Compensation · Contractors

I need advice on structuring commission for an external sales person?

Laurence Nathanson ►►I help PROFESSIONALS & STARTUPS acquire local CLIENTS using Video on Google & Social Media.

August 19th, 2016

I run a Direct Response Digital Video Marketing Agency. I am negotiating with an independent contractor who will take over sales in a given territory, and over time, will hire others (in other territories) and manage them.

She is looking for a spif when a sale is made, and an ongoing revenue share for the monthly recurring marketing fees charged to the client.

Different products that we offer, have different margins (e.g. Video SEO vs. Facebook Video Advertising).

Pricing can vary depending on services from $400/month to several thousand.

My questions are as follows:

1) How do I come up with the spif -- or is this a standard amount/percentage?

2) Do I base spif/ongoing rev-share on Gross Margin or Net after expenses?

3) Is there a standard percentage for this type of work?

4) When she hires others and manages them, what sort of override do I pay her from the sales that those people make?

Any other advice I should take into consideration?

Thank you for your feedback!

Laurence

Brad Forbush Need Leads for your Legal, Medical or Dental Practice? Let's Connect!

August 20th, 2016

Hi Laurence,

I am going through the same thing right now. What I have decided is that I will be paying a one time commission of a sale upon the close of a new client, which will be a flat 20%. Then, starting on month 2 and moving forward I am paying $100 a month in reoccurring revenue. 

As they hire more and bring on other commission sales reps I will pay them an override on the production of the team. 

I hope this helps!

Laurence Nathanson ►►I help PROFESSIONALS & STARTUPS acquire local CLIENTS using Video on Google & Social Media.

August 20th, 2016

Hi Brad,

Thanks for your reply!

I am assuming that the 20% is on Gross revenues and not Net? Also, for the $100 per month -- I need to know what your product costs as $100 may be a great monthly residual or could be very low depending on the monthly client fees.

Thanks!

Laurence

Brad Forbush Need Leads for your Legal, Medical or Dental Practice? Let's Connect!

August 20th, 2016

Yes, the 20% is on gross. The $100 residual is low compared to our fees. Most of our clients are paying us $2,500/month but we want our best commission sales people to rise to the top and will then receive bonuses above and beyond the other commissions. 

The bottom line is we want to pay people good enough to be motivated and low enough to keep a healthy margin so we can reinvest in the business. 

I'm not saying our model is perfect but it seems to be working so far. 

Great connecting with you!

David Rowell CEO & Founder at LifeLinker Inc

August 22nd, 2016

There is no such thing as a standard calculation for commission.  But there are some standard guidelines and rules to be followed.

Essentially you need to create a win-win for your company and your salesman.  If he/she is to work full-time, then he needs to earn a fair full-time income, and of course, a pro rated share of this if working part-time.

Plus, if he is to pay his own expenses, that needs to be built into the calculation as well so the commission earned fairly allows expense reimbursement.

On the other hand, if the salesman is a 'multi-line rep' and is going to clients and representing half a dozen different companies, then clearly, the amount you would expect to pay is reduced.

So, how much income do you expect this person to generate for you, and what dollar value of ongoing revenue will they manage?  Match that up alongside a target earnings, and calculate the percentage commission from that.

Don't try and cheat.  If you make the commission too low, you'll lose the salesman after a short while.  On the other hand, if you make it too high, you'll regret it yourself after a while!

Generally it is best to pay commission on the gross, because the salesman has no control over expenses and other things, except in cases where they know that they have a product costing, eg, $100, and they are free to set its selling price - $150, $200, or whatever else.

As for a split between landing a client and ongoing client maintenance, it depends how much of the client maintenance comes inhouse and you'll be doing compared to how much the salesman will be doing.  Do you really want your 'new business salesman' ending up just maintaining existing accounts?  Don't you want them pulling in new business?  Or are your clients always 'at risk' of being poached and do you need special focus to keep them?

Sales people are often lazy, and what sales person wouldn't prefer an ongoing revenue stream for doing little or nothing with existing customers!  You want to structure it so that most of the income is from new business.

Laurence Nathanson ►►I help PROFESSIONALS & STARTUPS acquire local CLIENTS using Video on Google & Social Media.

August 22nd, 2016

David.....thank you for the feedback!

Laurence