How To Determine Commission Structure For Independent Sales Reps

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How To Determine Commission Structure For Independent Sales Reps

The commissions you offer to sales reps will determine the skills and talents you’ll attract in your sales team. Offering the best commission rate will attract the best sales reps to join your team and they’ll also help your business grow faster.

You can’t find a good sales rep who will settle for low commissions even if it’s a low cost product. There are different commission plans and it’s up to you to decide on the one that suit your budget and business best. Let’s take a look at these plans;

Types Of Commission Plans For Independent Sales Reps

Low Commission And High Salary

Some independent sales reps require that you design a high paying salary for them plus commission from each sale, most are happy with this type of payment plan. This payment plan is ideal for products with high profit margin.

Individual Sales Commission

The sales reps who are ok with this payment plan are very good at closing and they’re willing to be compensated on a pay per sale basis, they’re confident they can deliver results. This payment structure is also very safe for business because they don’t have much to lose since they’re only paying based on sales generated. The downside is that you should expect to pay higher commissions to your sales reps.

Share Of Profit Margin

With this payment plan you’re not paying sales reps salary and no fixed commission for every sale generated. Instead you’ll pay them based on overall profit generated, sales reps will receive certain percentage of the profit after all expenses are removed.

Target Payment

Here you’ll set target for your sales reps and you’ll only pay when certain target is met based on the agreement and the amount for reaching target. This is mostly done by larger organization, small independent sales reps can hardly accept to work on these terms, it’s for larger organizations that can take more risk and have a lot of distribution within their network.

You Can Negotiate Any Plan With Your Sales Reps

The commission plans we’ve mentioned above are just some of the popular commission plans offered by companies and sales managers, you can negotiate whatever plan you have with your sales reps, it all comes down to what you’ve agreed upon and it’s important to sign an agreement that contain all the terms and conditions of the venture.

What’s The Standard Commission Percentage For Sales Reps?

For manufactured products it’s from 7%-15% and for gross margin (product price minus expenses) it’s 20%-40%. This is just the typical rate you can use to set your own commission rate, but you need to understand that no one will work below the average market rate, so you want to set your commission rate wisely in a way that you’ll attract highly qualified sales reps working for your company.

Important Questions To Ask Yourself Before Designing Your Sales Commission

Before deciding on the commission rate you need to consider a lot of factors and here are some of the important ones;

What Tasks Your Sales Are Going To Be Doing?

Some companies hire independent sales reps to generate leads and another team to close the deal, most companies though prefer the same person to get the lead and close the sale because they understand the lead better than when assigning a different sales rep. If you believed there is a lot of task involved and your product is difficult to sell due to competition, you have to offer higher commissions, most sales rep will leave the contract when they realize there is a lot of work involved and compensation should be higher.

Is Your Product Or Service One Time Sale Or Recurring Sale

Even if your sales rep asks for higher sales commissions there is no need to worry since you’ll have repeated business with customer and they don’t need to be sold again. But in order to attract the best sales reps you can as well offer recurring commissions to them, this way they’ll make sure they always close the deal since they’ll be receiving multiple commissions from the same customer.

There are a lot of questions to ask, you should consider every possible factor that affect the price of your product before offering commissions, and in the end your goal is to increase business revenue.

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