We are about to hire an external sales person and one of the business model we are considering is offering commission only.
We are a small mobile development company, so we are capable to take 3 - 4 projects at the same time, but we are ready to start growing. Our projects usually takes around 2 - 3 months, so once we get the point we duplicate out development team, we should be able to engage around 2 - 3 new projects a month.
I've read some other posts here that doesn't match 100% what I'm asking here, but they mention somewhere between 5% - 15%, or even 30% if they are selling a product and not a development service.
If you can post here some examples, for example: 5% for projects around 75k, or 15% for projects around 25K, you would be helping us a lot!
Thanks in advance
The commission will depend on various parameters -
Scenario1:If they do only lead generation and pass on the lead to you and you do the pre-sales, proposal and closure then the commission would be basic - say less than 5% or even a lumpsum of 100 USD
Scenario 2: If they get you the lead and as well as get the client's requirements and pass it on to you for proposal then you can consider a commission upto 10%
Scenario 3: If they generate led, get requirements, convince them and submit the proposal with your help and you can consider upto 15%
Scenario 4: If they own the lead till closure where your contribution is just the price component on the proposal - you can consider upto 20% on winning the contract.
This is generally assumed that you have reference clients and good collateral as needed for the sales team.
@Steve Skura paying them a base makes them not "commission-only." The point of the question was commission only. Of course if you're covering their basic needs (food/shelter) you don't worry about such large commissions. Juan was looking to shift the risk entailed in promising a base salary.
@ Frank Martinez without hijacking Juan's question, the price you're billing is wrong if it hasn't accounted for the commission that needs to be to be paid. Don't work it backwards and make commission a slice of profit. Figure the profit you should have after commissions are paid, and price that way. Each industry has a standard margin on products/services. What's important is that you deliver value, not specific price. There are some industries that live on a razor thin margin of 2-3%. Others have 60+%. A project might have grossed $79K, but would it have been anything but $0 if you didn't have a salesperson working it? These are all questions a business must consider when developing their compensation structure.
Nope, sorry, all those figures are much, much too low. A commission-only salesperson is taking all the risk. If they are generating the leads and closing the deals they're going to demand 50% of the sales price or maybe more (at least in the USA they would, I don't know abour Uruguay), particularly because you're a very young company and likely have no track record for sales.
It has to be worth their time to take so much risk. If your service isn't superior, if you aren't differentiated from competitors, if you have very limited examples of work you've already completed, it's a mountainous hill for sales to climb. What support will the salesperson have from marketing efforts, collateral materials, your web site, or a technical person to join sales calls?
What has been your experience thus far as the primary salesperson in closing deals yourself? How long does it take from first contact to signing? Do your clients pay in advance or when the work is done?
All these things add to the risk for a commission-only salesperson. I would never take the deal with so much risk, even if you paid me 90% of the sales price as my commission. Look at the position from the perspective of the person you're asking to do the work. How hard will they have to work and how long will they have to wait for their money to come in? And what will they do to live until the first check comes in? If the sales are difficult, will they give it the time it needs if they have other options of things that will make them money?
What if our net profit per project is 17%?
Hi Juan, I know I got downvoted... but coming from 20 years of experience... here's what you should do.
Hire an internal business development person (sales hunter). Paul is wrong. It would only cost a 50% commission if you were outsourcing your sales to a PRO. If you hire someone and give them a base salary of $2k-$3k and a sales quota of 1 to 2 $75K projects per quarter with a 15% commission. That should keep a small mobile team going profitable for the year.
Don't outsource. The market is hot. You can find a solid internal sales person.
You want a person that takes the risk in developing your business, growing it from 16 projects a year to 36 projects a year. You are in a crowded space (in the US anyway) and a tight labor market. Paying less for bigger projects is counter-intuitive. Either pay more for larger (economy of scale argument) or the same, or you will have many small projects and no large projects. You being ready to grow is based on sales, not development. WIthout knowing more details (geo, specialty, pricing, customer satisfaction) it is unlikely anyone will change your mind about your target in the past paragraph.
Having been in sales for decades, and having had thousands of sales people work directly or indirectly for me, I doubt you will be successful with a commission only plan in the US. Additionally, in much of the US (if this is in your target geo) even sales people are supported with a minimum wage (regardless of draw versus commissions). If you use contractors, again, in the US, you will need to be very aware of the behavioral-control test that defines a contractor versus and employee. Using contractors (or call centers) is not as good as it looks on paper.
@Paul Garcia, I'm asking from experience. Our average Net profit is 8-17%. Lets put one of our last projects, $79,000 our profit was around $7800.