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 received a job as a wine sales rep. They want to give me a large start up pay and I am expected to open my own company. Is this standard practice?
It depends upon the details. Are you an employee? Or are you an independent rep? Since you said “job as a wine sales rep”, it makes it sound like you are an employee. But you might not have a job–rather you might have a contract to represent the wine seller. What is the nature of starting your own company? Do you have to act as a distributor and buy product from them? Do they control your work?
The general answer is that when you are an independent sales rep paid by commission rather than salary, you are running your own business and thus are running your own company and you are controlling your work. Sometimes this is called a “1099 position” because the company reports to the IRS on Form 1099 rather than on a W-2.
It would be a truism to say that every independent sales rep, if truly independent, has started his own company. And in that case, it would be standard practice. Technically, you would be an employee of your own company.
Thank you for your reply. The retail sales rep is selling person to person. Average sale per person is currently $76.41. The person I was inquiring about would be selling wholesale. So someplace in 12 to 13% range to start should be fair.
I am a small organic skin care and cosmetic company. I have one sales rep that sells retail only and I have been paying her 25% commission based on gross price. I pay the credit card fees. I have a person out of state that is interested in selling for me, both wholesale and retail. I have no idea what to pay for wholesale accounts. In the past the wholesale accounts I had, I obtained myself. There first order was a minimum of $500.00 and after that any amount could be purchased, due net 30. What is the going rate for wholesale account reps for skin care and cosmetics? Probably would be small mom and pop establishments
I am wondering if when you say your existing reps sells “retail” whether that means directly to the end consumer or into retail establishments.
We generally give guidance between 10-15%, which depends upon volume of course. But the volumes should be larger on a wholesale account.
Traditionally commissions are paid on the overall invoice, even in the gift industry. The fact that shipping is free, will mean commissions will not be paid on the shipping. Even in the cases where shipping is simply a “pass through”….meaning you are charging the customer, yet not realizing any margin on the shipping…..that would normally not be “commissionable dollars.”
Hope this helps!
Tom – Director Platinum Plans
I have a question for you.
We are a small manufacturer and distributor in the toy and gift industry and we pay a standard 15% commission. We offer customers free shipping on certain orders and free displays because these are expected in our industry. However these cost us between10-25% of the sale! I don’t know whether it would be acceptable to deduct the cost of freight (that we are paying) from the invoice before calculating the 15% commission. Is that done sometimes?
This post has been very helpful. Thank you.
We are looking for reps who can recruit new distributors and new national accounts (repeat buyers). Once first or first few sales are closed, I plan on transferring accounts to in-house account managers.
Our items are machines, and they are service and maintenance heavy.
My questions are
1. If the rep also services, how much more % is reasonable?
2. After being transferred to an in house AM, should there be a perpetual commission structure? What’s the industry standard for the period of giving higher initial commissions? For example, XX% for the first sales only, first X months or first year?
3. Would you recommend letting reps handle accounts they close permanently instead of transferring them to AM? I can see both pros and cons. We have fairly new products with minimal competition. Our products often require an on-site demo.
I must first respond to your plan to transfer accounts to in-house sales managers. Why would any rep want to take your line under those conditions? That would be similar to your customer saying they want to buy your product to see if they like the product concept, and once the decide that they do, then switch to one of your competitors that makes them more profitable.
If you want to use independent reps you must realize that usually the rep puts in a lot of work up front that is not directly compensated. The rep is willing to take this risk because there will be residual income over time. You intend to restrict that possibility.
Your additional questions make it sounds like you have some understanding of this equation, with the idea of the perpetual income structure.
There might be some way you can engage the interest of reps if you indicate that after they don’t have responsibility for the account, they will still earn some kind of income stream from that account. Such deals are often worked out, but the percentages and industry standards really don’t exist. You will have to work out deals, which depend upon a baseline. For example, if 10% commission was normal in your industry, perhaps 5% would work for the “perpetual commission”. This is just an off-the-cuff example, should be take in that way and not as a hard and fast “standard”.
My suggestion is to speak with reps and ask them what it would take to get their interest under such an arrangement.
Hope this helps.
Can you please tell me to what reasonable level can one raise the commission of a country representative for a regional service based organization ?
We cannot tell you what a “reasonable level” is because such a level is based on industry factors and volumes, as well as country-specific tradition. However, in North America, we give a general guideline of 10 – 15% commission, which is broadly applicable, but may not fit the specifics of your case.
I am getting ready to hire commission sales reps. Typically when we make a sale, there is a 4 week lead time for our products and then our terms are net 30 days. Will sales reps expect to get paid at the time of the sale or when our company gets paid?
There is some flexibility in the payment process, and the payment terms for the reps should be stated in your contract. Here is an example of such terms:
The Company agrees that the Representative is deemed to have earned a commission upon its acceptance of any customer order, and the Company shall pay all commissions to the Representative no later than the ____ day of the month following shipment on said order. Monthly commission payments shall be accompanied by a complete accounting of the disposition of all orders, shipped and pending, in the Representative’s territory.
Hi, I have the following question:
We are manufacturers of gloves and we have a line of high end fashion gloves. We are new to the market (USA) and so have no brand recognition yet. In order to build a brand we are about to hire a brand ambassador, who requires a flat rate for the first year and a commission from sales thereafter.
My question is whether we can expect the person to do the job of a sales representative or whether we will still need to hire one. I am also afraid that if we have to hire an additional sales rep, there will no longer be the exclusivity in the territory and this might discourage the potential reps.
You have asked a couple of interesting questions. There is nothing “automatic” about what you should expect. Each arrangement can be set up to meet the needs and capabilities of the parties. Therefore, what you want to happen should be included in your agreement. That is, negotiate with the prospective brand ambassador whether they are expected to rep you line. My sense of the way you have presented it is that repping may not be included. Thus you need to be careful to spell out the duties and obligations in your written agreement, as well as making sure that both parties understand what you agreeing to.
Regarding the exclusivity: that also needs to be spelled out as to how that will work if the brand ambassador and rep are working in the same territory. You are correct that if part of the territory is reserved to the brand ambassador, that will discourage the reps. You might devise a commission arrangement where the reps gets all the commissions, and thus it acts like an exclusive, or some other commission sharing.
At a higher level, what is a “brand ambassador” that is not just a fancy name for a rep? If they are really just a rep, then don’t cloud the issue. If they are not a rep, make that clear in your agreements with all the parties.
Hope this helps.
This a great, helpful answer.
Hav a great day.
Hi, I have maybe a weird question:
We have a sales rep, we start to work together last year. He was introduced our product a distributor company and they are selling our product since 2015 May.
I paid commision to the sales rep after every product what the distributor sold. But Im not sure this normal or not.?Because, his show the product, but the distributor sales man selling now.
Basically, our sales man did not do anything with the distributor company. They are contact with me.
Can you help me, I do the right? Or not ? Thank you
Your question pertains to “Residual Income”. Here is some thoughts for you on residual income.
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 commission on 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 about for the first time, broker a deal between a supplement company and a new distributor group for them. I am representing both parties, (Seller, Buyer) to broker this deal. How would a commission get set up for that? Would both parties pay a commission seperately or would they share that? This will be an ongoing monthly transaction, should we still get paid on that as well? If so how long? Thanks
Our normal advice has to do with commissions on sales. Since you do not describe the deal (and we are not expecting you to), it is hard to see in just what ways the “deal” would differ from a normal stream of sales. So we cannot answer specifically. But I would answer that in general, if the deal looks like a stream of sales, then the commission would be paid by the seller at a rate based on the invoice amounts.
If the deal varies greatly from that, such as in the case where a joint venture was created, or investment was involved, or selling of an interest in one of the businesses, etc, then the “commission on sales” concept would not be applicable. And we would not necessarily be able to draw upon our experience to answer you.
I would suggest in that case that you try to characterize the deal, then approach people who work with such kinds of deals. For example, if company ownership structure was changing, or an exit strategy was involved, then you should check with a business broker to see what kind of commissions or fees that they would charge. The purpose is to find out what ball park you should be in.
Hope this helps.
Thank You for all your help!
We are looking into hiring Independent Sales Rep for our Web Hosting company.
I am just wondering….
1. What is the best way to pay them? (Paypal, Check, ect.)
2. Do I need to provide them business cards? (Sales reps can be located anywhere)
3. Do I tell them to go to our website to learn about our products or create something for them?
Sorry for all the questions, I am new at this and a bit lost.
There are no “best” ways in answers to any of your questions. You have to decide what works best for you and your reps. It is traditional to pay with checks, but there are many new business methods in all areas, including PayPal. You should ask the reps what works for them. On your side, you might have to have both banking and PayPal capabilities — you don’t want to hurt your business because you cannot handle the needs.
With business cards, if you want a uniform look for all your reps, then probably it would be best to provide them. Again you could ask the reps what they prefer. We have a had good results using VistaPrint at very low cost.
You might start out by directing them to your website. Reps will easily get clued in on your product. However, if you have developed special selling methods that require training, your customer-facing materials will not address the needs of the rep. You probably don’t have such special selling methods.
Remember that when you are pitching yourself to the rep, it is like getting a customer. Except that reps have different concerns. Your customer might be concerned about such things as how you are to work with, the technologies you use on the web, your security and reliability, etc — that is, the normal value proposition to your customer. In addition to being trained on these particulars, the rep wants to know such things as commission rates and what kind of exclusive territories you might offer, how long your sales cycle is, how long is will take him or her to get paid, and so on.
Hi, I am in the area of bread and cakes. I am an agent for a company and my names are on the accounts and I am charged for all the bread and cakes, I get an invoice for them. I then sell these products to supermarkets and whatever sells then I get 11 percent commission on the sale price, my question to u is I recently found out that a rebate is being paid to somebody else from sales I generated, he is being paid 5 percent on what I purchase off the bakery even doh I purchase the bread and I am charged for it, is this allowed to happen? I have no contracts signed with the bakery who I buy the the bread off!!
The description of your business tends to indicate that you are not an independent rep in the usual sense, but are a “middleman” in the supply chain. You are in effect a distributor.
“What is allowed” is determined by your contract. If you have no written contract, then the understanding that you have is much harder to pin down and enforce. Such arrangements are allowed and common in some industries, but it is generally not good business in many cases to not have a written agreement. In your case, you have little protection.
You do not describe the roll of the person getting the 5 percent override, so it is hard to judge if it is justified or not.
If you don’t like the arrangement, then you should talk to the bakery to see if you can get a better deal. If you cannot, then you either have to live with it or find something else to work at.
Hello, I work for a company that manufactures equipment for the assembly industry and have responsibility for 25 of top our major accounts. We are looking to bring on a few rep’s to help grow our brand… this rep process is new to us. As it turns out we came across a firm that has about 8 to 9 guys covering 6 states that are very interested in taking on the product line. So the problem being, we don’t know how to answer or handle the question of how the crossover in efforts into a top or key account would work? Do we say… Hey this is the general area of you responsibility, but stay out of these few accounts? or do we let them have at it and they get paid what they turn up, all the while me keeping a presents and selling into the same account as the direct guy? Keep in mind, a few of these accounts are very large with multiple divisions… I get compensated on our top accounts, but we would like to use some of the Reps contacts to help us penetrate further. So, do we split the business, do we just pay them on what they turn up… we want to be fair, but it seems like it could be a bit convoluted. your thoughts please
You are touching on one of the thorny issues in dealing with commission reps: the concepts of “exclusive territories” verses “house accounts”. There are many different arrangements for such things. There would not be a “industry standard”, but each case could be different, and even different with each rep agency that you work with.
Here are some general pointers:
1. Reps really like to have an exclusive arrangement, which helps motivate them to expand results in the territory, and can even benefit your relationships with established accounts.
2. House accounts are a reality that rep agencies have to put up with. However, if the concept is abused, you will turn off the rep and possibly harm your territory results. An example of abuse: the rep puts in a lot of work building up the account, then you take that account in house later. That is a really good way to destroy your long-term growth potential. Best to define your existing house accounts from the outset, but let the rep benefit from all the accounts they create and build up. After all, the payback to the rep for investing his time and resources in building an account is in the residual income.
A seasoned rep agency will be fully aware of the dynamics of the above, and it would be good for you to be open about it with them, and even approach them from the standpoint of “what will work best for everyone”.
Hello, I was wondering how is the best to pay commission to an In- house sales person when they generate a sale over the phone in a territory that we also have an outside sales rep. Our outside sales reps currently earn 10% on gross sales. As for in house sales, this is something new we want to try to boost sales. Any feedback would be greatly appreciated.
You did not specify whether the outside rep would still be paid on the sale. The problem that you will face is that it will be hard to get reps without exclusives, and if an existing rep is getting an exclusive now, that you could be taking that away. Please give more details and I’ll be able to give a better response.
I’ve recently been offered a position as a sales rep for a company that manufactures folding boxes. I’ve been offered a commission of 5% on all sales. No base salary.
I’ve sold packaging in the past but folding cartons is a new area. I’m being told that I should be generating sales in the $2,000,000 range within two years.
Any comments from someone with experience in this area would be appreciated. The territory is southern California.
Our company fabricates Museum Exhibits and high end cabinetry. We are looking to hire an Independent Rep that will be involved with the projects for the duration. We would like advice on a percentage. We would like to base it on the gross margin. Is there a guideline for this?
The guidelines we offer are generally 10-15% of invoice. I am not familiar with your industry, so that may or may not be applicable but it is a starting point.
However, we do not recommend commission be based on gross margin. The problem with that is that the rep’s commission becomes based on factors other than his effort, such as how efficient you are at delivering. Gross margin can be done, and especially if that is traditional in your industry. But invoice amount is more broadly used.
Have you checked RepHunter at https://www.rephunter.net in your search for reps? I just searched on “museum” and found 20 reps that recently updated their profile. And there might be many other search terms that find additional rep possibilities.
Thank you very much for your advice, it’s Greatly Appreciated! We feel much better about embarking on this journey. Thanks again, Dennis T.
Hi there! I have been in the Apparel Business for 17 years. In that period of time, I have seen quite a few Sales Rep Contracts. Therefore, I thought I was quite familiar with the Rep fee Pricing structure, until recently.
I just received a Contract from a Company that is asking for a $2,000.00 Non-Refundable initial fee (that will be applied against future Commissions) and a $500.00 monthly fee for Show Costs. I was fortunately able to renegotiate the Contract down to $500.00 as a Non-Refundable Fee (that will be applied against future Commissions) and a payment of $500.00 for 5 Shows, (instead of every month). In which one Show fee is being charged upon approval of this Contract, for a Total fee of $1,000.00.
The issue is, although I am much happier with the last offer, I still have never been asked to pay an upfront fee before and to be quite honest it makes me quite nervous. I happily offered a Higher Rep commission rate of 17%, instead of the 12% offered in the Contract, as I do understand that we are not a Big Company and therefore the Rep will have to work harder to establish good contacts and accounts. But the Rep Company said they would prefer to stick with the 12% Commission and the $1,000.00 fee. We have been working toward acquiring a Rep for a long time and feel very Grateful that this Company is interested in Representing us. But at the same time, we are sending $2,000.00 in Samples and a $1,000.00 check. So it seems to me, that we have a lot more to lose than the Rep does. Is this normal protocol, or are we just being taken for a ride? Your words of wisdom are Greatly Appreciated! Thank you very much! Dennis T.
You are asking some very good questions. I hope I can shed some light from our experience.
Upfront fees may be required when the rep has to expend time and effort to build your market or your channel. Understand that a rep cannot afford to work speculatively for long periods, such as 6 months or longer, without any compensation. Sometimes such fees are considered as advances against future commissions.
You do state that you understand that the “rep must work harder to establish good contacts”. It is not only a matter of working harder, but also the risk taken by the rep while investing a lot of time and energy with an uncertain result.
Expenses for shows are very common; nothing unusual about that.
You should feel good about your negotiation. And you should consider the costs as investments in building your business that you have to weight against other possible investments.
what about a set-up fee/ signing bonus/ consulting fee – some kind of upfront payment in advance of and independent of commissions that will only be paid in my case up to 120 days from the beginning of the relationship. (my primary retailer pays net60, there is a 30 day period prior to placing a significant po, and 30 days elapse of making the contact, closing the manufacturer and then set-up time with the retailer.)
i am trying to get some cash upfront feel good about that. if i can’t feel good – maybe because it’s just wrong, but maybe i have emotional block to valuing myself this special effort i put in and ‘bring to the table’ as a consultant (many times i am working with startups and generously pouring an extreme amount of commerce education into each conversations.)
i would like to capture that value if appropriate, or resolve to feel good that – thats just my job and part of the vale that’s only reflected in the commission down the road – and feel good not getting that upfront payment.
what are your thoughts?
Successful reps and successful companies don’t follow the “feel good” model. The rep knows he has an established channel and buyer relationships; the company knows they have a successful product. Reps prefer the unlimited upside of the commission at the right level for residual income.
There is one really good reason for up-front fees, which in spite of what I just said is a good idea. That reason is when the product is not proven in the marketplace and the rep must do various levels of building the business from scratch. In that case, without the up-front fee the rep is taking a huge risk of a long payback period, or no pay back at all. Up-front fees, retainers, and draws and combinations thereof are completely justified when this is the case, as the manufacturers has to take most of the risk.
You should know if you can sell the product, or should be able to find out easily through your contacts. That would put you in the position of knowing whether the up-front fee is necessary, and put you in the position to convince the manufacturer of the necessity.
If on the other hand you do not have established contacts with buyers, then you are not really ready to be an independent rep, and the manufacturer should not be expected to take the risk on your ability to create a successful business.
We are a US manufacturer of construction materials and would like to appoint a regional sales agent. Can you please advise what would be an appropriate commission?
As stated previously, we can only give you rules of thumb. A general rule is 10 – 15% of invoice, but that can vary greatly depending upon volumes and industry practices.
Hi I was hoping someone could help me with a situation I am dealing with. I’ve been in the financial advising business for approx. 9 years, make good income but recently was offered an opportunity by a mortgage company with approx 4000 clients to be their specialist and work the client base. I have extensive experience in corporate finance and bring a lot to the table and the company doesn’t have a hugely recognized brand, so my sales would be earned not just easy to come by. I make approx 75k to 100k per year now but truth be told I’m self employed and I work all told about 3 months a year. I’m young and have been enjoying myself. What I’m wondering is what I should ask for as a percentage of sales. It’s financial advising and the guy looking to hire me has 100 percent profit. He’s trying to reel me in not the other way around and I’m trying to get an idea what would be reasonable to ask for as far as percentage of sales. Safe to say 50/50? Maybe a higher percentage on sales I market and bring on myself? And the ability to retain my own clients? I need some direction
So I work for this company that I feel they are way under paying me for what I do. I am literally one man show in my region. Originally offering me 10% commission of gross sale price or item sale or lease. Due to the nature of product being so unique and new it’s very difficult or time consuming to close deals. Company was paying me $1600 as base but decided to take away in 6 months. So now i’m 100% commission only. With that being said I asked for 30% on lease due to the fact after lease item gets return not much cost to company. Company literally only offer item and warehouse that’s it. Expecting me to do sales, tech support, product development, delivery, customer service i mean literally everything. And only offering me 20% commission???
My question is for the work i do “what is the proper commission for this industry?” heavy equipment rental inidustry
I believe that in your case rules of thumb and “what is proper” do not apply as well as they often do. I would look at it in the following ways:
1. Are you making an adequate living from the deal? You did not mention how much of your time was dedicated to this line.
2. Is the contribution you are making to the company adequately compensated. As you say, it appears that you are providing more than representation of the line, and are thus deserving of more compensation. Yet this is subjective and “proper compensation” is thus also subjective.
3. The removal of the base — have sales sufficient taken off to make that unnecessary?
Hi there, great article and all the comments are very helpful. I´m about to get involved in a new, small company and develop new design products as well as selling and doing the marketing for some of the already existing products. For half time, I´m offered a modest fee for every month + 5% of net sales, that is, after the VAT is taken off the price. As I understood by the comments here above, a percentage is better when it´s on the gross sales? But is this in general ok as a deal? I´m considering to ask for a higher fee in the beginning when there is no products to get a percentage of, is that a good idea? Keep in mind that we are talking about a small company in Europe, burden by the current crisis, but with potential to grow and for our cooperation to be long lasting. We are in the negotiation phase for the moment and both partners are trying to make a better deal.
The way for you to judge the deal involves a couple of steps, that only you can judge:
1. Comparison to other similar deals in the same market and industry. Is is a typical deal? Or is it “out of whack?”
2. Does the deal earn you a living? Or a “pro-rata” living? You have not mentioned how much of your time would be dedicated to this company. If it is full time, then would the compensation be adequate for your survival? If it is “half time”, would it be good enough for half of your income? Or whatever the appropriate percentage would be.
If not adequate immediately, would the long term potential compensate you for the upfront risk you are taking?
What is a fair rate for drop shipping with a big company. I am just starting out. Awesome opportunity buy not sure what to charge for commission/drop shipment rate or wholesale rate.
I take it you mean “what is a fair commission rate to you” in this situation. Our general rule of thumb is 10 – 15% of invoice.
Can you give me some advice about how to find information about employing a commission based cosmetic/skincare sales rep? We are a new company to the US and as such a learning how business is done here in the States. We are considering employing commission based cosmetic/skincare sales reps in various states but need detailed information about how to do this. Also I have been searching for information about how much commission they earn on the new account’s initial order and subsequent orders from the client. Any advice or pointers to where I can go to find the relevant information will be gratefully received.
General advice would be to read the various posts on this blog, where numerous general concepts have been presented. Also, in the comments, many people have asked questions similar to yours and you might gain insight from the discussion.
Regarding commissions, generally 10 – 15% is commonly used, depending upon volume. It is best to maintain an even commission and not lower it as you want to motivate the rep to keep selling for you, and they want a dependable residual income. They don’t work to get paid based on their effort per sale, but rather on the residual income concept. Especially if you are creating new sales channels, the reps may have large up-front investments to build the business for you, and they look to the long term for the payback. In that way, you can avoid up-front “channel builiding” fees.
Regarding further information on how to get started, there is a wealth of information available to RepHunter members. You can become a member at no cost by creating a free profile at https://www.rephunter.net/manufacturers-sales-reps-find. You can then view the page with our Training Tools. You can also search for reps for free. If you find reps that interest you, RepHunter fees are reasonable.
A rep is currently paid 15% commission on wholesale sales. For the.first time since the business was launched, the rep opens a national multi-store account. This multi-store national account requires a substantial reduction in price (21% off of the regular wholesale price) in order to close the sale. The company agrees to the reduced wholesale price. Since the company felt it needed to reduce the wholesale cost in order to close the sale, is it acceptable/customary for the rep to be paid less than their usual 15% commission? Is asking the rep to take 21% less on the value of their 15% commission on this sale a fair proposal?
In my experience when a such a deal is made, the rep often participates in the tightening of the margin. It seems fair if everyone is going into the deal willingly. The rep’s commission will already be less because of the price reduction, so that is also a factor.
What is the typical commission rate for independent manufacture rep for commercial furniture industry, specifically commercial office furniture? Does this rate or benefits provided will differ if the territory is international instead of domestic?
As you might have gathered we normally respond for most industries with a guideline of 10 – 15%, with variations depending upon volumes. However, there are some caveats to this guideline in the furniture industry. For example, if you are closer to the end of the supply chain, where you are selling to commercial businesses for their own use, the rates may be closer to 5 – 10%.
As far as international territories, we don’t have good information. We do know that the role of the sales rep can be quite difference in different areas. For example, in China, a sales rep is actually more of a distributor. To answer your question, you would have to be familiar with the business practices of the particular country. And perhaps seek membership in available business associations in your market. I am looking further into this aspect, and if anything useful turns up, I will post it here.
What is average commission for apparel industry? And, what is for transit industry products? e.g LED destination sign.
Typically commissions vary between 10 – 15%. There is not a specific guideline per industry, but you should find that range applicable. Factors that may change the range would be the following:
1. Tending to increase the commission: if the rep has to build the business, create the channel, or expect a long ramp up time. In such cases, advances on future commission, or other form of compensation might be sometimes appropriate.
2. Tending to decrease commissions: very large volumes. A very senior rep has told me that his favorite commission deal is 1% — but on annual sales into the eight digits and beyond.
Just to follow up. I offered 5% a year for three years. They were happy with that. In part, I am strengthening their business by providing their dealers with an additional service/product to sell.
Great thread. We are a manufacturer with 50% margin. A company that sells a complementary product is interested in providing us with referrals from it’s dealer network. There is a set number of dealers, more or less, to which they will introduce us. That will be the extent of their involvement. We will then make all sales, provide all support, and be responsible for all collections. Sales will be ongoing.
Before reading this thread, I had considered 5% commission for three years from the date of first sale to each new customer we receive. (Also considered a sliding scale with the commission lowering over time.)
My immediate impression is that there is nothing wrong with your plan. They are giving you valuable referrals, but you are doing the rest of the work of the rep.
I would be interested in other viewpoints, if any of our other readers might like to chime in.
Thanks very much Jas. I’m giving them two weeks to make the payment. If not received after that time, I’ll make that phone call.
BTW I am 100% indy and am incorporated and am not an employee of this group. This was an independent contract which they Breached. If you could refer me to your legal counsel Id really appreciate it. I hate to go down that road, but I refuse to let them get away with this. Thanks!
As stated in my first reply, if you have a legal issue or question, call D. Clay Taylor, P.A. at 612.904.7376.
Thank you for your answer to my questions above. Here is a recap, and the latest on the situation which is developing. I am wondering what legal recourse I have against this company:
I recently started my rep firm and took on 2 clients. One of them is another rep firm (a husband and wife combo which rep 20+ brands to the spa and hotel industry) out of Illinois, whom I signed a contract with to represent their brands on the West Coast.
Three months in to the agreement, after not receiving any commission statements or commission payments, as well as only one payment on expenses, I decided to end this agreement due to the other rep group being in Breach of contract (which they are and admitted to).
Last week, they sent me a Separation Agreement, which is slanted 100% totally in their favor and threatened to withhold my commissions and expenses owed, unless I signed that agreement.
I refuse to sign this Separation Agreement, as it is not a part of the original contract, which they are already in Breach of.
Today, they reiterated via email that they will not pay my commissions and expenses until I return all samples and sign the agreement. I have already shipped all samples back to them.
This is going down an ugly path, one which I am chalking up to a learning experience. However, they owe me between $500-1000 total (this is unclear because they have not sent commission reports for Jan. and Feb.) and I am not happy about their extortion attempt to get me to sign an exit agreement which is in their favor.
They are trying to be coy about everything in their emails, ignoring my statements that they are in breach, and I will not sign the contract.
Basically, they are like two little monkeys with their hands over their ears “hear no evil see no evil” even though they are pathetically dishonest and horrible at running their business.
Do you have any suggestions on what my next step should be, if/when they refuse to pay me if I do not sign that ridiculous “Separation Agreement”? Honestly I am shocked at their short-sighted approach to this, as its a small industry that we work in and I am pretty well respected as being an honest and up front guy. They are putting their reputation at stake, however its obvious that their hubris takes precedence. Dumb Move.
Thanks very much!
As a general comment, when people are not ethical in their business and do not conduct their business properly, it cannot lead to providing customers with value. Thus such a business is not destined for success. I suggest you obtain legal representation.
If you have a legal issue or question, call D. Clay Taylor, P.A. at 612.904.7376.
Hello, Im looking to hire a sales reps for my computer
service, being new to this field I don’t know how to come up with a starting monthly volume quota( how many leads per month) that is reasonable in my industry, also what should be their % of the gross..
Thank you in advance
Some general comments, taking your second question first:
1. Commission is usually based on invoice price. Is that what you meant by gross?
2. Commission levels are usually within a range depending upon industry and volume, and whether goods or services. Since you are a service, it might be from 20 – 25%, depending upon whether the rep will go into established lines and thus be able to get paid right away, or whether the rep has to take the risk of building the business for you.
3. Quotas can be backed into via a number of methods, taking into account the following:
– how many other lines to the reps have? For example, if they have 4 lines, then would you get getting 25% of their efforts?
– if the rep depends upon you for 25% of his income, then how many sales does that take for the rep to get adequate income?
– does that level of sales work for you?
– you have to adjust for all of the above factors: the percentage the rep works for you, the newness of the line, the total volume, whether the rep can make a living, etc.
– then you set a quota based on your philosophy of “achievable goals verses stretch goals”.
Hope this helps.
Oh… was wondering… is there some way that one meets reps from their industry in their area? I have not seen any kind of trade meetings or anything like that advertised. I’ve been searching the internet for info, it’s how I found you. Thanks again.
Sometimes it is hard to meet with reps, because they view each other as competitors. So if you are in the same business, it might be tough.
Some things that you can try:
(1) ask the company for names of other reps they have used, with the idea of seeing if you can gain any tips for working their line;
(2) look for trade groups; sometimes there are well-established groups;
(3) join a rep association and network with reps who are members with the goal of eventually getting in contact with reps in your industry. One such group is MANA (Manufacturers’ Agents National Association) at manaonline.org;
(4) join the Manufacturer Reps group at Linkedin and post some questions.
Jas, Thank for taking the time to answer me. I have no idea what the sales potential is as I’ve never worked in this industry. I’ve don’t lots of sales but not lighting and no, don’t have any non-competing lines I can sell… yet. Initially I work from the company office, too.
So, I guess I have to figure out how to handle this. Thanks again.
I am new to being a rep. I just met with someone in the wholesale lighting business. Wants me to call on suppliers, he will supply the leads. I don’t know how good the leads are but it’s a risk and I can always prospect on my own. He will pay me $400 a week to start plus 3% commission on every sale. When I get going, he says around $66K a month gross, I should go on all commission of 6% of sales, no draw or pay. He said this commission is far higher than the industry standard. Well, I know how people like to tell you how they are over paying you so am wondering if he is being honest about this rate being normal for this industry or is it very low? Thanks.
There are two ways to look at this: (1) typical commissions in your industry; (2) can you make a living.
As you might have noticed by reading other questions and answers, we usually give a guideline of 10 – 15% commission in your industry. Therefore, the 6% rate is too low. You should try to network with other reps in your area and industry to see which number is more realistic.
On the other hand, depending on volumes, you might find that 6% is wonderful. For example, if you can ramp up to $100k sales per month, and then to $200k, you might be very happy with that rate, and it would be fair in that case.
Can you make a living? Do you have other non-competing lines you can also sell at the same time? Consider those aspects.
Hello Everyone. Ive been in sales for almost 20 years, but am new to being an independent and recently incorporated. I work with 2 companies currently: One is a skin care line which Ive been with for 2 years, previously on salary but now am independent with. They have always paid me on time.
The other group is a distributor who rep multiple lines and I along with another are their first two reps that work for them. The % rate is spelled out in the contract, however 2 months in, there are no sales reports that have been sent to me, and no expense checks have been sent (I get a small monthly travel stipend).
My question is, how do I make sure that this distributor pays me, and pays me fairly when customers send POs directly to them and often I dont see the POs or know about them? Is there a legal right that I have to open audits of their books? Thanks very much.
It’s a good thing that you have a contract, as the legal rights are easier to enforce with a written agreement. You should keep some kind of notes on any sales that you do find out about, so you can tie them to what you get paid. I could refer you to a lawyer who specializes in representing independent rpes if you would like.
I work in California. My company never offered a commission plan. I have asked for one, every week (sometimes twice) for 4 months. When I was hired I was told I would receive 20% of net. I am used to retail sales and being paid roughly 5% of invoice cost. But I sale goods and services that have high margins and was confident in my ability to pay back my draw of $500 a week. I have closed 6 deals so far and have yet to see a commission report. Last week my boss buckled and gave me a piece of paper that was called a Commission Structure. It said I was to be paid 5% of hard cost. I capped out at 9% if I sold more then 190k per month.
1. Is there anything I can do about my company violating A.B. 1396? (Cali labor code re: commission contract needing to compute commission rate. Also needing it to be signed) It is not dated. It has no place for a signature. I could type it up in word in 4 minutes.
2. What do I do to ask for commission reports? I closed a deal a month in and asked for the report. I wanted to see how much I cut into draw and see how my margin was. I was told it was not available. This kept happening.
3. This entire time I kept my own records and roughed my margin. I can enter product into our program and see cost. Labor is a big portion of my tickets but I do not know the margin on that. I just closed a deal for 212k It has 58k of labor in the deal. The company then presented this “commission structure: form. The highest rate is 160k per month 9% plus bonus. The line item does not say of “hard cost” and the “bonus” is not defined.
I love sales. But I am crushed as a person. I have always been your standard retail sales top writer. You know, the furniture guy in the million dollar writing club earning 65k per year. Happy, but always aware of the wall. This job was a challenge and in an industry that I love and am passionate about. I knew this big sale (for me, it is HUGE) would give me a nice cushion at the 20% of margin. The product I sale has avg. margins of 60%, some items up to 67%.
I am lost. Not sure if you can help. This all happened recently and the client keeps adding more items and services and is a great person. Despite what my company has done, I still need to help him. I know I now am upside down in draw, just want to know if anything I can do in the future.
If you were a 100% commissioned, independent rep such behavior could never happen. Any rep would bolt and not take such behavior as it would amount to theft of the reps services. And I could refer you to a lawyer that works with independent reps.
As you are an employee, none of the above applies. It is rather a dispute you are having with an employer. It could also be a situation that you have grounds for breach of contract, and thus legal advice should be sought.
The hard part is that even though there is apparent abuse, you feel stuck because as you say there is such a good upside if you could only resolve these issues. Short of the legal counsel route, this does fall outside of our usual realm.
Great info. My question is about commission and renewal/residual rates for service-based products. Yes, I’ve read the responses in this thread repeating that the average is 10-15% of invoice. Your original post states that the commission rate for service-based products tends to be larger than those with a manufacturing expense. Would that increase the range to 15-20% of invoice or possibly higher? This is for a new marketing solutions business with $175K in sales looking to more than double in the next year.
Based on that answer, how would you advise to compensate for residuals? Start with same % and decrease over time? Cut % in half? I’d really appreciate your advice on this. Thank you.
Thanks for mentioning that you have taken note of the general discussion in this thread. Your 15-20% is very reasonable, and 20% is not too high. More important though is how much effort the rep has to put in up front to build your business before showing any revenue at all. If sales will take off right away, that is one thing. But if it looks like a speculative 6 months or so with no income to the rep, you might have to offer a sweetener, such as a draw or higher rate.
I am a retailer who has inadvertently gotten involved with a commission issue between our local rep and the company he represents. The issue is that while we ordered with our rep initially, we no longer do – he shows at a market I do not regularly attend, and he does not generally contact us to make an out-of-market appointment to view the product line until just before the order deadline. This time around, he called saying he got the samples too late to drive down to show us, and in order to make order deadlines, we need to see the product at a market I am attending out of state.
Our local rep is requesting that we view the product line at the market, not order with the rep there, and email him our order instead so he could place it. I checked with the company, and was informed that if I order with the rep at the market, 50% of the commission still goes to our local rep, while the other half goes to the rep at the market. This seems reasonable to me, as the market rep is making himself available to us when and where we need him, whereas our local rep couldn’t show us the product before the deadline (whether it was his fault or not that he couldn’t). The company assured me that the 50/50 split if another rep writes the order is standard, but I can’t find any other avenue than this site to find out if that is true (I asked a few reps, but they all have protected territories so it doesn’t matter where I write the order). I do not think it should fall to me to maneuver my order to give our local rep the full amount, but I am unsure. Is our rep just trying to squeeze out more commission, or are we failing him by ordering with someone else?
My impression of the the situation is that the commission arrangements are really up to the relationship that the company and the reps, and that you are not directly involved. In particular, there are contractual relationships that the company maintains with its reps as to how they handle exclusive territories.
It is commendable that you are concerned about the rep’s welfare, but my take is that you just have to go by what the company is telling you. Being concerned for the rep, while at the same time questioning the situation does show that you are trying to follow the upper path.
I sold a contract for three years for $1,980,000 That calculates to $55,000 per month. My commission is 75% of the monthly contract base which is 41,250. My question is should I get commission for each year?
If I understand your question correctly, it appears that if the total contract were fulfilled, you would get 41,250 on 1,980,000. that works out to a 2% commission, which would be the minimum commission on the deal. At the other extreme, if the contract only lasted one month, you would have a 75% commission. Assuming that in reality, then length of the contract goes somewhere in between these extremes, as you did not indicate the probabilities, you have a commission that really varies between broad extremes.
But on the other hand, your commission is totally upfront, and if you think of the effect of discounting the cash flow, you are even more favored.
I don’t know about what you “should” get — but thinking rationally, I would look at it as what are the likelihood of the contract going to different time periods, and then decide if that is adequate compensation for you. You did not indicate how many of such contacts you sell in a year, or whether you have other business. After taking the total commissions from all your work into account, you may decide that you are being paid properly for that work. And if you feel you are not being compensated enough, such an analysis could be useful in your negotiations.
How much % should be a commission for a person who sells medical devices ? The sale price of the device will be about $40 per device. It will be a wholesale price. It will be sold to distributors.
What should be my base salary on top of that?
Many thanks for your help.
It is impossible for someone to say in the abstract as to what your salary should be. We generally give guidelines based on market generalities, and common practices. Generally commissions are in the 10 – 15% of invoiced price. Factors which may change the guideline are volume, how well established the company is and the line is, and whether you have to create a marketplace and whether you are giving other value added services.
HI I am owner of a TRAVEL related industry providing HOTEL ACCOMMODATIONS for diplomatic delegations nationwide.i have been in this business for the last three years.lately i am planning to become a TRAVEL AGENT as well(TICKETING).i have been working from the office in my basement so far.i plan to expand the business by hiring a couple of SALES ASSOSCIATES on commission only basis working from their homes till i rent an office location.since this is a COMMISSION ONLY income for my business.WHAT would be a reasonable commission split for the newly hired sales rep for the revenue they bring into the business.PLEASE ADVISE.!!
Our usual guidance is 10 – 15% of total sales value as a commission. It is not clear if you as a travel agent are receiving a commission, which you would then have to split. If so, then you might consider a 70-30, 60-40, or 50-50 split of the commission.
Put yourself in their shoes — will they be able to earn enough at a given rate to make a living? If not you might have to pay a higher rate while they are getting up to speed.
Another way to look at it is “who will assume the risk during the learning curve phase”. If it is a good risk, then you might be willing to carry them to a greater degree during this period.
Yes, I agree. Thank you.
I hope I am not a paranoid, but I can acquire this kind of trust only toward close people that I know for many years. I like the idea that a sales rep receives purchase orders directly from customers, and then forwards them to the supplier. So the supplier receives POs from the sales rep who can keep in this way a perfect track of all sales made through him. This seems to me to be the most comfortable way of having things under control. But some suppliers seem not to like this.
Kostas, you are not paranoid. But any “making sure” can be circumvented. So if you put something in place, it might give you a false sense of security. For example, how do you “make sure” that some purchase orders do not come through you?
You do need to be comfortable, but so does everyone you are dealing with. A long-term, highly profitable relationship is built on integrity and performance from all sides. If you are going to create a valuable income stream to the supplier, then you are worthy of being treated properly and with respect by that supplier. This does not mean that you will be however, so some safeguards can be justified.
So please go ahead an try to do what makes you comfortable. Just realize that it is not a guarantee.