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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Would you be able to refer a consultant that helps develop a tailored sales-commission plan and agreement?
Thanks for your inquiry.
We don’t have anyone in immediate staff that could help you with this. I suspect it is very likely that many of our rep members would however be capable of such a task. Therefore I am sending your question out to some of our networks. If anything comes back, I will let you know.
Hi RepHunter Team,
Would you be able to refer a consultant that helps develop a tailored sales-commission plan and agreement?
You are the HR manager and the sales staff are complaining about their compensation scheme which is only basic salary with no bonuses or
commissions. Just like a receptionist who waits for clients to come, they work in an apartelle located in Makati. However, the sales personnel are receiving
basic salary plus commission. What would you tell the sales staff?
You are asking a good question, but it is outside the area of our expertise. We deal with independent sales reps, but not with employed sales reps, which you are asking about. We suggest that you redirect your question to a more appropriate venue.
Hello and thank you for this article! My question may be a bit off topic but I hope you’ll answer it.
I have been functioning as a part-time fully commissioned independent outside sales rep for a print newspaper (ad sales) for 20+ years, and I sometimes walk a thin line between employee and independent because my client tries to treat me like an employee in some ways.
For example I do not handle the billing the advertising businesses myself, the company does this and then pays me monthly based on their current client accounts – meaning that they withhold some of my payment if their client is substantially behind on paying them. They want me to nudge the clients to pay and feel this helps. Is this actually legal if the paper is the one handling billing? Or should I be handling billing myself as a contractor (though I doubt this is an option, as becoming classified as an employee is also not an option)? I’ve had a really hard time finding answers as far as when commissions are typically earned for independents (who are stupidly lacking a formal agreement like me)…is there some sort of norm for this situation regarding the client withholding my payment?
They have recently also threatened to keep my paycheck until I contact them if they call me and don’t feel they hear back in a timely manner. This is such a subjective penalty, I don’t think they have the right to do this so am planning to impose an additional 10% fee for any overdue payments if they try this – is this reasonable? Thanks so much!
We cannot give you legal advice. If you are thinking about legal actions, you should consult an attorney.
Your situation seems like you have an implicit understanding with the company as to what each of your duties and responsibilities include. And it seems that they are trying to get you to do more, and you in turn are asking for more compensation. So it looks each side is trying to modify your implicit understanding.
It is not required that a rep handle advertising and billing and “nudging”–that would be up to what you have worked out. But normally reps do not get involved in those aspects. Regarding a 10% fee–only those closest to the situation will know if that is reasonable. And regarding withholding pay–it seems like your relationship is deteriorating with these moves. If so, you might consider moving on; or at least formalizing your relationship with a written contract to which both parties agree. You might want legal counsel to assist you with such a written contract. Please let me know if you would like a referral to an attorney.
Hi, thank you for a terrific article!
Today it is quite a big topic when sales representatives are commission-only. This does not appear much in your article. We are not mentioning it in our article either: https://blog.salesdock.com/com3blog.
But I wonder how do you feel about commission-only sales reps? I guess it is not as widespread in Europe as in the West.
Thank you for your answer,
How do we feel about commission-only sales reps? Since 2001 RepHunter, our parent website, has focused entirely on the 100% commission marketplace, and about 85% focused in North America. It is a very significant part of all sales.
Commission-only reps are our life. We feel great about our life!
You are the HR manager and the sales staff are complaining about their compensation scheme which is only basic salary with no bonuses or commissions. Just like a receptionist who waits for clients to come, they work in an apartelle in Makati. However, the sales personnel are receiving basic salary plus commission. What would you tell the sales staff?
Your comment appears to be related to employment compensation. As this blog and our RepHunter website at https://www.rephunter.net focuses 100% on independent sales reps and 0% on employment, we will not be commenting on your situation.
My company provides a service to client companies. We charge a flat fee for the service at each site location month over month. Our service lines stay with the company for multiple years. We have gained all of our current clients from word of mouth, but wish to double the business in the next 12 months. We need an account executive to do that as that skill is not in our wheelhouse. The account exec would receive a monthly commission % of the business they close. Most of our locations are in CA right now; but, we are not adverse to other states. What % would be attractive to a can-do account executive to join our team?
Thanks for your inquiry. I would have to have a bit more information to give an informed opinion. The term “account executive” implies to me that you might be looking for an employee over which you exert control. If that is the case, then defining attractiveness of compensation to such a person is a bit out of scope for our expertise.
Our field is that of independent sales reps, which by definition are not employees, and in most cases if not all represent multiple companies to their clients.
If you are looking for an independent rep, then our article at https://www.rephunter.net/blog/what-is-a-fair-commission-to-be-paid-to-independent-sales-reps/ gives a generic approach for deriving acceptable commission levels. You might be able to apply that approach to your case.
i’m running an engineering on order company that build machinery and large robotic assembly lines .
the price for such a line varies between 500k and 5mil $.
how much base and % of commission should i pay a sales rep on new contracts that he manage to secure with a new customer.
should this % be based on gross profit or net price(invoice) of the machinery?
I am assuming for the context of my answer that you are asking about an independent sales rep that is paid 100% on commission and that there is no salary involved. If this is not the case, then the question is out of scope of our expertise and would fall into the realm of employee compensation.
In the case of an independent rep, we suggest one approach to coming up with a fair commission rate, which is explained in detail at https://www.rephunter.net/blog/what-is-a-fair-commission-to-be-paid-to-independent-sales-reps/.
Depends on your costs, sales cycle and likely number of opportunities in the territory. If those automated lines can be sold within a month, and there are many, you might get an independent rep to agree to 5-6% of the sale or 10% GM, perhaps 8%. If the opportunities are fewer and you need to pioneer the line, expect to pay 10% of agreed sales price minimum for highly technical sales. 10% is considered “traditional” for many sales reps in highly technical sales situations. The reason for this is because the sales are usually a lot more complicated, take a lot more time, and require the rep to have a handle on multiple end user influencers which can take a lot of time to track down and work. The level of competition will also likely be higher. The rep will spend more time and money on a sale such as this – probably.
But there’s another twist. What is the reputation of the firm you wish to take your line? Are they well known within their industry? If so, expect to pay more for that access.
End of the day, choose a rep based on your evaluation of who can understand your product, and can offer sales strategies to get you there – not how much commission they want to make or you want to pay.
I am a window & door sales rep. I am an employee but I don’t make a salary. Instead I receive weekly draws against my commission. Currently my commissions are 12% of each job I sell, but I have to deduct things like tax, trash, delivery, etc. So my average commission rate ends up being only 8.9% of the total sale amount. I am one of two sales reps for a small company that grosses roughly $1,000,000 annually. My average profit margin on all jobs I sell is 40-45% and I sell $400,000-$600,000 annually. It is time to renegotiate my commission rate before the 1st of the year and I don’t know what I should request. I’ve tried doing research to see what others in my area make but there really is no good info that I can find for my field of work specifically. Can you tell me what would be a fair % for me? Should I have to deduct things out of each sale amount before commission or should it just be a straight percentage for the entire sale amount (if that makes sense)? When I started I made $38,000 salary plus 10% commission but the owner said I was making too much so he took away my salary and instead gave me straight commission with a weekly draw against it. I took a $25,000 hit because of that. No two sales reps that have worked there have ever been put on the same commission. He tailors it for each rep to try and get away with paying as little as possible. But I bring in half of his business and give him a very healthy profit margin so I think I am worth more than 8.9%. What do you think? Let me know if you need more info. Thanks!
As an employee, there is no standard commission rate that would apply. What you seem to have is rather a somewhat complicated way of computing your compensation. It does not really matter what the rules and rates are, as long as the end result is fair to all.
To figure out if it is fair, you could adapt the method that I outline in the article at https://www.rephunter.net/blog/what-is-a-fair-commission-to-be-paid-to-independent-sales-reps/. In your case, you would use “1 line” in the computation.
That method starts out by figuring what is fair annual compensation for you. Nobody can tell you that–you have to decide on what works for you and negotiate with your employer. You really have to have this agreed upon fair annual compensation before you can determine what a fair rate is. Trying to figure out the rate first is really backwards. Forwards is knowing the goal, and working towards the rate based on that.
Hope this helps.
Hi Elizabeth, for what it’s worth, I work in the W&D industry, and I have seen everything from flat 40% commissions on profit dollars, but the salesperson is a 1099 employee with no healthcare, pays their own taxes, etc. to a company that pays their W&D salespeople a salary and no commission at all. To Jas’ point, there is no set commission, it’s whatever the market dictates.
However, given the fact that you are getting your pay cut b/c you “make too much money” I would advise you to at least confidentially reach out to some of your competitors and see what type of package they would give you. That is going to give you a much better idea of your value in the market. Good luck!
Thanks Elizabeth for jumping in to the conversation. Your comments are appreciated!
Thank you very much but I am
Just a bit confused. I started as a rep for a probiotic. I’m getting a commission of
15% on the wholesale price that the clients (in this case doctors, health shops and Dieticians etc) pay. So that’s the amount they are invoices for. Well better said the company recently became VAT registered so the product costs 230 plus 15% VAT which is then 264.50 that the doctors would pay. But I’m still only paid commission on the 230. Is 15% commission a good or at least average percentage? I am also responsible for getting leads, driving there, education and also closing the sales. Thank you very much!
Because you are including a VAT, you are outside the US. That could be Canada, for which my comments are generally applicable. However if you are located elsewhere, then our guideline of a 15% commission rate on invoiced sales to retailers may or may not apply. You should check with reps in your area to see what is traditional in your marketplace.
Hi, I’ve got my own business and see a lot of companies. I want to rep for a friend’s company, finding leads for them to close. They do $4-6m a year of consulting in manufacturing industry. What’s a good commission?
Hello, I have been offered a job where the commission plan states: x percentage of NET SALES? Can you define what net sales means? Is that commission on the amount of the sale less any returns or discounts OR is that commission on the profit made from the sale?
Net sales means gross sales less returns and allowance. Has nothing to do with profit.
Hi good afternoon, i work at a industrial equipment wholesaler company (valves, pumps, actuators, etc) located in oklahoma, whats the average commission % that a sales representative gets on this type of company?
Do you mean selling this company’s products, or selling to this company? I am assuming you mean selling the company’s products. If so, we normally use a rule of thumb that may be helpful of 10-15%. Of course that varies depending upon volumes.
10% – 15% of gross profit or total revenue?
thanks for answering!
Commissions are normally based on the invoice price–that is likely what you mean by “total revenue”.
Im a business owner and need advice to see if I’m in the ball park for what I’m paying my independent sales rep. I have been paying him 55% of profit with higher percentages based on incentives if he meets certain goals. We sell a manufactured product that repeat business if about 4-5 years in between sales. He wants to start going on the road overnight and is asking about getting some hotels paid for for him or at least a portion. Can you give some insight on how road expenses should be handled?
If the rep is not your employee, then expenses are usually covered by the rep. Such decisions on who pays for what are part of the definition of what it means to be independent, and not an employee.
There are also good reasons to base commissions on invoice prices, rather than profit. One being that you are sharing the inner knowledge of your business information with the rep as he knows your profits. And profits are based upon your good management, not the reps performance. Yet in a stable situation, working with profile margin can be acceptable.
If your present compensation is considered fair by both parties, then no problem. You cannot give a “ball park” answer for your specific situation without looking at a lot of detail. The bottom line is that the rep needs to earn the expected income from his work, no matter how computed. For more insight on one way to look at how to arrive at fair compensation, please see our article at https://www.rephunter.net/blog/what-is-a-fair-commission-to-be-paid-to-independent-sales-reps/.
Do you pay after customer rebates?
I am taking your question to mean “do you deduct from the rep’s commission when the customer is due a rebate due to some promotion?”
The general rule is that commissions are paid upon invoiced amounts. If there is a rebate program that you want to take account of in your commission schedule, then you should have the details spelled out in the written Sales Representation Agreement that you have with the rep. This of course means that such programs are negotiable.
Good Afternoon… I have product distribution company. I am hiring an outside sales and account manager. What is the proper percentage topay him? At present there is no salary involved.
Without specifics as to industry, volume, and where in the channel, we can only give our normal rule of thumb of 10-15% commission on invoice.
If the rep was running a customer rebate, would you expect to collect less from the end user or rep for your product? If the answer is no, then you should not be deducting anything for rebates unless it’s covered in some way in the contract.
Typically, most contracts address it indirectly in a compensation formula or commission outline, or in the terms of payment “i.e. the rep shall be paid on the invoiced amount up to allotted schedule, or “invoiced amount”, GM”, etc. …
Thank you for informing us on ths article about the basic of how to pay sales reps. I highly believe that if a sales representative closes more deals, they are getting better at their job. If so, they deserve these sales incentive programs.
Can a insurance agency give residuals to an employee and then take them away, for no reason?
Our blog is dedicated to independent sales reps, so your question pertaining to employment matters it outside our scope. We suggest that you contact a source of legal counsel that specializes in employment law. You might contact the Secretary of State for the state in which you work to get started.
However, we can say that if you have a written contract with your employer that specifies the details of your relationship, that such a document would bear heavily on what the employer can and cannot do.
hi, am working for a steel window and door manufacturer as a sales representative, so i just introduced to some distributors, but i dont know how much percentage should i perceive each project, normally one project can go from 20000 to 150000 dlls, but i dont know how should i negotiate my commission for it since i am making it happen… my boss mentioned that he wants to put goals and pay according to those, but i dont know if thats the best deal for me… note that am an employee, and i do get a base salary.
Thanks for your question. Since you are a salaried employee, there are really no rules of thumb for additional commission that we could give you because it depends upon the level of salary that you have. You don’t mention the total volume of the projects either.
One way to approach this would be to follow the guidelines given in the article at https://www.rephunter.net/blog/what-is-a-fair-commission-to-be-paid-to-independent-sales-reps/ that we have recently posted, as if you were going to be paid fully on commission. But in step 1, subtract the amount of your salary. That would allow you to come up with something that could work for you.
I am considering hiring an Independent Contractor for my senior living placement company. The position would require heavy marketing, sales and service to the client (the senior and/or their family). How should I structure the commission. It would be a commission only structure and the IC would be responsible for their expenses.
Our expertise is in the B2B arena. We don’t get involved with B2C sales reps, sometimes known as canvassing. So we cannot give you rules of thumb, or what would be typical in answer to your question.
However, we can give you the following guideline to back in to an appropriate commission level, which is applicable to all industries and markets:
1. Estimate how much annual income is needed for the type of sales rep you are looking for.
2. Estimate the average number of lines such a rep would have. That is, are they working for you exclusively (1 line), or do they have another line (2 lines total), or two other lines (3 lines total), and so on.
3. Assume that each line is equally profitable for the rep, so that they would tend to give equal amounts of time to each line. If this is not the case, then adjust the parameters in your computation.
4. Take the number of lines from step 2 and divide that into the total annual earnings of the rep. This equal division assumes equal efforts per line as described in step 3. Otherwise adjust accordingly.
5. Now you have the total earnings required from your line.
6. Estimate the total annual sales of the rep of your line.
7. Divide the total annual sales by the total earnings required from your line. That gives you the commission rate.
As an example, let’s run through a sample calculation, with the following assumptions:
– step 1: assume the rep requires a $60k annual income;;
– step 2: assume the rep has one other line;
– step 3: assume the rep gives equal time to both lines;
– step 4: dividing $60k by 2 lines;
– step 5: the rep has to earn $30 from your line;
– step 6: assume the rep can sell $300k in a year;
– step 7: divide $300k sales by $30k commission and you get the commission rate of 10%.
Since your assumptions can greatly vary from those in this sample calculation, the result can of course be very different. For example, the amount of time given to the lines may not be equal, so the step 3 and 4 calculations would have to be weighted differently.
Lets say you are a commission only sales rep and some but not all products offer residuals. Lets say the contract is 36 months typically that your customer would sign, if after 18 months you as a sales rep have not brought in sales for more than 6 months, would you still expect your residual check every month? This is a company where sales would normally be obtained every month.
You have a good question, but one that you cannot generalize in the answer. The precise answer would be governed by the fine points of your Sales Representation Agreement. So you would need to read that carefully, and might even need legal advice.
However, if sales have unexpectedly stopped for a six-month period, that should also generate some good questions on all sides, and some problem-solving efforts.
Hello, how would I create an agreement as the middle person between a tutor and a school? An on going agreement with the tutor, example tutor 60/40 me of the net. Then I would have an agreement with the school from my 40%. School will supply rent, uitilies and copies while Tutor will supply the staff salary. Materials are shared. How do I come up with an agreement for both sides and I am the middle person.
You have an interesting situation that is outside our normal experience. Yet the basic principles of representation should be applicable.
In order to give a response I would have to understand the relationships between the parties. If I understand your question correctly, it appears that you have tutors who are trying to deliver services to schools, and that the schools would be paying the tutor for those services. You as an intermediary are helping both sides, but especially you are helping the tutor to gain a client, which in this case is the school.
As such, an ongoing agreement with the tutor for an agreed upon commission rate would be appropriate.
I am not sure about the agreement that you have with the school. It appears you are wanting to compensate the school. This is definitely out of my experience, and I am wondering if this is the common business practice in your area. I do not believe I can advise you in this area, and you should probably seek legal advice on this part of your question.
I’m going to start working as a world wide sales rep for a small mining company which is owned by a friend of mine . So far we haven’t talked anything about how he’s going to pay for my service. How should I charge him ,salary plus commission or only commission itself and how much percentage ?.
Thank you in advance for your help/advice.
There are some general guidelines for commission levels for independent reps, which depend upon industry and sales volumes. In general, the rep needs to make a living, so if you are selling tens of thousands of dollars at retail, the commissions of 10-15% or even higher are appropriate. However, if shipments are in the millions of dollars, then a much smaller commission in the 1-2% range would be appropriate.
We cannot give you specific advice on the mix between salary and commission, as that is up to the arrangement that you make. Some general guidelines here would be that if you are under the control or direction of the employer, then you get salary; if you are more independent and have other clients, then you don’t get salary.
I have a Dig Operations Manager in the field clearing sites and removing Knot Weed he wants to approach the owner with a commission only sales role (profit only) while still doing his other work. He adds demolition to the scope of work which the company I consult for do not have. They also suffer with seasonal work and these sales he would bring in work can be completed in their slow season and he see’s the project through start to finish with no company involvement increasing sales. So I only see positives all round are there any Internal Commission Profit Only Sales Agreements for this scenario?
Kind Regards Leon
At RepHunter we provide to our members some sample Sales Representation Agreements. You can create a membership for free as a Sales Rep looking for companies to represent, or as a Company looking for sales reps. Then you can check out the Training page, where there are two such sample agreements.
These agreements are generic and are broadly written. You would have to customize the agreements to meet your specific needs, such as how the commission is computed.
Hope this helps.
Hi I´ve been in the electronics rep business for 20 years in Mexico and started my own rep. We are currently expanding into finished product, modules, automated equipment and are still in search for some lines for passives, LEDs, sensors etc
We are an E.R.A. member and would like to expand our network. Do you have a liaison service? if so how do we sign up? Thank you
Hi, if our sales in a region are $600,000. The rep is asking for 10% commission. But we are supposed to pay 10% of these existing sales, therefore =$60,000 Cost for us.
Now the Agency has to go out and earn an EXTRA $300,000 in order for us to just Break Even.
(Extra $300,000 with 30% gross profit= $90,000 , then MINUS the 10% commission($30,000)= $60,000
therefore the Agency is forced to increase the sales 50% ! in the region just for us to break even…
is this how it is supposed to work?
We pay on EXISITING Sales…….
looks like a tough sell for both the company & the agency…..
(or to find an agency that will work solely on commission and NEW sales= too good to be true)?
Are you asking if you would pay the rep on sales that you already have in the territory?
That is a huge question and comes under the general area of “exclusive territories”. That concept means the rep gets paid on all sales in the terrirtory, whether they came through that rep or not.
Exclusive territories are very important to reps. If you think of it as you are paying the rep for the sale, then you can get bogged down in thinking about. You are better off thinking that the rep might create millions in sales for you, and the rep deserves fair compensation for that. One way for the rep to get paid is to have the exclusive.
For more info about exclusive territories, please see https://www.rephunter.net/blog/sales-reps-exclusive-territories/
Maybe your pricing is set too low? Or your internal costs are calculated too high?
I’ve seen both occur with different companies. I would definitely investigate if you’re getting accurate information regarding “true cost”.
And why wouldn’t you be able to find an independent rep firm capable of working on both existing and new sales? That’s what reps do. It sounds to me as if you could have yourself a comfortable rep that is riding out the line. Also, I’m not sure why you listed the $60k as a “cost” to your company for paying the rep? What do you think it would “cost” to put an employee in the territory? $75k? Plus 20K in expenses? Seems like you saved $35k if your rep is truly working the line.
Either way, its time to have a chat with the end rep and find out if either price pressure, inaccurate internal cost calcs or just plain laziness is the issue here.
Okay guys I have a question, I used to carry a line of boys formal wear, one of my customers has asked me to sharpen pricing. I went back to the owner and asked to lower pricing he declined. So I went and offered the lady a different company(mine) I made samples gave her a cheaper price and she decided to go with an order. Now the original guy that I was carrying the line for is suin my company for the order stating “it was his” and I “took it” from him. Now he’s also going after me for “fraud” there wasn’t any agreement signed, I was gettin payed 6%.
Can he legally do anything? Also was 6% even worth carrying his line? He would also always be extremely late with payments.
Please let me know ASSP.
Regarding your dispute with your line: in the best case you have a written agreement that states the rules under which you operate. It is much harder when you do not have such an agreement. Probably the outcome depends on the skills of the lawyers involved if it should come to that.
You might contact an attorney I know who specializes in legal representation for independent sales reps. His name is Clay Taylor, and you can reach him via his website at http://replawyer.com/contact-us/.
Regarding the value of the line at 6%: only you can judge that based on volume, total compensation, and the time you spend to earn it. It does sound like a low rate for retail, if that is what it is.
What commission rate should be considered to a representative for striking the deal with foreign large manufacturer in China? The manufacturer will manufacture and sale worldwide the goods themselves. We are just trying to sale them the intellectual property.
Thank you for your help.
What is your relationship to the rep? Are you that rep? What is the intellectual property?
In general we give rules of thumb for typical repping deals, where there is a seller, a rep, and a buyer, and the rep gets paid commission on sales. This sounds like it might not meet that model, but is rather more like a finder’s fee or a broker’s fee. So our normal sense of how it should work is off the table, and your guess is a good as ours.
Would you have gotten the sale without the rep? If the answer is “no” then offer a head hunting fee of 10%, depending on the size of the deal. If its millions, then perhaps 6% is acceptable.
Even a real estate agent will get around 6-8%. You shouldn’t expect to pay less than that if you want to be fair.
Hello, I am about to close an agreement with a digital media vendor, as their sales rep. In the agreement proposal they sent me, they included a clause that says that even when I will have some clients assigned, they can contact the clients directly, make a sale and I won’t be receiving commission over that sale. I am providing leads and coordinating meetings with key people in different territories for one of the clients. It doesn’t seem fair to me that after I provide the leads, they have the option to contact the client directly. How can I propose a solution for this?. I need some opinions. Thank you.
In our experience it does come up that companies exhibit this kind of behavior. The approach we try to take is to inform such companies that this arrangement does not work in the rep’s interest, and if the company gets a reputation that it treats its reps this way, then it will have a hard time retaining good reps.
An argument might be made that a good rep can generate a specified amount of sales and profits for the company, but the rep is also “worthy of his hire” and deserves his share.
If they insist on this kind of behavior, then you have to then decide if you can live with it.
You can probably find additional good advice by searching on “independent reps problems with house accounts”.
Hope this helps.
Tell them to find another rep. The value of a rep is to leverage your local knowledge and relationships. Any part of a process which circumvents this is anathema to how independent reps operate. You are paid on your ability to connect contacts with product /service knowledge and services/products. They simply want their cake and want to eat yours as well, which doesn’t work for your business model. Your clients are yours and the manufacturer should never be directly involved in the sales process without your knowledge and agreement. It should always be a team effort. Otherwise, they should hire direct to cover the territory.
And if they don’t want to play ball, no problem, rep the competition. There’s a reason they need a rep.
I am an independent self employed sales rep that earns small percentage with a major manufacture on extremely large volume account. In addition, I am going to pick a few new lines one being in the food industry. I need to write contract before I begin representing this product/company and because of the low cost per sale am going to ask 15% to 20% commission. I have already made connection for sales opportunity but want to ensure that my efforts are worthy of a check as I continue to pursue other sales for this product. The market is mine for the taking and all product would be drop ship as I do not want to distribute. I was wondering if there was a good boiler plate contract that spells out details stating such. Could I be compensated for travel expenses or any other expenses incurred in the pursuit of the chase? If the accounts love the product and re-order I want to make sure that I am safe in getting credit for those sales again and again. This is the first time I have represented someone who is new to these ideas and although excited about my potential want to protect myself and my efforts to ensure I reap the rewards of my efforts. I am going to start an S corp. and open separate business account with new name. Trying to get all my ducks in a row but signing contract I feel is a very important part so we are all on the same $$ page.
Thank you for your input…
My best advice at this point on the contract is generic, as we cannot give legal advice. If you are a member of RepHunter at https://www.rephunter.net, there are two sample contracts at https://www.rephunter.net/training.php, which can be adapted to your purpose. I believe the points you mentioned are covered in these sample contracts to at least some degree.
If you are not already a member of RepHunter, you can join for free, and there is a link on the page at https://www.rephunter.net/training.php to the Register page.
An S-corp or maybe even better an LLC is a great idea, which we strongly support.
Hope this helps.
I’m thinking about being a Sales Rep who is working out of the state from where the company is based in. I’m selling their brand and product in bulk supply.
Is it smart to buy the brand product at a whole sale price and then upsell to produce a profit for me?
What kind of commission should I receive if I generate leads with other businesses and stores to carry the brand? The company will close deals.
What kind of commission should I receive if I generate leads with other businesses that want a bulk supply of the product? The company will close deals.
Should the company pay for any fees like Farmers Market fees and booth events? They will provide company shirts, email, and business cards as well.
Whats the best way for Sales reps to represent a brand and gain commission from leads and individual sales?
Thoughts, Comments, Advice? – Sorry If my questions/concerns are confusing.
When you buy and sell as you describe, you are becoming a distributor, or a “trunk rep”, which sometimes can supplement your income. If is is smart depends upon all the details, and I could not give a general answer. For commission rates, for a full-service rep, we generally quote 10-15%, but it would depend upon your volume. If your are only doing lead generation, then your share could fall, to as low as perhaps 6 – 10%. These numbers are just guidelines, and again, the particulars of the deal govern all.
In the situation discussed above, a salesperson is 100% commission.
How can we pay sales reps for their wholesale orders when the same products can be purchased online with wholesale prices? The wholesalers have a mark-up that is typical in the skin lotion industry. But if we pay the sales rep 15% of the wholesale then it cuts into our profit.
Traditional channels are being challenged by the online marketplace, to be sure. In order to compete, there has to be some justification for your pricing. Better service, a personal touch, and any value-adds that you can come up with.
You might be able to cut costs. For example, you could sell your products online to do that and cut out the rep entirely.
However, going through the rep channel under this challenge does not mean that the reps “cost structure” has changed. The rep still needs to earn a living if you want to able to stay in that channel.
The hard truth is that when the market changes, we all have to adapt. And all parts of the supply chain need to taken the online factor into account, including the manufacturer and the rep.
Hello I own a small tshirt printing business and just hired a sales rep to gain more business. What is a good percentage for them to take home from each order? And how does the structure work? Do they get a percentage of the net sales or the gross after the cost of goods?
When you say you “hired” a sales rep, does that mean they are salary plus commission? If so then your question gets into employee compensation, which we do not deal with here.
Independent sales commissions are nearly always based on invoice price, not on gross margin.
If you mean 100% commission, then it depends on volumes and where you are in the channel. But assuming you are selling to retailers, then 10-20% of invoice would be typical.