to back into the commission rate. Suppose you had no other income other than selling such classes or programs. And you were going to engage in the business full time. Estimate how many you will sell in a year. Decide on your target gross income. Then simple math gives the answer.
To illustrate with numbers pulled out of the air, say you were going to sell 100 in a year and you want $50,000 income. Then you need to have $500 commission on each one. If the fees paid by the students are $4,000 per class, then that is a commission rate of 500 / 4000 or 12.5%.
Even if I did not understand the specifics of your situation, you can apply this logic with the numbers adjusted for your case.
If you cannot get reasonable numbers to come out, then you probably cannot make it worthwhile for yourself. But the $500 commission on a $4,000 sale is still reasonable, even if you were not dedicating yourself full-time.
Hope this helps.