Determining Commissions for Independent Sales Reps

One of the most common questions involved with the hiring of independent sales reps relates to compensation. “How do we pay our manufacturer’s reps?” Fortunately, while there is no standard flat rate or easy answer, there is a very important guideline to keep in mind:
Nothing motivates sales better than an attractive commission schedule.

A commission-only position is the best way to pay sales reps, with the best method being a straight percentage of the sales price. While there are a few different ways to handle this, most sales reps tend to prefer a straight percentage based on the sales price.

If there are no fixed prices involved, a company might decide to go with a percentage of gross margin. It is worth pointing out, obvious as it is, that independent sales reps are in fact independent. They don’t work for your company, and don’t have much stake in what price a product sells for. If they have the flexibility to negotiate the final sales price, it makes sense to base commission on the gross margin, both to encourage your reps to try and sell higher, and also to prevent them from selling to low simply to close a sale. This is a way of providing your independent sales reps with a further level of investment in the well-being of your company and your products while maintaining them as independent.

With any sales rep you should enter into a marketing agreement which, among other things, should clearly define the commissions to be paid to the sales rep to eliminate disputes and hard feelings.

Depending on the industry, commission ranges can vary wildly. Other things that can influence commission include:

  • 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.

In general, most manufactured products prompt a commission rate of anywhere from 7 to 15 percent. For percentage of gross margin, (sales price minus direct expenses) a standard range is anywhere from 20 to 40 percent. In the interest of increasing the incentive, often a principal will include a sliding scale based on the volume of business that is generated by any given sales rep. You will want to be careful to factor in support services. If additional business necessitates additional support services or inventory, that can play 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 percent. You’ll want to be very careful in these instances, as this can have a significant impact on your business! For service based products, reps can sometimes be under the impression that as there are no manufacturing costs, there is very low overhead. You need to make sure that you factor time expenditures into your commission schedule such that your business has a good return on its 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. You should also define 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.


263 Responses to “Determining Commissions for Independent Sales Reps”

  1. John Farr says:

    We currently work with distributors, but will be working on a commission basis only for our military sales. My question is: do independent reps specializing in military sales receive a a commission rate that is different or based on different criteria than a commercial sales rep?

    Thanks for any input.

  2. jas says:

    We at RepHunter do not have any knowledge of special commissions in military or public sectors. Our suggestion is that you contact reps who work in those sectors to find out.

    I hope this helps!

  3. Martha says:

    Who pays the credit card processing fee when a independent rep receives payment for a wholesale order by credit card?

    Should the fee be split based on the reps sales commission – i.e- if they make 15% commission on the order than they pay 15% of the fee; or should the entire amount be deducted from the commission?

  4. jas says:

    We have asked around a bit and the consensus is that such situations need to be negotiated as part of the agreement between the principal and the rep, and should be covered by the Sales Representation Agreement. Normally such fees would be paid by the principal as a cost of doing business, as the principal would be receiving the payments. And likewise, the rep is not normally part of the “channel”, as the rep does not take possession or title to goods. Otherwise, this would be more of a distributor role rather than a rep role.

    However, your case is not this typical situation. Taking the typical credit card fee of 3 – 4% and expecting the rep to pick up that cost is only fair in the context of the entire Sales Representation Agreement. For example, a higher commission would be justified relative to the industry if it is not common practice in that industry to have the rep pick up this cost.

  5. Paul says:

    We currently define exclusivity as any sale coming from a given reps geographic territory (submitted through the rep’s office or directly from the end customer, “sometimes without the rep’s knowledge”, into the company)as commissionable. Is this common or are commissions typically paid only on those sales channeled through the rep’s office indicating direct contact from the rep?

  6. jas says:

    From our team member Matt:

    I would answer yes. In fact, it is the Holy Grail. Sales reps have to make a living and need to be paid and should be paid regardless of if the sale goes through their office or not. And companies should be happy to pay that commission.

    Sales reps earn their money not when the sales are good but when they are bad. In other words, if that customer decides to stop buying, that is when companies pay sales reps less but the sales rep has to do more work.

    So, yes. If this account is in the sales rep’s territory the rep should be paid for ALL sales.

  7. Paul says:

    Considering your previous answer, we suspect that we have some reps who are collecting easy money by collecting commissions only because the end customer resides in their geographic territory on sales they have had no knowledge of or direct contact with. Is it those reps whom we make non-exclusive to avoid this situation?

  8. Tommy says:

    The percentage of the rep agencies that “just collect money” compared to the ones that actually do their job to earn the money is, to me, irrelevant.
    As a principal you’re going to give away money for free once, probably twice, then if you’re on top of your rep agents, you know who’s working and who’s collecting money.

  9. jas says:

    From our team member Matt, in response to Paul of 14-Oct-11:

    You have to consider your motive and “easy money” is only a term used by those that have never been an independent sales rep. It seems to me that you would be better served to inform the sales rep that you have a new customer in their territory and require that they contact and service them rather then keep the rep’s commission for yourself. I assure you that the money you keep rather then pay the sales rep will not offset the cost of failure or loss of your sales reps in that territory.

  10. Anna says:

    I am going to take on a new role reaching out to sell a sports performance consumer product to sports organizations. I’ll be starting from scratch. My job includes sourcing the contacts, introducing the product, and introducing price. Should I ask for a percentage of the sales and if so, what number?
    Thanks,
    Anna

  11. jas says:

    From Brenda at RepHunter: “Most reps on our database receive a commission between 5-15%, however, since we deal with every market available – it is best if you communicate with other reps in your industry to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the principal/manufacturer, but also to yourself.”

  12. Tricia says:

    What about base, if you pay base, shouldn’t commission structure be lowered?

  13. What is a good range of commissions to pay for someone to source us databases for our specific needs?

  14. jas says:

    Our main website at http://www.SalesRepHunter.com is dedicated to helping principals find independent sales reps who sell products for them, and for independent reps to find new lines to represent. Your inquiry seems to be more of the opposite in that you are looking for someone to help you buy a product or service. In our business model, the seller pays the commission. Your question makes it sound like you are the buyer and you are wondering what commission you might pay an agent to help you buy.

    So one answer might be “you would not pay for this service at all — rather the seller of the database would pay the commission.”

    However, that might not meet your needs and you are in effect asking for a service from someone who would provide consulting or research to you in finding the databases you are seeking. As such, you would be looking for a consultant, and the fees paid to a consultant (not commission which is paid by the seller) is a bit outside the scope of our business model.

    Having said that, when you are considering the commissions that principals pay to independent reps to represent their product, the range is usually somewhere between 5% and 20%. It is always best to ask the potential reps what commissions they expect in their industry.

  15. Dale O'Chap says:

    Does anyone have any experience and recommendations on what commission rate is reasonable for a Representative in Taiwan that will be selling a patented process where revenue will only be generated by license agreements?

  16. Ana Maria says:

    Hello, I have a question in regards to commission pay, hopefully some one can answer for me. As a manufactures representative, in where the products are custom and made to order, Is the commission rate payed 100% when the sale is made or can the commission be split. For example. If a sale for custom product is a total of X and when the order is received we the manufacturer receives a deposit of 50% of X is the rep in titled to receive 100% of their rate then or 50% of the rate and the balance or the other 50% of the rate once the product has been delivered and paid for. Also what happens if an order is not paid in full does that affect the commission of the rep or are we still obligated to pay the full commission.

    Thanks!

  17. Rick says:

    I currently work as food service rep in the northeast. Since I am in and out of restaurants, and markets, there is ample opportunity to sell cross over items that my company does NOT engage in. In this case fresh fish. I have a contact who owns a wholesale fish company has been after me to help him with sales. My question therefore is what would be a fair structure of compensation for any sales I bring in for his company?

  18. jas says:

    From Matt to Rick:

    We don’t have specific information about the usual commissions of your industry. In our “Tips for Working With Reps” at http://www.RepHunter.net we state that you should determine that commission amount by communication with others in your industry.

    Now in this case, I would think the commissions you currently get would be a good indicator of what you can expect from the next party.

  19. jas says:

    From Matt to Ana Maria:

    While it would be customary to pay the rep net 30 after payment in full is received, it would also not be unreasonable, depending upon your relationship with the rep, to consider and negotiate “progress commission payments”, to keep the rep’s good will.

    In the case of an order that is not paid in full, the obligation would be as stated in your Representation Agreement as pertains to such cases. Again, depending upon your agreement, you may have specified that the commission or a portion thereof on defaulted contracts is refundable from the rep back to you, and could be deducted against future commission payments.

  20. sue says:

    I am trying to create a job as independent sales rep for an upscale candy manufacturer who has always done everything himself. I have found and sold a first customer (small candy shops and food markets, no chains) and have sold him on the idea. However, he has asked me what fee/commission/territory I had in mind. And I am stumped. Not knowing anyone in the business I was hoping someone could help me with this.
    what would be reasonable?

  21. jas says:

    Sue – thank you for your inquiry.

    Unfortunately we are not able to accurately answer your question. That is because commissions are determined by variables that include only you and the company that you represent. It always comes down to doing what is best for both parties.

    I think that you need to be honest and start with a number that works for you. If that number is too high, you will find common ground.

    Having said all that, it is very common for commissions to be in the 10%-15% range; again depending upon what is customary in your market segment.

  22. Justin says:

    Can an independent sales sue a manufacturer if they take away a product line that they’ve greatly increased the sales for in their territory?

  23. jas says:

    I believe what you mean is “is it a good idea to sue ….” Anybody can try sue anybody for anything. Whether they will be able to successfully prosecute the case is totally different from “can you do it.”

    I would suggest that you obtain legal advice as to whether you have a case. It will probably depend upon the wording of the written Sales Representation Agreement that you have with the manufacturer (you do have one, don’t you?)

    So the first thing to do is to read your contract to see if there specific language dealing with the particulars of your situation. If you have some kind of protection, then you have a stronger case. But only legal counsel can advise you as to whether they believe your protection is strong enough, whether spelled out in your contract or implied.

    Another avenue is to get the input of others on this topic, as you are attempting to do here in the RepHunter blog. Others may have experience in a similar, specific case.

    In order to get your question more widely disseminated, I recommend that you join Linkedin, become a member of the Manufacturer Reps group, and post your question there. You should get some response there.

    Hope this helps!

  24. Mary says:

    I work as a sales rep for an entertainment company and he pays me on the net of what I bring in. If I sell a show for $300 and we pay the performer $150 I get 20% of the profits or $30. I have always been paid on the amount sold. In reality, I am paying for his cost of doing business. What should I do. I am a 1099 contractor.

  25. jas says:

    From Matt to Mary:

    “It is always best to derive the commission amount from the “gross” of the sale. Doing this is simply much cleaner for both parties in terms of verification. When you derive commissions based of the “net” it gets convoluted and is derived using variables like expenses and other information the sales rep is not privy to.

    I don’t believe it is unreasonable for you to contact this company and request that your commission percentage be adjusted so it can be based on the “gross” sale amount.”

  26. MHK says:

    I am currently considering a position as an independent rep servicing the banking sector. The company that I am talking to requires an up front setup fee and an ongoing monthly fee from their reps. The set up fee is refunded on the first sale but the ongoing fees continue. Although I have a lot of experience in this industry I am unfamiliar with sales rep structures. This arrangement hit me as quite odd…it almost seems like a franchise or a pyramid type setup. The monthly fees are not that large in comparison with the commission potentials so it doesn’t make much sense to me. Is this arrangement something you are familiar with?

  27. jas says:

    @cblass6155: No it is not something we are familiar with. We can understand the one-time fee to make sure sales reps are committed to the program. Beyond that, we are not familiar with companies requiring on going payments, unless there was some specific service that they provided you that made sense for you to purchase.

    We suggest you inquire further. They may have their reasoning that gives you a better understanding of their intent.

  28. Taru Fisher says:

    We are a small Mom & Pop fitness studio providing private, 1-on-1 strength training sold to new clients in 10 session packages. We have built our business on referral based marketing, but now feel the need to have an outside commissioned sales reps bring in clients. We expect to close the sale ourselves, no “exclusive” territories will exist and we are thinking of paying a flat amount of $100 to the Sales Rep for each client who purchases a 10-session package. Does this even look reasonable? As you can tell, we are total newbies to this!

  29. Demisophia says:

    I am starting a wholesale garment production business and i’m at a loss as to what to pay my sales reps. What is the fair percentage should i pay?
    Pls i need help urgently!

  30. Steve says:

    We have a relationship with a former employee of one of the largest retailers who is now starting his own consulting business. This person believes that he can get our company’s products in two or three other national retailers. This person wants an hourly rate for design and packaging consultation, but would like to be paid a percent of the gross sales for any new national accounts he may be able to get us into for a period of three years. What would be an appropriate range for the commission percentage to be?

  31. jas says:

    From Matt:

    – 90% of all commissions paid to reps are between 5% and 20% based on gross sale amount.
    – Commissions differ with each industry.
    – The best way to establish your commission amount is through conversations with interested reps in your industry.

  32. chuck says:

    I am manufaturing rep. for a Precision sheet metal stamping, product development and Short Run company. We are currently in commission negotiations. As far as I know there is not an industry standard for commission. Is there a guide line or range of percentages in the Precision Metal Stamping industry for rep. commissions? I will have no salary stictly 100% commissions.

    Thanx Much
    chuck

  33. clara says:

    I am considering a position as a sales rep for a reputable website selling advertising. No salary. 10% commission–they the money and they provide me the leads. All phone sales. This would be my first sales position and I am wondering what kinds of questions to ask about the company. I can sell almost anything. I trust the company. I am considering working 10-15 hours from home. I would leave my current positions (self-employed) to give this a try.

    Questions to ask?

    Do I have any negotiating power?

    Thanks,
    C

  34. jas says:

    From Brenda: My thoughts …

    Why leave current part time position for an unknown. At 10-15 hours, they should be able to do both?
    Negotiating power? What are you bringing to their table? Do you have sales awards? Met & exceeded a company’s goals? Developed a new territory & can show the results of that?

    How are the leads generated? Are the leads inquiring to the company, or are they a demographic lead that the company generated?

  35. hanadi says:

    We’re starting an automation company and have a couple of independant sales rep joining efforts wirth us. As a CEO of the company I am confused about determining their commission. Even though it’s a service-based company and their responsibilities will stop at lurring clients into buying our solution but my husband will be doing free demo, do technical presentation and close the deal. Does anyone have experience with software companies’ incentives?

  36. jas says:

    While we do not have specific expertise with how software companies structure their incentives, we believe you will find some guidance in our Training Tools at RepHunter at http://www.rephunter.net.

    To access our Training Tools, you would have to create a profile, which is free to you, and then go to our Training Page.

    I hope this helps!

  37. kathleen says:

    I am having difficulty collecting my commission for sales I made for the last 30 days . I have worked for this company for the last 4 years and had my best month ever this last month. I quit my job and now they are refusing to pay for sales that have been fulfilled and customers have been invoiced.

    Any ideas how I should approach this or what my legal rights are?

  38. jas says:

    My first question would be “were you an employee or an independent rep when the sales were made?”

    Depending upon the answer to that question, your rights would either derive from your employment contract if any or employment policies of your company. If you are independent, then your rights would be governed by your Sales Representation Agreement.

    Depending upon which type of contractual relationship you have, you could inform the company that you will take the action specified in your agreement. You might be out of luck if you were an employee with no employment contract.

    In either case, you might be best served by legal representation. To cut your costs, I would suggest joining one of those membership organizations offered by some law firms. For a low monthly fee you would have the benefit of legal representation. You could search the web for “Pre Paid Legal Plans.” I have used a firm with good results which was formerly called “Pre-Paid Legal”, but has changed their name to “Legal Shield.”

    I hope this helps.

  39. Debra says:

    I am interviewing for a manufacturer’s rep position that is all commission with a monthly guarantee base against commission. The territory is already well established and I am taking over where someone is leaving. I would be handling around 40 different lines for the personal care/home decor business. Very successful lines-high end territory. What is a fair percentage to expect in negotiations? This should pan out to be around 80K to 90K annually.
    I will be an employee with limited benefits-medical only.

    Thank you.

  40. jas says:

    With an employment situation the normal commissions for an independent rep (which we normally deal with) would not apply. Thus you would have to look at the total compensation package and come up with something that is fair and rewards your specific talents.

    I would hope that some of our other readers might chime in on this one.

  41. Nancie says:

    After being in business for 30 years we are selling our cabinet company and the equipment. We would like to know what the standard commision is for someone who sells our high end equipment.

  42. jas says:

    I would think it depends on how closely your sale comes to a liquidation as opposed to a normal selling channel. Commissions for a liquidation might not be comparable to what we are familiar with in the Independent Sales Rep channel, as it is a completely different animal.

  43. Jack says:

    Hi, Thanks for taking a moment.
    I’m contemplating getting involved with a company that is offering 20% commission + 15% of every first month of orders for each store (wholesale). This is for a food product, to be distributed in grocery stores & health stores.
    Sounded very high to me, so I’m a bit concerned… To good to be true maybe…?
    Thoughts?
    Thnx,
    J

  44. jas says:

    @Jack – It is hard to know if this is too good to be true. I would recommend trying to contact other reps that have worked for the company to get a feel for the legitimacy of the offer.

  45. jas says:

    Of that budget, how much would be your part of the sale? I would check with established reps in your industry, as to what typical commission rates are as we do not have expertise in this industry.

  46. Azza says:

    Hi
    I will be selling temporary grandstand seating/stadiums on commission only.
    What commission rate do you think would be reasonable?

  47. Dan says:

    I too am trying to figure out what to offer a sales rep. We are a new business and have an excellent gross margin, so I belive we can be flexible.

    Reading over all the responses, I realize there is no set guideline or scale as every industry and case is different. That being said, I think I am leaning towards a percentage of gross margin.

    My question is the following- If the rep is determining the wholesale price to sell to the retailer, how would I provide the marketing materials without an established price? Should I just leave the pricing details blank and let the rep fill it out?

    Lastly, when should rep be paid? According to my understanding, a P.O. is considered filled once product leaves our warehouse, so is the rep paid then? Or when the funds clear our account? Any help is appreciated. Thx

  48. Rebecca says:

    Our company sells software as a service solutions to the oil and gas and medical industry. A person who has been a national account sales manager in the oil and gas industry would like to work for us commission only and leverage her contacts. A typical sale is $35,000 first year and $20,000 annual recurring. The cost of good is 20%.
    She see an opportunity to build a base of customer accounts and manage them and be paid commission for the annual recurring each year in addition to the upfront sale. Do you have any ideas for commission structure in Cloud solution sales of this nature?
    The incentive for her to go commission only (reseller) is the cumulative annual commissions and no limits.
    Do you have any suggestions?

  49. jas says:

    To Azza:

    Most reps on our database receive a commission between 5-15%, however, since we deal with every market available – it is best if you communicate with other reps in your industry to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the principal/manufacturer, but also to yourself.

  50. Tom says:

    I have a manufactures rep who wants 10% plus a 5k marketing fee. Is this common?

  51. jas says:

    From Brenda to Dan:

    I would consider any marketing materials to be the cost of the manufacturer. Unless the rep is ordering an enormous quantity of them & one believes that the rep might be damaging them by leaving them in their trunk or a similar location that they might get ruined.

    When should a rep be paid?

    The steps I advise to manufacturer is the following: 1. Rep gives you a P.O. 2. You fulfill that P.O 3. You receive payment in full from the company 4. On a set date in your contract, say any order that has been paid in full by the 30th, will be paid the complete commission on the 15th of the following month.

    This limits the # of checks you as a company need to write.
    Makes it easier for everybody to do book keeping & reconciliation
    Limits the number of charge backs that might occur
    Everybody knows expectations.

  52. jas says:

    To Tom:

    With an established business such marketing fees would not be common. However it is common in the case when a new company or new product line is being introduced, as the rep may incur substantial out-of-pocket cost to create the demand or build the channel. In particular, it could also be six months or more before the rep starts getting paid, depending upon the industry. So you can see that it is not reasonable to expect the rep to work hard for you for six months to a year without compensation, while in effect he is creating your business for you.

    My suggestion is to shop around to see if you can find other reps who will take your line with no fees. If not, then that establishes the case that there are just too many up-front costs for the rep and that you are making an investment in your future sales capability.

  53. Susanne Alberto says:

    I am an independent sales rep for a sports nutrition start-up, with only one product. I will have been repping this company for 5 years in March. Currently, I only receive 5% on inventory shipped from our distributor to stores in my territory that I personally detail, and 17% on direct accounts. I have been told that it is not customary to give me a percentage on everything being shipped to my territory. Is this common practice?!

  54. jas says:

    From Matt:

    Here is my take:

    I am not sure what is customary but if I were advising the company shipping the product, I would build that territory with this in mind. Paying the sales rep on everything that is shipped into the territory is a good idea. However, these payments should be used as an incentive program and certainly not an entitlement. So in this case, if the sales rep believes that he has earned this additional income buy working and succeeding in the territory, then yes he should request it. I don’t say that he should request it because it is “customary” but rather because he deserves it.

    On the company’s side, they should “want” to pay the rep for all products shipped into the territory. then they have a local presence in the territory to insure that “all products” arrive the satisfaction of the customers and get repeat business.

    So, both sides should want the rep to be paid for all products shipped but not as an entitlement, but rather as an incentive plan that has been rewarded.

  55. Susanne Alberto says:

    Thanks for the reply, Matt. Here’s the environment that I forgot to illustrate. Our distributor will not inform us of any stores in my territory that have ordered our product. So, I have to ferret them out on my own, and then I can request a movement report on the stores that I am aware of and, therefore, detail. In addition, we experience OOS issues constantly. So, when I am prospecting an account and doing demos, and customers like the product, they either go online or go to one of the chains that carry the product (which I get NO commission on, because the chains will not give us a breakdown per territory). So … rather than just plain selling the product, it’s almost like I’m competing with my own company. This is why I was wondering as to whether or not just getting paid to what is shipped to my territory is customary and should I be entitled to it. BTW, we do NO advertising and very little marketing.

  56. Susan says:

    By the way, I just reviewed your comments to Tommy on/after Oct 12th – how does my situation differ from his? I get the feeling that the owner of my company doesn’t want to pay me for anything that I have nothing to do with. Meanwhile, this is what I do for him: source databases, prospect, close, help set up displays (in some stores that need help), continuously train owners & staff (a decent amount of knowledge of human physiology is required), place orders (on direct accounts), constantly promote on social media, constantly combat claims made by competitors. I am definitely not sitting around.

  57. jas says:

    @Susan: I am not sure which “comment to Tommy” you mean. Could you please give me some of the content, so can pin down the exact response?

  58. jas says:

    @Susanne – I have forwarded your additional illustration to Matt. But let me just put in my own two cents. Before doing so, you must understand that we are not qualified to give you legal advice, and we are not doing so.

    We believe that it is good business for all concerned to arrange so the rep gets paid for all accounts in her territory, and have given good reasons in previous posts. However being “entitled” to payment goes a bit further. As if it is a contractual violation not to give it. Your sales representation agreement is what actually controls what you are entitled to; thus we also strongly believe that you always should have such an agreement. In that agreement, such special deals can be worked out that may not be the usual conditions.

    So, we believe it “should be” good business; but not all businesses practice “good business.”

  59. Uschi says:

    I am a fashion designer that works closely with various buyers to develop/ design lines. Now I am exiting my current company as a full time employer and starting to work freelance on a few projects for the same company.
    My question is how much commission I should ask for. I have been handling these accounts for several years, and I drive the sales. Overall yearly sales on these projects are around $ 4,5 million. This is all for off-price retailers, so margins are around 10-20% only.
    One of the project’s I and designing if for a new line. First season just shipped and we are currently working on the next. Now this brand is at the beginning, so I believe I am a crucial part in the look of this brand. How much commission or compensation can I ask for that? The sales here for the whole first season where $1,5million.
    So, what is the appropriate amount of compensation to ask for?
    And how would you structure the payment since it takes about 3 months for production?

  60. jas says:

    @Uschi: your question is for a specific situation in a particular industry. For many such situations we have no special insight but can respond with general rules of thumb, which probably do not fit your specific situation.

    Our “rules of thumb” are as follows:

    • 90% of all commissions paid to reps are between 5% and 20% based on gross sale amount.
    • Commissions differ with each industry.
    • The best way to establish your commission amount is through conversations with knowledgeable reps in your industry.

  61. gerlyn says:

    I would like to ask about this commission matters. I was given a 1% commission less 12% vat and additional less 12% for accounting staff & mechanics. The commission is base on total sales if quota is achieved. My question is; is it legal for the company to get the commission for accounting staff & mechanics from my total commission?

  62. jas says:

    We cannot give legal advice; for that you must engage an attorney. However, I would make the general comment that commission arrangements are governed by your Sales Representation Agreement. It may be more of matter of what you are agreeing to than a legal issue.

  63. amy says:

    A company wants to pay me commissions on each sale they get with new distributors I bring to them. How do I confirm sales the company is making since the distributor will be going directly to them? Also, at what point do they have to not pay me? For example, if my contract with them expires in 1 yr, then any sales they make to that distributor after 1 yr, should I still receive a percentage or not? This is in the science industry.

  64. jas says:

    @amy: There are no hard and fast rules in such situations. It is more a matter of what you negotiate. In particular, since you are outside the loop of sales reporting, you would have to rely on information provided either by the company or the distributors.

    One way to deal with this would be to spell out in your representation agreement how this is to work, and how you are to receive reports. Because the company succeeds when the distributors succeed, they should have an interest in a beneficial relationship with you.

    The time period of the agreement is another point to negotiate. They company should realize, or you should “sell” them on the concept that the longer the period, the more worthwhile it is for you, and the more you are motivated to find distributors that will succeed over the long haul. There is a case to be made that you should receive compensation in perpetuity, and there are sales channels that do follow such a plan.

  65. Glenda Kelm says:

    I am considering an Independent Sales Position. I would like a draw on commish what is a reasonable amount of time to take a draw. The sales process could take 6 months for new business. What “if” this does not work out will I owe that draw back or can a contract be negotiated to state no return of draw if within a certain timeframe is met? The saying goes you don’t know what you don’t know and I definitly feel this way going into this position.
    But it is a great industry and company that I will be working for. It will be only 1 company represented. If you have any other advise for a newby, I am please to here it. Thank You!

  66. Simon says:

    Hi, I’m a Canadian and have a solid 14 years of experience selling and negotiating with National Retail Chains Head Offices in Canada in the CPG industry. I’m French bilingual and can also represent the French customers in Canada. I’m really interested in jumping in the independent world of sales, however in my initial research I only found a demand for independent reps covering a specific territory – and probably only calling on retail stores. I wonder if companies are also looking for independent sales representation for Retail Chains Head Offices – covering a National territory? Is anyone specialized in that area and would you know where these companies would look to find their ind. reps ?

    Thank you

  67. jas says:

    @Simon: I am hoping that someone with specific experience can chime in. I will route your question to our internal resources but I do not think we have the detailed information you seek.

    I suggest that you go to our main site http://www.rephunter.net. Create a profile (no cost to you). Search our database for companies that meet your criteria. We do have a substantial Canadian presence.

  68. jas says:

    @Glenda: the questions you ask would be governed in part by the details of the industry and positioning of the company within that industry.

    For medium to long sales cycles, a draw over a long period of time is quite feasible. It would not be reasonable to expect that if had worked over a long period but it did not work out, for you to take all the risk.

    Do they have other reps who are in a similar position? What type of arrangement do they have?

    In any case, the specifics you are asking about should be spelled out in your representation agreement, once you have negotiated them.

  69. jas says:

    @Simon, from Matt:

    We probably have a boat load of subscribers that would love to get into a Canadian national retail chain.

    Our service is free for reps. Please create a profile at http://www.rephunter.net and search for lines.

  70. Alfread says:

    we sell consumable repeat use products, how to pay our rep for business from repeat, exist custmoers,within his territory, shall we set up different commission rate with repeat business or new business?
    We also have inside sales, how to pay rep commission if and inside sales rep call a deal in his territory.
    does he get all the same rate for these two situation?
    thanks

  71. jas says:

    My quick reaction is that you are trying to save money by paying the rep less for repeat business. You should realize that to get the best results from working with reps, the reps need to be motivated, and you need to give them some incentive for building your business. The prospect of excellent residual income is what motivates a rep to put in often under-compensated initial work to build your brand. The longevity of your business can only benefit from having very happy reps. Happy customers -> happy reps -> happy you.

    Of course, these are generalizations, and some specifics of your business may change it somewhat. But in our experience, if you would like the reps to keep the customers happy over the long run, you need to keep the reps happy over the long run.

    The inside sales issue is different. It is essentially caused by a conflict in what you mean by a “territory” and whether it is “exclusive.” The idea of a territory is that a single rep “owns” that territory. But if inside sales are selling into that territory, then the territory really doesn’t belong to the rep. However, this is a very common problem. Again, unless you want the rep to ignore certain customers, they should get a commission. One way this is sometimes dealt with is to have “house accounts.” Yet, over the long run, this could also be a cause for friction, especially when the sales-rep-developed accounts are taken over as house accounts. I would advise against such a practice. But it is possible to have as a house account one that was truly developed “in house” and not by the rep.

  72. sue says:

    We are in education service industry. A sales rep will provide leads to us, from there we provide the student services and the service may be repeatable. How should we structure the commission rate given that the service is repeatable? Should we pay based on total repeatable businesses obtained from one customer? Or can we put a cap and take the lesser, say the minimum of either 10% or $100 per customer? Thanks for your advice.

  73. jas says:

    My suggestion is to put yourself in the rep’s shoes. If you were the rep, how motivated would you be to work hard to find new customers under the cap? Let’s say the rep could only earn $100 per customer. How much effort and time would that rep put in? I would say his efforts would be quite limited.

    On the other had, suppose there was no cap. You might feel that paying the rep thousands of dollars is too much. But realize in that case that you are making about 10 times what the rep is making. Wouldn’t you want a rep to make hundreds of thousands so you could make millions? Then you have a rep that is motivated to keep the customer happy, as well as find new customers, because he can make a decent living and make you rich. There are repeat sales and repeat commissions, but the savvy rep is motivated to keep that customer happy and lucrative for you over the long term.

    With the cap, it may seem more “fair” from your point of view, but you will be stuck with the hundreds for the rep and thousands for you instead of the “sky is the limit for you both.”

    I am presenting these thoughts with the hope that it gives you perspective. You still have to balance the needs of your business and your customers on the one side, and on the other side the realization that the effective rep is entitled to his livelihood.

  74. Matt says:

    Hi There,

    I am considering taking up a position in international trade. The company exports fresh produce to various markets around the world. They are offering me a base salary that is slightly lower than the average wage of the country where I live. We have also discussed a commission on top of this. I am wondering what kind of percentage I should be aiming for? I have been unable to find much info related to this industry so would appreciate any and all input!

    Thanks.

  75. jas says:

    I am hoping some of our other readers might chime in. The position you are describing as a salaried position is not what we define as an independent rep, so it is outside our normal scope. In addition, the international aspect is outside our expertise.

  76. Paul says:

    I just signed up as a sales rep. with a company that my friend owns. I am bringing in a large watch company, that I will be putting into retail locations. He is offering me 6% commission (the company is giving us 12%, and he wants to split it 50/50). He also wants to split my travel costs, so he would pay half and I would pay half. Is this a fair deal?

  77. jas says:

    It is hard to know if it is a fair deal in isolation. You would need to look at your industry and find out what comparable rates are. I cannot tell from your description the fine points of the deal. Specifically, what are all the lines involved, and what the responsibilities of the various parties are.

    However, if you look at the 12% as the full commission, that would be in line with many industry averages. And if you need to split that, then so be it. The travel reimbursement helps. I would think you have to decide whether your time spent on this project is worth the 6% commission, as compared to other lines you could take. If you don’t have alternatives for your time and effort, then maybe it is a fair deal for you. On the other hand, if you could develop other lines that paid the full 12%, you might be better off developing those other lines.

    Hope this helps!

  78. Jon Matlick says:

    I own a manufacturers rep company that has recently taken on a new product line. The new company is holding a national sales meeting next month and has invited all their North American reps to attend , although no offer has been made to pay all or a portion of travel and accommodation expenses.
    We have 3 sales people and a small base of current business. Should we be required to pay travel costs or are they the responsibility of the principal?

  79. jas says:

    This would be a great question for our forum when we get it set up!

    The easy answer is to say that your Sales Representation Agreement covers this matter. However, that begs the question of what should be in that Agreement. It is common for the rep to be expected to cover a certain amount of sales meeting costs. Yet it could also be a point of negotiation with the manufacturer.

    Another consideration is how well established the company is. You said they were new. If you take on these costs, you are expecting a return on your investment. How likely is that to bear fruit? If is seen to be more risky, then you have grounds to expect at least partial reimbursement, as the costs are part of expected launch and roll out costs for the new company.

    Finally, I suggest you join the Manufacturer Reps group at http://www.linkedin.com, and post your question there.

  80. Toni says:

    Hi, my husband and I recently started a business to sell a “gadget” that he designed. We have a patent pending and we have developed prototypes.

    We recently met a regional rep (fishing products) through a close and trusted friend and we are looking to work with this rep to get our product into retail chains and wholesale distributors.

    We will provide all the marketing such as packaging, POS, website, social media, etc. We expect the rep to utilize his established contacts to generate sales orders and perhaps coordinate product reviews with various publications. We anticipate that all orders he receives will be routed to us and we will coordinate fulfillment/delivery.

    Couple questions:
    1) If the cost to manufacture is just under $9, what is an appropriate wholesale amount, retail amount? Is there a standard formula.
    2) What is an appropriate commission?
    3) What if WE generate orders via the website, should the rep receive a commission?
    4) Should the contract/agreement extend beyond one year?

    Your feedback is much appreciated as we venture into uncharted territory…thank you.

  81. jas says:

    I will try to answer your questions based in part on my experience in manufacturing, as well as in the manufacturers rep channel.

    1. We did used to have formulas for computing selling prices, and at the time, you could call such formulas a “standard”. However, my experience here dates back to the 1970s, so it might be out of date. In any case, we engineered the selling price based on the following build up of prices.

    Raw material and direct costs
    + Indirect cost (computed via a “burden factor”)
    = cost to manufacture

    The “burden” we had from the accounting department. An example would be $3 for raw material and direct costs. Let’s say the burden is 200% (or times 2), so you add another $6, giving a cost to manufacture of $9. These indirect manufacturing costs are also called “overhead”. When you say $9 to manufacture, you should just be clear whether that includes the overhead burden or not, and adjust your computation accordingly.

    Then to the cost to manufacture, you next add on the selling and general and administrative costs. For simplicity, you might again multiply times a factor. Let’s say that the accounting department has computed that the selling and G & A is again 200% (times 2 again).

    cost to manufacture
    x Selling and G & A
    = cost of sale

    Multiplying that out gives you $9 times 2 = $18 to cover direct and indirect costs, plus selling and G & A, or your cost of the sale.

    Then you finally have to take into account your profit. Let’s say you want a 20% profit margin on this product line. So with a little math, you would take the price and divide it by 1 – .20 = .80. Doing that with the $18 example gives $22.50 as the final selling price. Instead of multiplying, you divide by the discounted amount, so that when you get the $22.50 price and take 20% of that you get back to the cost of the sale.

    cost of sale / (1 – profit margin percent) = sales price

    The combined formula would be as follows:

    ((material * (1 + burden factor)) * Selling-GA factor ) / (1 – profit margin percent)

    As a side note, the above also assumes that in bound shipping costs are already included in the material cost.

    This above formula assumes that there is only one layer from you to your customer. The computation would change if you were selling to a distributor who would then have to do some of the same steps to get his sales price. But in that case, your selling and G & A might be lower, as the value added service of the distributor would be contributing that value. But if you were just selling to the retailer without any intermediaries, you could then “keystone” to get the retail price. Let’s say multiply again times two, and your retail price becomes $45.

    Assuming all components of the price build up stayed the same, you could simplify and just say “5 times manufacturing cost of $9 gives $45 for the retail price”. Your selling price is $22.50. You asked me “what time is it” and I have told you how to build a clock. But with all these computations, you can really see how the costs flow. A failure of many startups is to set their price too low because they don’t cover all these factors, and thus underprice their products.

    2. Regarding commissions, that depends on your industry. You should ask others to see what they are paying. Our rules of thumb (as posted on elsewhere on the page) are as follows:

    – 90% of all commissions paid to reps are between 5% and 20% based on gross sale amount.
    – Commissions differ with each industry.
    – The best way to establish your commission amount is through conversations with knowledgeable reps in your industry.

    3. Website generated sales: many people find it hard to want to pay a rep for sales “he had nothing to do with”. However, we take the opinion that in some cases such a practice can work to your advantage. If the rep has an exclusive territory, then building a profitable long term relationship with that rep depends upon his motivation. You are adding to his motivation to build a relationship with a customer if you pay him the commission on sales in his territory. You have to judge whether that applies to you, by determining if it be a case where the rep could nurture that relationship and build you profit for years to come, or whether there is no way for the rep to become so engaged with the website customer.

    4. The term of contact renewal would likely serve all best if it was for a relatively limited term at first with the option to renew. That gives all parties the chance to see how the engagement works out. Here is some language from the sample Sales Representation Agreement that we provide to our RepHunter members (http://www.rephunter.net):

    TERM AND TERMINATION. This Agreement is effective on _______________, and shall continue for a period of one (1) year. Thereafter, it shall
    automatically renew, for successive one year periods, unless either party notifies the other in writing of its intention not to renew at least 90 days before the end of the initial term of this Agreement or any renewal term.

    I hope this helps!

  82. Caroline says:

    Hi: Since I’ve done quite a bit of educational marketing in the past, an acquaintance has asked me to promote his computer programming books. Here’s my question: The books are listed on Amazon and Barnes & Noble, as well as on the author’s own publishing site. No one else is marketing them. I’ll be promoting the books through several channels on the Internet, as well as telephone calls. Sales may come through that I’ve generated on the web, but there’s no way connect me with them, since I’ll not see purchase orders. How can I be sure that I’m being paid on sales that I generated through contacts on the Internet? Someone may see a post on Twitter, for example, and order the books – I’d never know it. How are people dealing with this kind of commission structure? Thanks.

  83. jas says:

    Commission structures must reflect the reality of the relationship between the creator of the product and the marketer or seller. If you are acting in the traditional outsides sales manner in which you develop a territory, call on customers, produce orders, etc. that relationship is well understood. In such cases, the amount of sales that come directly through you are deemed as a good basis for establishing commissions.

    However, when sales occur over the Internet which cannot be directly credited to your efforts, then a different model is perhaps more appropriate than one of “independent sales rep”. Rather it seems that there is a certain element of partnership involved. You would promote his products and a means of determining how you can be commissioned must be derived. It might not work to base the rate upon “your sales”, because in this model what does that mean?

    It might be possible to agree with your principle on a hybrid model, whereby you get a certain rate say 15% for all sales that come directly through your effort, and a lesser rate (say 3 – 5%) on ones that do not. The thinking is that these indirect sales could be vastly larger than the ones you have direct involvement with, yet your efforts related to the sale are by definition indirect. That is, you did not close the deal, but perhaps you created the sales strategies, collateral materials, promotions, etc.

    Another approach would be to have commission on your direct sales plus a fixed fee for the indirect efforts.

    I believe it always helps to look at motivations and overall benefits. Can you make a living from your efforts? How much compensation does that require? If at the end of a year both you and your principal have answered that satisfactorily, then the deal is working.

  84. Raymond says:

    Hi There,

    I am about to Rep for Korean cosmetic company who wants to sell their cosmetic
    and beauty care lines in the U.S. Launch in Metro NYC and expend to other area.
    Currently they have no assigned Sales Rep.

    They will be No retainer fee and a commission-only independent rep deal.
    I am hearing from other rep that commission can be Gross Sales Volume of 10-30%
    (without tax, customs duties, insurance, and shipping charges)

    Can anyone advise me on a fair Cosmetic Sales Rep commission?

  85. jas says:

    While each industry and relationship is different, 10 – 15% would be typical. So if you are in 10 – 30%, that might even be better for you.

    However, you have not said anything about expected launch costs. Breaking into the new market is going to make it more effort for the rep. So if there is no retainer or provision of other up-front costs, the higher end of the 30% range would help cover your extra costs.
    But you are taking the up-front risk that you can successfully establish the market and brand. So you have to weigh your channel development costs against the higher commission, assuming that in fact the commission will be at the higher end of the range.

  86. Raymond says:

    Thank you for the reply Jas.
    My approach would be a rather small. I am going to introduce the cosmetic company to the U.S. buyers, starts with mostly small retail or online stores (buyers). The buyers will then directly order from the cosmetic company and I will receive commission from the cosmetic company only. The cosmetic company is small size and I really don’t think they will pay me any up-front costs other than printed/digital marketing materials. Perhaps I can ask for 25% commission?

  87. jas says:

    In your particular line, perhaps 25% is not too much. I am generalizing with more normal rates of 10 – 15%. You might have to justify to the company that you are asking for a higher amount because you will have start up costs to create awareness, etc.

    But you might not actually have such costs. I am simply guessing what circumstances might apply and how you might handle them. I think if you can get 25% you are doing well, especially if you keep your expenses down.

  88. Jefferson Smalls says:

    I’ve been doing freelance sales on commission for a company for 10 years. there used to be an accountant who paid me every 3 weeks or so, based on what i was bringing in. the accountant left, and the CEO took over accounting duties, and I was then paid once a month. the company was then taken over by another company, and now my commmissions are being paid every 2 months, as they want to take care of the payroll first, and then deal with outsiders, of which I am unfortunately considered after 10 years. However, with the new company, the payroll is bigger, so the money i am bringing in goes to pay other people, and I am waiting longer and longer to be paid, in the last 4 1/2 months i’ve only been paid once. i’m trying to keep the relationship professional so as not to lose the freelance sales position, asking every week when i’m getting paid, but i’ve had to relegate my time to other things in order to make money to pay bills and rent and such. it also makes my gumption to sell go down, as I have less time and less positive reinforcement to make sales when i’m not getting paid. any suggestions?

  89. jas says:

    I am hoping that other readers might chime in.

    Although this comment is a bit off topic, I would ask if you have a contractual agreement – a “Sales Representation Agreement” in place. If so, you have a legally enforceable contract. If not, I suggest that you consider establishing one.

  90. ted says:

    hi, what about a toy and gift rep percentage. what is the going rate and is it on net or gross sales

  91. jas says:

    I would say the going rate varies between 10 – 15%, but there are many variables that could affect this. Such as whether the line is well-established, or just breaking into the market. If you mean by “net sales” gross sales less returns and allowances, then I am more familiar commissions on net sales. But I was never in that industry, so your mileage may vary. Each relationship could have its own special aspects.

  92. stan says:

    i’m an artist in maine. i produce a line of note cards and prints which i have been selling to local gift and tourist retailers. i’ve been making calls myself but now i’m thinking about turning this over to a sales rep agency as i believe my time can be better spent in the studio. approximately how much should i expect to pay in commissions?

  93. jas says:

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.

    Depending upon the dollar volume, expect to be at the high end of that range. Or even higher if the rep is going to have to create a market for you.

  94. Don Harris says:

    If I hire a rep and pay him based on sales of my product and he sells to everyone he was assigned to, at 1% he would make $30,000.00. Isn’t this enough for maybe contacting a few Buyers he may already know, or does
    $60,000.00 have to be offered. This still doesn’t reach the 5 to 15% which would be a ridiculous amount of money for probably one week or more of work.

  95. jas says:

    You are looking at this the wrong way. You are in business to make money. The rep is also a business and needs to make money. If that rep can grow your business by millions of dollars, wouldn’t you want him too? There are very few businesses that would work for 1% commission.

    If that rep makes $30,000 how much do you make? And how much do you make over the years from that customer?

    Is your business making a 1% profit? If so, then 1% for the rep is fair. But if it is more than that, than you should think of the long term, where a good rep can make you rich, along with making himself rich. You should not think “the rep is costing me X”. You should think “the reps is making me millions.”

  96. Dan says:

    I am looking for commission only reps at the moment for my business. What they are selling is a social media marketing package that is prepaid monthly, an amount between 1500 and 5000 per month, for either 3, 6 or 12 months, so an agreement is potentially worth 60K, although it is up to our social media managers to be effective and keep the client happy and in the agreement (as they are not obligated to continue).

    How should I structure the commission as I want to reward the sales person, however if the client doesn’t stick around for the full term I don’t want to have lost money? And if they aren’t really responsible for them continuing with us, how does that work? I also want to make it so the sales people want to continue to get new business and not become complacent because of a trailing commission. I hope that makes sense.

    Is there a model for this type of sale?

  97. jas says:

    There seems to be two parts to your question.

    (1) If client does not stick around — seems very similar to many cases, in that if the client is paying monthly, then the rep should get paid monthly. Huge risk to you if you pay “in advance” and less incentive to the rep to keep the client happy.

    (2) It is a very common question about why the rep should be paid because they have little future involvement. While “your mileage may vary”, we find that the most profitable and best incentives for the rep to really produce over the long term is the hope of a residual income stream over the long haul. You should think of your relationship with the rep as a partnership, where if the rep makes you rich, you should make him rich. Don’t think of the rep as a wage earner who is fully paid at the end of a single sale.

  98. Dan says:

    Thanks. I want to make us all rich and have no problem rewarding the right sales people for business they’ve generated and contribute to. What I would like to do is make sure there is always a hunger in them to generate new business.

    I have been thinking that rather than a flat 20% paid monthly, starting higher at say 30% and reducing to 10% over the duration of the agreement. So they get the same amount overall, however I am reducing any complacency that could be caused by them hitting a “safe” income level when they hit a certain number of sales. Is this something that is done?

  99. jas says:

    You could certainly do something as you propose. Ten percent is certainly within normal ranges for commissions, so one way to think of it would be “10% ongoing, but 30% to bring in the new business”. Or something like that. It kinds of makes sense too because on the one hand the 30% is higher motivation, but getting the new business is harder.

    I just want to make my point about not cutting them off entirely for the long run, as that is what builds loyalty with the rep for the long haul.

  100. Dan says:

    Thanks. I agree with your point too. I want them motivated to give exceptional service, build relationships and get referrals :)

  101. Mary says:

    I am an artist and have created a line which specifically markets to wineries and residential wine lovers. The average cost of my main item is between $700-900. I have an interested sales rep and am trying to decide on compensation. My thought is to pay 10% of direct gross sales. What I am unsure of is what are the common expectations (besides the final sale) of her to achieve? She would be independent so would I also need to compensate additionally for any computer/social media developments she could assist with? Is the commission usually just based on her direct approach to potential customers & her travels? Also I would provide all the printed materials and samples she would need for contacts. Would REALLY appreciate feedback soon, I am new to all this marketing biz.

  102. jas says:

    My first impression is that there are two separate services you a seeking from this rep:

    1. Sales
    2. Consulting

    The sales portion of the engagement would fall under the normal concept of commission. But if the rep is helping with social media developments, that seems to me to be something outside of the usual sales representation arrangement. For example, you could hire a consultant to help you, and you would have to pay for that service. I am not thinking that the rep should provide that service “for free” along with the selling that you expect.

    It is typical for you to provide sales materials. However, the commission would depend upon whether part of the incentive you are offering includes an “exclusive territory”. If so, then the rep gets paid for all sales in that territory. The idea of an exclusive is that it motivates the rep to work for you. If the rep gets $70 – 90 per sale, then would that be enough to pay for the portion of the reps time that is dedicated to you? If sales are sufficiently high, perhaps the answer is “yes” and you don’t need an exclusive arrangement. Otherwise, you have to sweeten the deal to make it worth the reps time.

  103. Mary says:

    Jas,
    Thank you for your words of wisdom, I will put your advice to use. One more thought/question I have..Let’s say I do offer the “exclusive territory”, would you recommend 10% as a base commission regardless or offer a lesser commission (say 7%) if I am the one that would end up closing the sale? Thank you!

  104. jas says:

    Setting your commission is something that we cannot easily do because we are too far removed from your specific situation. However, you should be aware that 10 – 15% is considered a normal commission level across many industries and markets. Lower rates would not be typical until you get into very high dollar volume situations. These considerations are even with exclusive territories.

    How much total commission do you think the rep can earn from representing you? ( A rhetorical question – no need to respond!) Start from that thought. Is that amount something that then can create part of making a living for the rep?

  105. Greg Nichols says:

    I want to bring a couple of people onto my team who would visit bars, liquor stores, introduce our vodka, and provide leads for the sales reps who work directly for the wholesaler and take the actual orders. I’m having difficulty determining how to determine a commission for these guys. Any thoughts? Thank you!

  106. jas says:

    I cannot be sure but it sounds like you are part of a rep agency, as you refer the wholesales as apart from your team. So in effect it seems to me at first glance that the people you are seeking are working for the rep agency. Or it could be that you could think of them as sales assistants to the reps. If this is so, then you would have to figure out how much of the total commission on you are willing to pay to these assistants, or even a rate that is not based on sales but rather on effort for the lead gathering.

    So my initial response addresses some of the possibilities, but cannot be more specific with more info on the details of the relationship.

  107. Elizabeth says:

    I would like to hire reps for our perfume company to go to independent retail stores/boutiques and give our samples/PR info to store managers. What would be a reasonable commission when wholesale orders are placed?

  108. jas says:

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.

  109. Sue says:

    I am starting a new home party business selling jewelry and if someone wants to do the same thing, by working for me, what kind of percentage should I give? If she (“Jane”) wants to also hire someone else (“Mary”) to give parties also, would “Mary” be making a percentage from “Jane” or from me? Right at the moment, it makes more sense to me if they both work for me, commission only. But, this is not the way home parties are done.

    Also, I’m really confused on this!!! If “Jane” hires “Mary” and “Mary” hires “Betty” and “Betty” hires whoever, this line is getting long and pretty soon who will be getting money? I’ll still be making money from “Jane” only. Right?

    Sure hope you can clear me on this. I’m starting my business real soon.

  110. jas says:

    You are on the path of “multi-level” or “network” marketing. While such a channel is quite viable, we don’t specialize in that area. There are many other websites that cater to that type of channel, so I suggest that you search further.

    You could use search terms like “party plan”, “multilevel marketing”, and “network marketing.”

    I hope this helps!

  111. Hannah says:

    I wanted to know what is the average commission percentage for independent sales rep that only provides leads/set appointments (company closes sales), for monthly service based product.

  112. jas says:

    Unfortunately we don’t have specific insights into industry averages of the type you are seeking. However, it would seem to me that as the type of service you are seeking is really lead generation. As such you could view it as a portion of the total commission. So as a guideline, say your “full-service rep” commission is 15%. But that includes follow up with the customer, incentivizing new sales, building your line, and many other contributions to your success.

    It would seem reasonable to me to say the a much smaller fraction of the total commission is due to the “lead generation” part of the effort. The specific size of that fraction depends upon the dynamics of your industry, and what that lead generator is expected to do, and how much those leads contribute to the overall result. I can imagine cases where “the lead generation is everything”. And also cases where the lead generation is almost a clerical task, a commodity easily replaced. So between these extremes you could go anywhere from the bottom of the range up to a good portion of the 15% of this example.

    While I have not answered by giving you a number, I hope my comments help you analyze your situation to come up with the answer that works for you and your reps.

  113. milos says:

    Hi,
    thanks for your great article. I am interested in your thoughts –

    I am interested in hiring a sales rep to sell my product to super markets. Once the initial order is won, there is little work involved in receiving the subsequent monthly orders as these are generated by software – little sales effort involved. Should they receive the same commission for each subsequent order?

    Thanks for any advice!!

  114. jas says:

    We generally approach questions such as your from this perspective: do you want to hire somebody who works for you as an employee whose job it is to create leads and an initial sale as an order-taker, or do you want to enter into a partnership with an independent businessman (the rep), who will build sales for you over time?

    Many reps will not be very motivated to get a one-off commission. It is a lot of work to create a relationship with the buyer. That initial up-front work needs to be properly motivated: for example, with the hope of building a strong income stream for both you and the rep.

    You have to think of the commission as not paid for service delivered by the rep on that one sale, but as part of a larger compensation package for many sales over time. Otherwise, you are in effect telling the rep that they are going to do a lot of work that never gets compensated (for the sales that don’t materialize).

    So you should consider the business from the reps point of view. The rep can make you a lot of money over time. Wouldn’t you want them to be motivated to do so?

  115. Sandra Burke says:

    I work for a direct mail magazine here in Orange county as an independent contractor. When I originally started about 2 years ago, they initially started me off with a small base ($1k/mo)for the first 6 months, with the following commission structure (month 1 was 35%), (month 2 was 30%), (month 3 was 25%), (month 4 was 20%), (month 5 was 15%), (month 6 was 12%). Then after the 6 month period, my commission plan was a flat 40% commission on all sales (new and existing), without any base salary.

    The commission structure is not bad, but with the competition from all these other direct mail magazines, it’s extremely difficult to sign on new clients. In a good month, I may only get 6 new deals, with an average ad rate of $250/mo x 6 month agreement = $1500 total gross for company, of which I receive $100/mo x 6 = $600 over the course of 6 months, or $100/mo towards my monthly check. Since new deals come on and old deals expire, it’s difficult to make even $4,000/mo gross.

    I’ve discussed with my manager about a higher commission plan, or even one with added bonus tiers, but she simply states that my comp plan is very high for direct mail. If that’s the case, why aren’t I making a decent income. I do work this job full time, canvassing businesses and making over 60 calls per day.

    One last thought, since this is already an established direct mail company, I figured that they already had their fixed expenses factored into the production of each mailer (printing cost, mailing cost, paper cost) some of those expenses would change slightly with the addition of a new ad, but for the most part, it probably wouldn’t change too much. If the owner is getting 60% of each new sale that they wouldn’t have gotten before, should I ask for a higher commission plan. Again, they don’t pay any of my expenses now.

    I’d love to hear your and the communities thoughts.

    Stuck in Limbo

  116. Dorianne says:

    We are a small private investigative and computer forensics company who is looking to expand and hire a sales person. We have not been able to find any rates that pertain to our type of business for being able to set up a commission structure. We are definitely thinking gross because depending on the investigator on the case (each one gets paid a different rate) the net would be lower or higher at any give time. We don’t feel it is fair that the sales person earn less commission because the investigator working the case that day earns more then another one. Or do we have to look at it that in the long run it balances out with some higher and some lower? Also we are thinking 3-5% commission rate based on the profit scales on different services we provide – is this reasonable? Any feedback on our situation would be appreciated.

  117. jas says:

    Unfortunately, commissions for direct mail magazines is not something I have background in. So my comments would probably not be relevant except in generalities.

    As for those generalities, it seems you could be making your principal good money. If so, then you should be entitled to a livelihood that reflects your value. On the other hand, if that is not true, then you would need to shift your focus to something what works better for both sides.

  118. jas says:

    Commission rates vary with industry and within industry. As such, it is advisable to network with people in your industry to find out the prevailing rates. However, in your case and in many cases, this is not possible. Hence the popularity of this topic.

    Here is another way to look at it: suppose your independent sales rep only was representing your services. What commission rate would they need to earn an acceptable income? If the billings sold were multiple millions of dollars, then 3-5% of that might be an acceptable commission. Then factor by how much of the rep’s work would be devoted to your line. The assumption being that the rep has other lines to sell.

    For example, if billings were $5 million, then 3% is $150,000 which would be an excellent compensation level. If they worked one quarter on your line, then one-quarter of the $150,000 is $37,000, which would be your cost for a “one-quarter” rep billing $1.25 million. The example is not necessarily supposed to be realistic, but illustrates the math to determine whether it is reasonable for the rep. Adjust for your real numbers. Then you will know if 3-5% is appropriate.

  119. Eduardo says:

    We are seeking sale reps. Nonetheless, we sell full container loads per order which vary from $8,000 to $12,000 in product value per sale. Clients might re-order 2 to 3 times a year. From what I’ve read in this blog, sale commissions vary between 10% to 15% which based on our industry seems high as we work with low profit margins and aim in volume. Does anyone has experience on what is a good commission rate due to the sale volumes we carry per sale? Will 3% – 7% make sense or is it simply much lower than the standard?

  120. jas says:

    When we give the guideline 10-15% that is a very broad generalization, and it could vary widely in specific industries. Whereas 15% might be fine in retail, it would be completely inapplicable if your were selling “nuclear reactor facilities”. I exaggerate to make the point.

    Thus this would be a good time for others with specific industry experience to chime in.

  121. Cathy Hayes says:

    We are in energy efficiency and I have always paid my reps a flat rate of 5-15 bucks per fixture (depending on the type of fixture plus 50% on any overages. We are now looking at changing the commission structure and I am thinking a percentage of a sales price but it doesn’t quiet feel right! I would like to factor in the fact that recruitment and residual income is something that I would like to offer also. Anyone here have some sort of the same structure?

  122. Bobby says:

    Hey I’m a independent contractor providing a medical procedure service, paid on a per call basis. I’ve gotten a new hospital contract to provide this service. Wondering what would be a fair commission

  123. jas says:

    I am hoping some readers will chime in.

  124. jas says:

    Could you please elaborate on your service? It appears to me that you are not acting in the capacity of an independent sales rep.

  125. Henry says:

    Hi there, I am looking to become an independent sales rep, working with various companies to generate leads and close sales if necessary. From research, I have found that my commission would, as you say, be within 5 and 15%. However, I have no idea about how to go about contacting these companies to offer my services. Does it boil down to a simple phone-call/email or do I have to meet the company in person and sign a contract?

    Many thanks.

  126. jas says:

    Once you have decided on a line you would like to take, there is no hard and fast rule for how you would contact the principal. It depends upon the type of line, your previous experience, and how the initial contact via phone call goes. I am sure that experienced reps can chime in with a wealth of experience.

    Having said that, there is nothing that replaces face-to-face interaction, as it is not simply a matter of “social networking” and Skype. The independent rep relationship is like a marriage. While you might select dates online, you would never agree to marry based solely on the remote experience. With the sales representation relationship, there are some aspects which might require going beyond the remote relationship; yet it can be and is done all the time without that fact-to-face.

    A good way to look for lines to carry is to use the free service for reps available at our parent website, RepHunter. You can search for free for new lines in all industries and territories who are actively seeking representation.

    Please feel free to create a profile at no cost to you. You can then take advantage our our training tools as well as conduct unlimited free searches.

    I hope this helps!

  127. Harry says:

    From looking at this article and others, it seems that the standard commission paid to sales reps is around 10% would this be true if the product you were selling was worth millions of dollars? Is it really that simple to earn large amounts of money as a sales rep for a company producing expensive products, such as heavy machinery?

  128. jas says:

    You have to consider reality. In general, when total prices go up, commission rates go down.

    Also, bear in mind that large ticket items take longer to sell. What is the sales cycle? Maybe you could be working on a deal over a several year period, and the “large commission” needs to cover that long period. Some common sense reflections of this sort will help you to understand.

  129. We are a start up company selling a patented product that covers a wide range of markets including gift shops,pet shops,coffee shops and florist. We will be looking for reps and my question is are the commission rates the same for all these markets and if so should we try and find reps that can sell to muti markets.

  130. jas says:

    Our general guidelines would cover all of these markets. Regarding differences in commission rates, I am wondering what makes one of the named markets so different that a commission structure would be different? In fact I would think of them as all the same market “retail”. So why would different types of retail affect the commission? If there is no good answer, such as “coffee shops are so much more difficult to sell to for the rep”, then I would not see why rates should differ either.

    If any experienced reps would like to give a counterexample, that would be great!

  131. Kio says:

    If the sales rep is selling a service that will be managed on a monthly basis, does the rep receive a one-time commission or receive a monthly commission for the length of the contract?

  132. Juliana Marchand says:

    Hello. I am venturing into sales, because I am very familiar with the product to be sold and it is innovative technology to be introduced to the US from Korea. I have never done sales. This is a service that needs to be renewed yearly. How much commission do you think I should take?
    I will be the only one (so far) selling in America.
    Any advice?

  133. jas says:

    @Kio – Arrangements vary. However, it is our position that since both parties are in business to make money, there has to be incentive for both. If the rep does not have residual income, there is little motivation to build the business, and he is more like a hired hand.

    You should convince yourself that the best results can be obtained by rather having a partner who is motivated to build the business.

  134. jas says:

    @Julia – generally commissions run 10-15% but it depends on the industry, margins, and dynamics of the business. This is the most common question, and you might get insight from previous comments on the topic.

  135. Deb says:

    Hi – My apologies up front for all of the questions, but i am totally in the dark about sales reps. I am an artisan skincare manufacturer. I am thinking about hiring a sales rep on a straight commission basis. I know I am probably being a bit obtuse, but when you say that commission is based upon the sale price, do you mean the suggested retail price or the wholesale price? Is the commission paid always the same rate or is it acceptable to pay a slighly higher commission rate, i.e 12% for a new customer and then drop it to a lesser amount, i.e. 10% for maintaining the account? If I sell a bar of soap wholesale for $3.00 for under 100 bars and then drop the wholesale price for larger orders to $2.80 how does that get accounted for with the commission rate. And how do I price my items to allow for a sales rep. Never having had one before, I did not include that in my pricing. None of my items is a high dollar amount retail, ranging from $6.00 to $30.00 a piece, so quantity will be what makes the money. Again, sorry for all of the ?’s and thanks in advance for any help. Deb

  136. jas says:

    In my experience, it is based on the invoice price which would be the wholesale price. However, in certain industries the customary practices could vary. From the manufacturer’s viewpoint, the invoice price is “real” whereas the retail price is hypothetical, as it varies as sales, clearances, loss leaders, and other factors come into play that are outside the manufacturer’s control.

    There is a lot flexibility as people come up with all manner of ideas. However, you have to “think like a rep” to understand. They need to be able to make a living so at the end of the day (or more to the point) at the end of the year, was your line a valuable contribution to their living?

    Regarding pricing, it is common for the inexperience to underprice. There are many business school case studies and business articles where underpricing and not overpricing is the problem. When you price, the approach of determining you price based upon you costs has to start with your direct costs, plus indirect costs. Then on top of that factory overhead. Then “General and Administrative”. Then marketing and selling, including commissions. So with all these costs, it is easy for something that starts out at $1 dollar for your materials to end up making you have to charge $5 to cover the true cost, with all the things I mentioned. There are entire courses of study that look into pricing, and I have written more extensively about this elsewhere.

    But the commission rate in almost all cases is based on the invoice price, which is the price your customer is paying you. But if your cost including everything listed above except the rep’s commission on the $1 of materials ends up being $4.50, then 10% commission to the rep can only be paid by making your price $5. Think of the rep as all those sales people on the floor of your favorite department store.

  137. Larry says:

    Hi, You made a comment that if you can give a protected territory. So my question is how do you allocate commissions when another rep sells in someone else’s territory? If you are giving 10% for the sale how would that be split or is it?

    Thanks

  138. jas says:

    The very concept of “protected” territory should answer that question. It is either protected or it is not. However, in the real world, “gray areas” can arise. To handle these situations, it is best if you have a Sales Representation Agreement in place ahead of time that specifies exactly what happens in such cases.

    For example, in our Sample Representation Agreement there is language to cover how exclusive territories will be handled. When your reps have agreed to such an Agreement, then all parties understand ahead of time exactly what is going to happen.

  139. Alex says:

    No contract signed, paid an initial wage for 10 weeks then stops
    This was commission only the company is now going ahead with larger contracts. Bottom line. Can a verbal agreement regarding renumeration stand up in court , should I pursue this

  140. jas says:

    We cannot give you legal advice. You should consult an attorney to determine if you have a case.

  141. Pat says:

    I have been with a company that offers a wide variety of products to both OEM’s and retailers for 3 years as a manufacture’s rep. I cover about eight states and I am the only one in the company that sells to both wholesale and retail accounts($1.5 mil). I am on the same contract as when I started which is 30k base, 2% comm, $500 car allowance, health, and cell phone. I am in hotels over half the year and putting 60k miles per yr on my car. I feel as though I am highly underpaid and would like your advise on how much commission I should ask for the next time they ask me to keep hitting harder. Thanks

  142. jas says:

    You have to compare the rates for straight commission against rates with a base plus expenses. And then you need to look at what you feel you should be getting. Which I am sure you have been putting a lot of thought into already.

    As a generality, 10% commission might be typical, but that is for representation agreements that have no base or expenses. So you have to look at how that would compare to what you get now. If the $1.5 mil refers to your sales, then 2% of that is $30k. With base, that gives $60k. What is your target? Let’s say you are wanting $90k but will absorb all expenses. So that gives a commission rate of 6%, again with no base or expenses. Or do the math for your actual target.

    You have a proven track record. That is huge compared to trying to replace you. And perhaps gives you the willingness to go to straight commission.

    These are just some thoughts about things to take into account; I am not trying to tell you how to negotiate. But I hope this helps.

  143. Mel says:

    Hi and thanks in advance or your advice and input. I want to work with a small country winery that wants to expand into the NYC market. I’ve done some wine tastings for them on my own without any compensation at first because I am a huge fan of their products but then I wanted to see how the city market would respond. Well The response has been overwhelming!!!!!!! This winery has a unique niche because they do meads, ciders and all other kinds of great fruit based wines that are not really represented in this or any market I’ve seen. I know I’m sitting on a great opportunity/product and I can see the bigger picture. They/I want me to represent the winery and products as well as start marketing campaigns and getting product into stores. They’ve also mentioned getting trucking companies to bring the product and possibly getting warehouse space to store the product. So my question(s), where/how do I start? How do I get compensation for this? I am currently working full time so i need to be able to cover my living expenses if I leave my job. Do I do base pay and expenses with commissions? How do I become the sole person to represent them and possibly set it up where I am the one to help them continue to expand into other cities/markets. How can I build myself or business around these ideas?

  144. jas says:

    Sounds like a golden opportunity for everyone! You really have a blank slate upon which to create something wonderful and valuable. I will share some thoughts.

    Your last words “… build myself or business” is the key. You have to decide if long-term you want to go into your own business as an independent rep, or whether you would be better off continuing as an employee for this winery. I am thinking the reason you posted here is because in fact you do have the fire in the belly to make this happen.

    Because in effect you are creating the business from scratch, you should definitely get an appropriate reward for that effort. Let’s say you take the winery far from its present position and create real wealth for the owners. Then you need to be able to share in that wealth, as you would be instrumental in creating it. Long term this is best with a straight commission.

    But during the “creation of the business” phase, likely a commission will not be adequate and you would need some kind of base. The owners should realize that they are investing in channel creation, whether they hire inside staff, outside consultants, or you, or even a combination. If you feel you can handle it all, then you should go for it.

    Given your success, you could then decide whether you have the capacity to take on additional lines. But that would probably come later. It looks like a full time position, and you should be compensated your living expenses until it gets off the ground. This could be a combination of base, expenses, and commission as you say. It is very common when creating the channel to have the owners put in this kind of investment.

  145. Dre says:

    I own a boot camp service oriented gym and I am looking for a sales rep to bring in clients. What do you think of this structure?:

    25% of membership for first 4 months
    20% for 2 months
    10% for lifetime of client.

    Can you give me feed back on this?

  146. jas says:

    Generally when we discuss sales reps on this blog we are referring to an independent sales rep that takes a product or service of the principal, and sells that into another business. That is, we are normally thinking B2B. And in fact the sales rep is yet another business operation. In addition, that word “independent” also refers to a non-employee position. It is not clear from your post whether you are talking about employees or independent reps.

    Therefore my general impression is that rather than an independent sales rep you are talking about a sales person who is selling directly to the end customer who is compensated on a commission basis.

    Having said all the above, my opinion is that your concept is not a bad plan. Can you make money on the deal? Can the rep? Will it provide the necessary motivation to the rep? The 10% lifetime commission does seem to do that. So it looks like it could work for everyone.

  147. Max says:

    I own a liquor importing company and as such act as a Supplier of a vodka brand that we market. Since the alcohol industry in the US is structured in three tiers (Supplier sells only to Distributors and Distributors sell only to Liquor stores/bars/restaurants), we are obligated to use a Distributor (also referred to as a wholesaler sometimes) who purchase from us in bulk. However, since distributors typically have other brands in their portfolio that may compete with ours or we might not be very high on their priority list, we feel that we need to have our own reps who would go visit stores/bars trying to sell our product. When the sale is done, we notify the distributor to deliver the product and so on.

    Do you know what the typical commission plan might be for this scenario/industry? A lot of times that initial sale is hard and when the product is on a shelf, distributor keeps an eye on it and takes reorders, so we were thinking of offering a signup bonus or bigger percentage of initial sale, plus give smaller commission on reorders for maybe 3-4 month. This way the rep would have greater stimulus to get into new accounts and with some “commission attrition” would not be just sitting around when they accumulate a wide number of accounts.

  148. jas says:

    We do not have specific insight into your case. Therefore I am responding with generalities. In general 10 – 15% commission is typical.

    However he is another way of thinking about it that may be helpful: put yourself in the rep’s shoes. What would motivate you? As a rep, you not only need to earn a living, but you are going to create business and profit for the principal. If you have a front-loaded plan with diminishing returns “because it seems to make sense”, will that be sufficient motivation for the rep to give your line attention, or will you just be an afterthought?

  149. Jules says:

    I am a startup marketing services firm with a very focused niche segment (high tech firms that want to sell to public sector agencies). It’s B2B, and our services range from $750 to $65,000. I want to set our prices with her, and not allow her discounting options without signoff. Our “sweetspot” sell is around $15k. I am looking at bringing on a part-time sales rep. A few questions here: 1) Would you recommend tiering the commission % according to the price of the products/services? 2) % of gross or % of topline sales price: which has greater incentive to upsell? 3) Would you keep the % rate flat from deal to deal (even if it’s within the same customer) or would you lessen the rate for recurring business within a specific customer?

  150. jas says:

    I am assuming that when you say “her”, you mean your sales rep. Or maybe that’s not what you mean. However, your questions don’t seem to depend on clarifying what you mean and I’ll take a stab.

    1. While commission rates can sometimes be sensibly be made flexible depending upon conditions, I would not use the price of the product that much in this case. Think for a moment about the rep. The rep has to earn a target income for the year, and has to expend an anticipated level of effort over the long haul. If you make the rules to favor certain efforts of the rep, then the rational rep is going to work accordingly. You really want the rep to make you money over that long haul, and the incentive has to be appropriate so the rep can share in the success they create for you.

    2. While you can engineer your price structure from the top or from the bottom, it is common to pay on the invoice price. After all, that is “real”.

    Incentive to upsell — what does the rep get? Not so much how it is calculated. If I understand your question.

    3. Reducing the rate may seem like a good idea from your perspective, but really works against the rep’s motivation. How would you like it if the customer decided you needed to cut your margin over time? Again, perspective helps to judge the issue.

  151. Jane says:

    We are creating an agreement with an educational consultant, who is already connected to therapeutic and other boarding schools because of his current business. We are asking him to promote our ReTribe and Social Pathways (anti-bullying) programming to these schools. I have 3 questions:
    1. If one gig brings in 10,000, what percent would make sense to pay him.
    2. Percent of WHAT? The 10,000 that the school is paying us? Or are we talking about Gross minus the expenses we accrue?
    3. If we pay him 20% (what he is asking) of the first gig, is it considered usual to continue to pay him for future gigs if he is not involved after making the original sale? Or do people do some sort of 2% of all ongoing sales sort of arrangement?

  152. jas says:

    Some general comments first: 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 future sales is how the rep is often compensated for his up-front effort. Just as you would like to “earn a living”, so the rep is worthy of his labors.

    We often quote the 10 – 15% rule of thumb, but that is very generic and depends on the industry. A rep recently told me his favorite commission rate is 1%, because it is on an account generating sales in 8 figures. So your mileage may vary. 20% is not out of line in a start up situation, or one where the volumes would be low.

    Commission is based on your invoice price in most cases.

    It many cases the rep continues to be more involved than you think in building a relationship with your customer. This you have to judge.

  153. Advice on Sales Rep commission structure

    Looking to hire a sales rep for advertising, web dev. and graphic design work. I have a candidate lined up but need to make an offer that is fair to both sides. They have offered to work straight commission – what is generally accepted in our industry as a baseline on % of net sales?

  154. jas says:

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.

    One way that might help your thinking: what commission will allow the rep to make a decent income? Naturally this depends upon what percentage of his volume is from your line as compared to other lines. If you are below that level, then you are not being fair.

  155. Pitbull says:

    Hi Jay! I have an agency where I help young designers and start up companies to get their story out there. Basically, get their products onto the shelves of the retailers in their area.

    One of my partners is a company that sell accessible priced designer lighting. My role in the company is commercial director and I drive all the sales.

    It is a new product, and we have them available since March. YTD we have sold 2000 units.

    Im in the middle of negotiations at this point. The percentage they grant me is 10% for first and 6% for recurring orders.

    In regards to the effort it takes to get the product onto shelf, the fairly low value ($50NSV) of the product, the time I had invested into these 1700 units (many hours), the market situation and the season, and the fact that a young start up takes al lot of time being established is making it really hard.

    The whole point is that I find the percentage way to low in terms of ROI. Can you please advise, because I want to make a decision if and how to proceed with this party. Without losing all of my investments that I have done in the past 15 months building up the 37 sales accounts, 20 hot prospects, 30 warm prospects and around 400 other contacts that got in touch with this brand through my effort.

    Thx in advance!

  156. jas says:

    First the general answer: most reps on our database receive a commission between 5-15%. For retail, that range would be move upwards to 10 – 15%, and even up to 25% in some cases. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to your principal but to yourself.

    Having said that, it is important to note that there is a big exception to the usual guideline. That exception occurs when the company or its product are so new to the market that the rep has to in effect “create the business”, or at least “create the channel.” In such a case, the start up phase could result in a long, slow ramp up period in which the rep receives very low or even no compensation at all.

    So both you and your principal need to answer the question of how the rep can survive during such a phase. The two obvious approaches are either a significantly higher commission rate or a retainer or expense allowance. Otherwise, you have to assume the risk of putting in a lot of up-front work with the hope of the back end compensation to make up for it. It looks like you are presently in that position of assuming that risk.

    If the principal is unsophisticated, they may need to be educated about the “investment” in the rep that will pay off in future lucrative income streams.

    Given what can be worked out in these alternate approaches, you need to decide how much risk you can assume with this company if any of your compensation is deferred.

  157. Andrea says:

    Hello!

    I’m looking for sales reps for a new line of organic hair products … Any idea how much is the commissions to be pay … Where can I get a sample of rep. contracts ?
    Thank u!

  158. jas says:

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.

    If you are a member of Linkedin, there is a great discussion of commissions at http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=138875088&gid=108923&trk=eml-anet_dig-b_nd-pst_ttle-cn&fromEmail=&ut=2_BZdnSvNnBRU1. If you are not a member of Linkedin, why aren’t you?

    You can get a sample representation agreement from our parent site at http://www.rephunter.net. Here is how:

    1. Create a free profile.
    2. Go to the training page.
    3. There is a sample agreement there in PDF and Word formats.

  159. JANET says:

    Hi
    I just started repping a friend’s woodwork and we are having a dispute over an issue we did not cover in our contract.
    Should i still get a commission on repeat orders even if the customer went directly to him instead of through me? My woodworking friend doesn’t think he should pay me because I did not “do anything” on this order, but my argument is that he would not have gotten that order if I had not secured the account and residual income is what reaping is all about.
    Any thoughts on this?
    Thanks!

  160. jas says:

    This is a very common question. Some general comments first to put this into perspective, and to guide you in communicating with the principal:

    The principal should realize that a good rep can make them 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, 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 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.

    It 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?

  161. Sophie says:

    Hello,
    What about when you are representing a school and you are getting a commission on the enrollment of new students in a particular class/program? What will be the adequate commission .? Let s say the fees for that class are $4,000 and it is a specific class so there is no additional class involved. In other words It is just a one time commission.
    Thank you for your feedbacks!

  162. jas says:

    This sounds a special case. I would first look at our usual guidelines (10 -15% commission) and then adjust for the amount of work you would do to get the account. If it is more than normal, then a more than normal commission would be justified.

    Here is another way to back into the commission rate. Suppose you had no other income other than selling such classes or programs. And you were going to engage in the business full time. Estimate how many you will sell in a year. Decide on your target gross income. Then simple math gives the answer.

    To illustrate with numbers pulled out of the air, say you were going to sell 100 in a year and you want $50,000 income. Then you need to have $500 commission on each one. If the fees paid by the students are $4,000 per class, then that is a commission rate of 500 / 4000 or 12.5%.

    Even if I did not understand the specifics of your situation, you can apply this logic with the numbers adjusted for your case.

    If you cannot get reasonable numbers to come out, then you probably cannot make it worthwhile for yourself. But the $500 commission on a $4,000 sale is still reasonable, even if you were not dedicating yourself full-time.

    Hope this helps.

  163. Chrissy says:

    I am considering working for a clothing designer who also own a manufacturing company overseas. I would be their National Sales Rep -hiring other reps throughout the country. They have one local rep who is in an apparel mart who does not go out and cold-call – the rep has gotten the designer 25 accounts over the last year. Is that good? I didn’t think so – but – whatever- There is no contract with this rep – I have a lot of contacts in this market and LOVE to cold call – I want in our negotiations to take over this whole territory so I can see what a ROAD WORTHY REP can do. These numbers will give me an idea of how to work with other reps throughout the country. Is this the right way to think? Also, I love being commission based – What would a National Rep make on commission working with “other” reps. Look forward to hearing your thoughts.

  164. jas says:

    What you are asking is outside of my direct expertise. However, I have a contact with somebody in your industry. I will run this by them and see if I can get any insight.

  165. jas says:

    Feedback received from my contacts in your industry indicate that a good rule of thumb would be 12% for commissions. Regarding sub-reps, a split commission somewhere between 30/70 and 50/50.

  166. Dorothy says:

    I am interesting in starting my own business. I’d like to rep high-end fashions and accessories from Southern California designers/style into elite shops in Canada, or take elite North American designer fashions into elite select high-end boutiques in South America. I am fluent in English and Spanish, I am confident in my ability to form relationships, grow and build relationships, make contacts and service clients. I have extensive experience in Sales, and am able and experienced in extensive travel, I worked previously as an auditor with a very large territory and travelled 90% of the time, so I am comfortable travelling for extended periods and at length. I am looking for some guidance on how to get started, other companies that exist I can model my business after, and an estimation for revenue I could potentially expect. Any insight would be greatly appreciated.

  167. Joe K says:

    I am trying to write a contract for an independent sales rep whose only job is to set up appointments with target clients. I will close the business. Once a sale is made, I will pay a commission. Repeat business after the first sale is usually comes to me directly. I want to pay the rep something for some number of sales after the initial sale as they made the business possible. How should I word this in the contract? How long after the first sale does the rep continue to make a commission? If others give me referrals to the same client, how do I ensure that the sales rep does not feel slighted that I went around him?

  168. jas says:

    You have asked three questions. I will share my thoughts.

    1. How do I word the provision about paying the rep for some number of sales after the initial sale. Since I am not an attorney we cannot provide the actual contact for you. Having said that, what you want to do is first decide on what you want to be the deal. Do you want it to be X number of sales, as you write? Or do you want it to be a certain dollar number of sales? Or do you want it to be sales over a certain time period? Once you decide, then put those terms directly into your contract. It is best to have legal counsel on the construction of a contract. You can obtain such advice very inexpensively by signing up for a “pre-paid legal” service. Just Google “pre paid legal service”.

    2. How long after the first sale does the rep continue to receive a commission? Since your rep is not a “full-service” rep because you are closing the deal, the normal considerations here might vary. However, there are two ways to approach this. One way presupposes that this rep is continuing to create a good income stream for your company over time. In that case, the rep may be exerting a lot of up-front, uncompensated costs while building your business. And so the rep expects to get compensated for the up-front work on his part by residual income. In that case, you might want to pay the rep for as long as they keep working for you, and sometimes even for a time period after the relationship ends.

    On the other hand, if you are thinking of this relationship as a short-term arrangement, and the rep is not putting in a lot of uncompensated effort, then you might consider it less of a commission and more of a fee-for-service. In that case, the period could be much shorter.

    3. How to deal with referrals to the same client? I am assuming that the others have already given the referral as otherwise the question is not relevant. This question is similar to the concept of “exclusive territories”, in that it asks whether the rep gets compensated for work he did not initiate. Whether you choose to compensate the reps in this case, or “slight” him as you say, depends upon how you want to motivate your reps.

    Think of it as the rep running a business. Does he make enough from your relationship to justify him being highly motivated? If so, then there should be no problem. If not, then you might not be able to keep that rep or keep him delivering for you.

  169. Monica says:

    Having run a small business practically by myself all these years, i now have the need to hire an independant sales rep. it will be hard for me to do without teaching him/her how to run the business. How do i prevent that they will not venture on their own?

  170. jas says:

    In general, you cannot prevent people from going into a competing business. However, you can enter into a Non-Compete Agreement with them, that stipulates that in exchange for sharing confidential information about your business and other details about how you will enter into a cooperative arrangement, they will not create a competing business. Such an agreement is very commonly used, and may be adequate for you.

    However, Non-Complete Agreements may be difficult to enforce. That is, if the other party breaches the agreement, then you have to sue, and some provisions may be hard to enforce. Yet even with these drawbacks, such agreements are very widely used and should be what you want to do. Often a Non-Compete Agreement is combined with a Non-Disclosure Agreement.

    Google “non compete agreement” and “non disclosure agreement” to get started. In addition, you might want legal advice.

  171. Denis poulin says:

    I have asked a friend if ever she had a chance to get me some contacts for my promo items business. How much is a contact worth if I sell and make a profit of 300.00 with his contact and how much should I give him if this client comes back. Once the contact is made I do all the rest from A to Z sell the items , artwork , e-mails back and forth, ordering , paying the invoice making the invoice and all the accounting? She does this part time should I pay her a flat rate for every contact she gives me and I get a sale and then give her a commission if they come back?

  172. Becky says:

    I own a recurring-service based business and have never used a sales rep before. Billing is based on man hours, not by the job, and vary from pay period to pay period, making it difficult the know the value of the prospective client. How should a percentage based commission be structured?

  173. jas says:

    @Dinis: While I cannot give you a rule of thumb for your business, I can suggest how to think about it.

    It is common for commissions to be in the range from 10 – 15%. Of course this depends on the industry, and the volume. You said $300 profit but you did not indicate the volume of transactions. In any case, a first step might be to consider how much commission would be appropriate for a “full-service” rep, that is not just providing the contact, but doing a lot of the work.

    Then assume you have a rep business based on this commission rate this is a viable business for the rep. Considering all the reps costs, how much would such a rep be willing to pay to outsource just getting the contacts? Such a calculation should enable you to ball-park how much that part of the service is worth.

  174. jas says:

    @Becky,

    We give background information on how commissions are set in the first post on this page: http://blog.rephunter.net/?p=133. Please read that over and if you have further questions, post again.

  175. jas says:

    I was trying to get some input from associates in your fields, but that appears not to be forthcoming at this time. Your questions go beyond our expertise. You might find some independent reps who have some insight into your questions, but I am not sure that would be the best source of information. You would be better off connecting with people in your line of business.

    When you are ready to make connections with independent reps, our RepHunter site at http://www.rephunter.net is an excellent way for you to find and connect with independent reps.

  176. Kay says:

    How much would a lead generator make for a straight commission based pay OR a combination hourly/commission? This is for simple lead generation consisting of greeting, answering some simple product questions, and booking an in-home consultation. Average time with each potential lead is 5 minutes. The product, if purchased, could be $1500 – $4000. Mostly a one-time sale, although there is a chance of repeat business. Any suggestions would be appreciated.

  177. jas says:

    @keclee: While I cannot give you a rule of thumb, I can suggest how to think about it.

    It is common for commissions to be in the range from 10 – 15%. Of course this depends on the industry, volume, length of sales cycle, and so on. And in your case, it depends upon how much work is done by the lead generator. it would be very different between as you said “greeting, and answering questions” and researching followed by going out proactively to get those leads.

    In any case, try thinking about it this way: consider how much commission would be appropriate for a “full-service” rep, that is one not just providing the lead, but performing the consultation, closing the sale, and even performing after sale followup.

    Then assume you have a rep business based on the full commission rate already determined. Considering that the rep is assumed to have a viable business, evaluate all the reps costs. How much would such a rep be willing to pay to outsource just getting the leads? This would be either some fraction of the reps total commission, or possibly even a flat fee per lead. Such a calculation should enable you to ball-park how much that part of the service is worth.

  178. Paul says:

    I am starting a business relationship with a private sales rep. We are almost finishing a contract thanks to his contacts, but I do not know the correct commission for him. He set the meeting up and we both went to the potential customer’s meeting since I am not fluent in the local language. This is going to be the first sale of many to come, and also, because it is the first, it is going to be a small quantity. The quantity will grow monthly by around 10% percent. Can you advice me in how to proceed with the commission, please? I was thinking about a 5% commission for the first sale and 2% for the following as I would not need his help anymore but I feel responsible to share the future sales because they started thanks to him.

  179. jas says:

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.

    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 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?

    Bottom line: 5% and 2% seems low unless you have talking about very high dollar sales.

  180. Chuck says:

    we are a fairly new company selling gps tracking to commercial fleets, we sell both the device as well as monthly service. Our intention is for sales reps to make $20 per unit (at $80-100) and residual monthly income… ranging from 10-15%. Is it standard to pay residuals to reps for life of account or can we cease residuals if rep no longer sells X number of units a year?

  181. jas says:

    I would not say the is a hard and fast “standard” as arrangements vary. As I have commented before, 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 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.

  182. marilyn says:

    Can anyone tell me the commission for a sales agent representing natural health products? (if not that, food and supplements). Thanks!

  183. jas says:

    Typically commissions are in the 10 – 15% range. Please read the many questions and answers on this page.

  184. Paul says:

    What is a reasonable commission to expect in return for selling cleaning, janitorial and property maintenance type services? Some accounts are worth upwards to 20k – 75k annually. Some are small $200. – $400. jobs.
    What is reasonable? Thank You!

  185. jas says:

    Typically commissions are in the 10 – 15% range. Please read the many similar questions and answers on this page.

  186. vivian gray says:

    I am considering a sales rep job in the HR consulting, training and executive coaching industry. I would be cold calling, renewing business with former clients, etc. The company is currently doing $1M in revenue with the owner handling all sales. All of the consultants who provide the services are 1099 employees. I’ve been asked to suggest a compensation plan. In this industry base plus commission is typical. I could use some advise on % for new sales versus renewals. I was thinking perhaps a higher base/lower commission for first 3-6 months to allow for ramp up time. Any thoughts?

  187. jas says:

    It appears that you have two questions:

    1. New sales vs. renewals
    2. Ramp up time for new reps.

    There is some interaction I think because the assumption that a rep starting out would have all new sales to start with, and more renewals later.

    Yet I think the differences between the two separate questions might shed light on a sound program for you. In general, it seems common that the principal wants to think that the rep should be compensated less for follow on sales. That is kind of like thinking that the rep gets paid for units of labor expended by the rep. Which would be less.

    Yet we advise adding another perspective to that view: the perspective that you are in a partnership with the rep, that you would like you business to grow, and that the rep must be “happy and motivated” to achieve for you what you desire. So the rep needs to be compensated to create this motivation. We have often commented on this aspect in other posts on this blog. Basically, residual income makes it worth while for the rep to create a new business channel.

    This thinking suggests less of a disincentive for the rep to keep producing is better in the long run.

    On the second question, it does make sense to offer the rep a higher base during the ramp up period, to cover for the lack of initial sales. As sales improve one hopes on a hockey stick pattern, the smaller percentage is going to result in much greater income, and less need for the base. That is my thinking.

  188. Susan says:

    I am interested in communicating with Dorothy, who posted an inquiry on November 1, 2013, regarding (quote)

    “starting my own business. I’d like to rep high-end fashions and accessories from Southern California designers/style into elite shops in Canada, or take elite North American designer fashions into elite select high-end boutiques in South America.”

    I design and manufacture high-end, one-of-a-kind jackets featuring finer art embellishments, and am investigating marketing options. Do I need a subscription to this site to contact her?

  189. Chris says:

    Hi,

    I’m wanting to grow my comercial cleaning business. And I would like to hire a rep to sell business, but pay them via commission only. How would you suggests I do that. I would want then to be a lead generator and I will close the deal.

    These cleaning jobs pay on a monthly basis for one year in most cases.

    And if I train the sale rep on closing a deal. How should I pay them for this as well.

    Thanks for your help.

  190. jas says:

    You can certainly have a rep assist you with selling. This blog is all about how to do that! Your questions about how to do it are a little too general for other than general responses. You can learn a lot about how to work with reps by becoming a member of our parent site, RepHunter, at http://www.rephunter.net. You can join for free by creating a profile. Then you have access to our Training page, which has several documents which are quite valuable to someone starting out with independent reps.

    Generally reps are paid on a set commission on the invoice price. You can adjust your commission rate to include all of the other services you are asking the rep to provide.

  191. neal esterly says:

    Your website is helpful. We are manufacturing a high end stand up paddleboard which will have a dealer cost of $1400. We want to hire reps in various regions to call on surf / watersports retail shops and establish dealers for our product. Reps will receive ongoing commissions as the shops takes deliveries. What is a fair commission based on the dealer cost?

  192. jas says:

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself.

    One way that might help your thinking: what commission will allow the rep to make a decent income? Naturally this depends upon what percentage of his volume is from your line as compared to other lines. If you are below that level, then you are not being fair.

    If you are a member of Linkedin, there is a great discussion of commissions at http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=138875088&gid=108923&trk=eml-anet_dig-b_nd-pst_ttle-cn&fromEmail=&ut=2_BZdnSvNnBRU1. The question appears to be a very specific detail about commissions, but the discussion ranges broadly over the topic of commissions in general. If you are not a member of Linkedin, why aren’t you?

  193. jas says:

    @SuKazjackets – I replied to you privately on 13-Jan-14.

  194. Carm says:

    We are entering the Ind rep sale realm and are having issues structuring the commission with a very aggressive salesman. We manf large capital equipment. The rep had previously worked for a competitor and now went on his own so he has a lot of contacts but also keeps pushing for more. We offered 10% of our list price. Which we also requested to be copied on to quote to the customer. This equipment takes 6-8 weeks to build and usually $60+ per unit. We found out on one order that after we also added his 10%, he turned around and added more to the sale price, so is “double dipping” in our eyes. He is now making as much as we are and in our eyes that is not how it should be. We as the manuf. have all the Overhead and costs, he has himself and travel. So, we came back with a solution that all billing be direct from us. He quotes, makes the contacts, etc but then the sale is through us. Is that a proper procedure? Where can I find some good resources on structuring these sales?

  195. Carm says:

    TO correct, the units cost $60,000+ can be up to $500,000 on a large project. In this example the rep, took our price to him (which included his 10%) and turned around and added another $15,000 to the order. Now he is expecting to receive his 10% in addition to what he marked it up. We are now telling him that all billing goes through us and that we retain control of that. Of course he disagrees because he may feel he can get more. Are we not looking at this correctly? Should we be billing for these units anyway?

  196. jas says:

    While adding a markup in the channel is not that common, any kind of business arrangement can be made. Such agreements should be spelled out in your Sales Representation Agreement, which should have a legal review.

    In your case, it sounds like the rep intends to be a reseller of your product, plus also be commissioned, rather than being a pure sales agent. It would be more normal to be one or the other. My thinking is that either the rep could be providing value-added services that would not be available through the pure rep, or alternatively that your pricing or commission level is wrong.

    I am wondering if you have experience with other reps, or could network with people in your industry to get some input from other reps to run a sanity check on pricing, commission levels, and reseller verses pure sales agent.

  197. Carm says:

    There are not many “reps” in this industry, mostly direct salesman. Then there are the actual manufacturers as ourself and the used equipment/resellers. The salesman came from this reseller world. they find some place really cheap to make the product, then mark it up crazy. The salesman we are trying to work with went out on his own and is used to that system. We however are not some job shop but a company with a product line that manufactures it. we are not interested in what he had done in the past and as for value added, he has no Technical skills. That is where we come in with the customer. We take over the conversations of sizing the equipment, what to put on it and actual field measurements. The rep cannot do any of that. So, our feels are straight forward, A flat commission and we take over the billing. In addition, we want to make sure the customer agrees to our terms and conditions of sale for liability purposes. The rep has T&C that basically make him liable for Nothing. That does not sit well with me either. This is our first go around so probably will take some further talks and the help of our attorney.

  198. jas says:

    @Carmie: I am not sure if there is a question, or whether you are just making a comment. Assuming you are asking our opinion of this arrangement, I would say that agreements can really vary as to how they work. My best advice is that whatever you decide to do, put it in writing to reduce opportunities for misunderstanding.

    Could you please describe your industry in more detail? It might be possible to help you find other reps more to your liking, but only with some idea of what you are looking for.

  199. Marissa says:

    Hello, I am looking to hire an outside manufacture sales rep for an electronic company. His responsibilities would be to get our products into large big box retailers such as Costco and Walmart ect. After he opens the account we will hire an inside person to service the account. My question is : how much commission do we offer him? Also, once he opens the account he wants to sign a contract to receive commissions from the account for X number of years since he will open the doors for big box retailers he wants to reap the benefits. Is 1 year fair or more? Also how much commission is fair for him to get us into big stores?

  200. jas says:

    In general it is reasonable to reduce commission if the account servicing is not the reps responsibility. So our usual guideline of 10 – 15% would have to be reduced. This would be a negotiation point. Cannot give you more specifics than that.

    Regarding residuals after opening the account: this is definitely the incentive that motivates the rep to build your business, and is money well spent. One year would probably be a minimum but could go more. You have to decide if you want to motivate the rep to keep opening more lines for you that justifies the cost to you as compared to the revenue streams brought in.

  201. James says:

    I am looking for independent sales reps around the country who would sell big data solutions as SaaS model. They would be required to service these accounts. What is the typical payout for these type of positions in the big data industry?

  202. jas says:

    We don’t have in house expertise in this field. However, I do have a connection in the industry and will see if I can get some good info for you. In the meantime, perhaps another one of our readers might chime in with specifics.

    In general, the rep needs to make a living from all of his lines. Often we use the benchnark of 10 – 15% commission, because that translates into “a living” for the rep. However, in your field, if the dollars are large enough, such a rate might be too high. You might be able to take this line of thinking and back into a rate.

    Finally, as always, talking to the rep will give you an idea of expectations, as well as put boundaries around what you should expect. Why not start such conversations with the reps?

  203. David Evans says:

    We are interested in finding sales reps who have expertise in the sporting goods profession. We are manufacturing a line of high-end Lacrosse sticks and heads, to be launched this year. Does your 10 – 15% commission apply in this field? I am very glad to pay generous commissions to those who earn them. The sales function is extremely important and sales people should be rewarded appropriately.

    We will also be selling on our website – and because these days online sales have hurt the brick & mortar world I will also pay a commission on online sales to the rep if the sale occurs within their territory. The theory is that word of mouth is generated by sales, so if a rep did well in his territory a degree of that word of mouth would drive sales online.

    Would you by any chance know of rep(s) who would be interested in this product?

  204. jas says:

    Our 10 – 15% guideline is very typical. On retail, it might go towards the high side, depending upon volumes. We also run across commissions that go much higher. Say 25% and more.

    Regarding “knowing of reps”: this blog is not intended as a networking platform. Our parent site RepHunter at http://www.rephunter.net however specializes in helping companies find sales representation. Searching our database for “sports” (admittedly a broad search, which needs refinement) gives 236 reps who have recently updated their profiles.

    Please use our “try before you buy” to check us out for yourself.

  205. What is the average commission for an independent western hat representative? I have the opportunity to represent a hat manufacturer and need to know the answer for this question.

    Thank you!

  206. jas says:

    As we have answered many times before, we does not have expertise in many specific fields, including the one you are inquiring about. But our rules of thumb for a wide range of retail lines is 10 – 15%. It can go higher in special cases. We suggest that you network with other reps in your industry. If you are finding that difficult, perhaps you can get some contact info on reps from the customers. Often this kind of information is not readily shared, but you might get lucky.

    There are extensive discussions on commission rates in the Manufacturers Rep group of Linkedin. You might also give that a try.

  207. Marilyn says:

    Thanks Jas for all the comments above, I have read though them and have learnt quite a bit from the discussions. I live in France and have an exclusive distributorship and agency for a product from my home country of Australia. It is a unique product not yet in France with absolutely no competitors. My problem is I don’t speak good enough French to do the presentations, although I already have all the marketing tools, brochures and a sample and have done market research for this product. It’s an untapped market. The product retails to communes or private clients for outside spaces in excess of $7,000-15,000 per unit and so far there is great interest just by my own marketing. My expected net profit is around 33% allowing for import, taxes and transportation. I also need to allow for the fluctuation of the euro-$Au and have a 12 month no price increase.

    This week I have been approached by two prospective agents. France is a large country and it is also impossible for me to service all the regions. So now I need some advice…

    I came across your website and forum for help on a commission structure basis. I know it’s somewhere between 10-15% but my question is do you think I should start at 10% and increase it after the first year? Of course it is a new product in a new market in Europe, much needed and much wanted, particularly in the south during summer. Would you advise to take on both and hit the market quickly and with an impact? I have checked each of their background in sales and both have lived in Australia, are French and know the product very well, they also are very confident that it will sell very well here. They live in different territories.
    I am very comfortable with the import, marketing side but difficult to do the presentations, close the sales etc without the language skills.
    Sorry if it’s a bit long winded but I have been battling along alone with this for almost a year attending trade shows and trying to get it off the ground. It’s not the product that’s the problem, it’s me!

  208. jas says:

    Our rules of thumb on commission rates are geared towards the North American marketplace. They might not be as applicable in France. Yet if you have found eager reps and they are aware of your rates, that implies that it would be workable.

    Regarding the increase in rates later – this would be an intuition but I would think if it works for you to give more later, it might just as well work for you to start at that rate and give the reps maximum incentive. On the other hand, with a large ticket item such as yours, rates of 10% would also be excellent compensation, depending upon the number of sales per time period. You have a start up cost, but so do the reps.

    One way to get a better handle on it would be to take the expected yearly sales, the resulting expected commission, and decide if that is reasonable compensation for the amount of time they are devoting to your line. For example, if they worked on your line “half time”, then is their payout adequate for the half year of work.

  209. Debbie says:

    Hi, I fairly recently started my own medical device company and have picked up a few lines. I want to know if it is ok and if so, the best way to offer a rebate to a customer in order to close a deal after I have exhausted any discounted pricing from the manufacture? Am I able to just give them a check from my company account? Bottom line, I am taking a cut in my commission to facilitate the customer relationship by passing along a savings and closing the deal when I have a competitor trying to take the business. I have heard of this being done in the field but wanted to see what your thoughts are since I am fairly new at this.
    Thanks so much for all the helpful information you provide.

  210. jas says:

    In a totally free marketplace such actions on your part would only be constrained by the contractual agreement you have with your principal. In some cases, you have agreed not to do this, so you should check your contract. If you have any issues with your contact in connection with any such restrictions, you should consult an attorney.

  211. Dawn says:

    Greetings,
    I am considering an independent sales consultant position with Property Guys. Can anyone tell me from experience what the pay structure is?
    Thank you!

  212. jas says:

    While it would be best if other readers with direct experience chimed in, I will at least give you some general guidance. We often give a rule of thumb of 10 – 15%. However, that is slanted towards parts of the channel that are closer to the end consumer, and does not take into account ticket size. Of course with larger tickets the percentages may go down.

  213. Brian says:

    Hi Jas,

    First of all I would like to commend you for your dedication to this thread! It was nice to scroll down and see a current reply!

    I’m heading a new technology start up where we will be selling advertising space within our mobile app. The Rep will educate the potential client and hopefully close a deal. The client pays a monthly subscription for the advertising so I wanted to know what is the typical commission structure? Does the Rep get a residual commission every month while the client is active?

    Sorry in advance if this was already answered.

    Thank you Jas!

  214. jas says:

    Thanks for your kind words. We try to respond quickly to all questions.

    Most reps on our database receive a commission between 5-15%. However, since we deal with every market available, it is best if you communicate with others in your specialty to understand what the acceptable commission is in the market that you are going into, so that you are not only fair to the rep or rep agency, but also to yourself. It is understood if you are creating a new channel, that there may not be others who are in a relevant position.

    One way that might help your thinking: what commission will allow the rep to make a decent income? Naturally this depends upon what percentage of his volume is from your line as compared to other lines. If you are below that level, then you are not being fair.

  215. Brian says:

    Thank you for the quick response.

    Cheers!

  216. steve says:

    I work for an independent rep group in the building materials industry. As a sub rep what percentage of the commissions should I receive for my territory?

  217. jas says:

    You should check with other sub-reps in your industry as we don’t have expert knowledge as to the split in every industry. However, as a very general rule of thumb, a 50% split might be reasonable. But as I said, your mileage may vary.

  218. Li Li says:

    A good friend of mine hired a salesman to help bring business in the door. With A agreement of 1000 dollars a month and 10 percent, after 90 days of receiving nothing to quote except from one place which said he could not compete (guessing with China), he terminated his contract. That business comes back and sends over more things to quote and request a evaluation process. Former salesman insist on being present like the termination never happened. Friend says no and you can cancel that evaluation at anytime because you know longer represent the company. Friend was is planning on still giving him a percentage, if he ever get a job from that buyer, though the contract states that he does not have to. Question is, What should he do?

  219. jas says:

    It is good that there apparently a contract in place. The contract governs the relationship. When parties do not agree on the meaning of a contract … well, that’s what lawyers are for.

  220. Robin says:

    Hi Jas,
    I am a start up company with a unique product and training for Aestheticians in the spa business. I will need to hire commission base sales reps across the country to sell this Home Study Course or the On Site Training. What commission do you recommend I offer and is there anything else I need to include or be aware of? I am starting this with no reserves to pay salaries, insurance etc. I need independent beauty sale reps.
    Thank you
    Robin

  221. jas says:

    In retail areas 10 – 15% commission is very common, all things being equal. This topic is well-discussed in this thread.

    There are many other considerations, especially for newcomers to the rep channel. I recommend you create a free profile at our parent site, RepHunter (http://www.rephunter.net). Then you will have access to our Training Tools, which gives a lot of information on how to avoid the pitfalls.

  222. rose says:

    I work in a furniture store and sale furniture what is the norm commission rate a salesperson should receive ?

  223. jas says:

    On this blog and our parent site RepHunter, we only work with 100% commission independent sales reps, who generally do not work in a store. Are you an employee of the store? If so, that is not our area.

  224. Julie says:

    I am an independent commissioned sales contractor and get paid a percentage of the gross profit. My customer was Past Due on a $45k invoice so the company I work for sent them a new invoice adding a 1.5% service fee. My customer refused to pay the fee of $675 so the company I work for deducted the $675 from the cost of the job reducing my commission on the job by $395.

    Can you tell me if this is legal?

    Thank you

  225. jas says:

    We cannot provide legal advice. However, your relationship with the company is a matter of the contractual agreement that you have in place. (You do have a written agreement, don’t you?) If the contract allows for that, then that is what you have agreed to. If not, then you have to go by the terms of the contract. You should consult a lawyer for specifics.

  226. Julie says:

    Thank you

  227. Kathy says:

    I am currently a full time salaried employee with a mid-sized commercial printing firm for about 10 years as a customer service rep handling multiple large and small accounts internally. With the loss of a few larger accounts this year and reduction in sales, I have been approached by management to help bring in sales by providing outside sales as well as continue to manage the few larger accounts that I have managed for years. What would be the best salary/commission for this scenario, as I do not want to make less than I do now, but wouldn’t mind making a commission on new sales/accounts that I acquire myself. Guaranteed Draw Against Commission?

    Any assistance is greatly appreciated – thank you.

  228. will says:

    Hello,,,
    Learning a lot and have a couple questions :-)
    I’m a new manufacturer of musical custom instruments. Some would call “boutique” or “custom”.
    I’m about to talk with a rep with a lot of industry contacts all over the USA and he can place my product in multiple stores.
    Q#1
    Once a music store is on board, how is payment collected and is there an extra fee for new ACCTS or is it generally one flat fee across the board?
    Q#2
    Is it better to pay commision based on placement fee per item or general commission based on percentage?
    Q#3
    This guy has a lot of experience, and a lot of contacts,
    We build hand made items with no assembly line. How are lead times factored in?

  229. jas says:

    @Kathy – I don’t think I can give really specific advice to meet the needs of your case. However, I can say that you have to come up with something that works for you, obviously, but also something that works for your employer. That is, they would not want to do something that does not make sense.

    From the viewpoint of an independent rep, there are certain generalities for commission rates that have been discussed on this page. Those guidelines would apply. So one way that might help you come to a conclusion would be to consider what it would cost in commission if you hired an outside sales rep to in effect outsource the particular function. That would give you a ceiling on the cost, as keeping the function “in house” by having you provide the service should give some savings to the employer as it could be more efficient.

    Draw against commission then can be worked out, as it is really just the method of payment.

  230. jas says:

    @Will – you have some good questions.

    1. Payment is normally against your invoice to the store.
    2. You pay the rep a commission; typically monthly.
    3. Commission rates are set with the long-term expectation of a livelihood for a productive rep. Therefore, residual income is assumed for future sales to the customer created by the rep.
    4. Commissions are usually based on dollar amounts. Other arrangements as “per item” are less common.
    5. Not sure what the question is about lead times. Why would it be different if you sold direct without a rep? Trying to guess what your question is, I would say the sales cycle would be something like (1) rep gets order and submits to you; (2) you build; (3) you deliver; (4) you invoice; (5) customer pays. The question is then, when do you pay the rep? Often you pay based on when you recognize the sale, which would be when you invoice. You might pay at the end of the month for all sales in the previous month. That gives some lead time for you to collect from the customer. And any failure to collect would be deducted on the next commission report. This gets a bit detailed, and I not sure it is even answering your question.
  231. Nicole says:

    First of all, great article and answers. I am a startup book publishing company that sells curriculum workbooks to schools. I’ve done my research as best as I can to determine a competitive price for my product. I’m trying to design a commission program. I’m considering doing 20% of the sale. However, I wanted to give the sales rep some latitude in pricing by allowing them to offer the customer up to a 10% discount if they feel that will help this close the sale. My thinking was that for every 1% they gave the customer in a discount, they would give up that 1% in commission. (ex. If they offered the customer a 5% discount, their commission would be 15%. My thinking is that the sales person would be incented to only use this discount when necessary and when it was advantageous to them and me vs. too easily giving away the discount.) By doing this am I providing a disincentive to the salesperson? I want to be fair and give them favorable conditions in which to sell. Thanks,

  232. jas says:

    My first reaction is that 20% should be attractive to the rep. Sometimes reps will take a cut in their own commission to make the sale, so this gives them greater latitude to do that. So it seems fair and favorable to the rep. I can only say that if you have priced properly and 20% works for you, then give it a shot.

  233. Nicole says:

    Great. Thanks!

  234. Andy says:

    I am a manufacturer of a small product that a customer buys repetitively over the years. I understand the % amounts, but how long do you pay the rep? if the rep brings a new customer, do i pay the rep on that customer’s sales for as long as they are a rep. Is there a normal time limit?

  235. jas says:

    Both practices are common: (1) declining/eliminating the commission over time, and (2) commissions continuing indefinitely. You have to judge for your marketplace whether giving the rep a stream of residual income helps you in the long run to motivate that rep to continue bringing in new business. By paying them a stream of money, are they making you even more money? Or not?

  236. Wendy says:

    I am a startup veggie burger company. Just myself and a helper. We make them in a rented kitchen and can only put out 240 patties a day. I need a salesperson to get me more customers. My customers, at the moment are restaurants and grocery store deli counters. I see us selling to cafeterias also. What kind of pay schedule do you recommend for the salesperson? Thank you.

  237. jas says:

    It sounds like you are looking for an employee as a sales person. If so, we would not comment on a pay schedule. However, if you are looking for an independent sales rep, then 10 – 15% commission on sales would be typical.

  238. gerry says:

    Do you pay a rep a commission based on MSRP or MSRP less any volume discount that the end user gets? MSRP is$100. Volume discount is $10. Do you pay the rep a commission based on $100 or $90?

  239. jas says:

    While their are many variations on practices, the standard arrangement is to pay commission based on invoice price. That is the “real” price of the deal.

  240. Mark says:

    I am a 50%owner of a small company that won’t be small much longer. I have two partners and both are involved in are involved In the same industry. Both act as sales agents, for our company and also for theirs. We just started selling nationally and actually internationally with our only product and should. Profit margin is thru the roof. Company is doing well. When my partners make a sale, they want 10%. Main wholesale company will do maybe 1 mil in Purchases this year and maybe 10 next year. We have been selling On the different coasts this year and have existing customers. My Partners feel that they should receive the commission from their existing sales and also from the sale to the wholesaler. The wholesaler’s selling price is 50% of the msrp. The wholesaler cost Is an additional 35% from the 50% of the msrp. I don’t feel that they should be able to double dip, that 10% should be enough. The business in Europe should be about 12 mil next year. One of the partners feels that the call came in from Europe from a friend of his and that the friend should get 10% of of the gross sales and that he should also get 10% because he made the sale. One call would earn the friend 1.2 million a year for the foreseeable future. I feel that is excessive and don’t fell that we should pay anywhere near The 1.2. I have to tell you that the profit margin is in the sky. personally I believe that if we do 20 mil in business and the least partner makes over 5 mil that he shouldn’t expect to add commission to the money that he already makes. I believe that we should take all commissions and give them to the employees for working as hard as they do…

  241. Mark says:

    Please don’t print my last name. This company should gross maybe 100mil per year in the next few years with profits in the 90 mil range. The product that we produce was from a brainfart that started in my garage. My partners bought in to my company with no Out of pocket cash. They were brought into this company for their Marketing skill, which is actually paying off really well. They are movers and shakers of the industry that we are involved in, and this company is producing tons of money. My partners should make at least 500k on the plan that is in place. I don’t feel the need for the double dip. Not to mention the 5 mil that they will both earn next year based on profit.. Mark

  242. Abraham says:

    Hello, I would like some advice please.
    I am considering an outside sales position commissions only not an employee of the company with an IT Consulting firm, selling computer product. I have a few clients that I can refer and they would buy from this IT company on a weekly basis. This is what they offered me but not sure it is fair. 3% of net selling price. Here is their verbage.

    ” On an average deal, you would be getting 3% of the net sale amount. For example, on a 100k order, you would be netting 3k. Our total costs (at 20% mu) is 80k, leaving 20k of profit. Subtracting 3k from the 20k leaves us with 17k. We did all the work, carried the paper, and paid you 15% of our profit. I feel that paying out 15% of our profit for a referral is very fair.”

    Thank you for your help on this.

  243. jas says:

    It all depends on your annual volume. And how much of your sales are due to this one line. How much would your yearly sales be? Could you live on a 3% commission on that?

    Some examples:

    1. Your annual sales volume is $10 million. 3% is thus $300,000 You could be comfortable with that.

    2. Your annual sales volume is $1 millions. 3% is $30,000. Probably not an adequate compensation, unless you also have several other lines.

    In addition, it also depends upon whether you are just providing referrals, as you state, or getting a lot more involved. If a lot more of your effort and time turns out to really be required, then it is not “just a referral” and has to be taken into account.

  244. jas says:

    @Mark – I am not sure that I follow your explanation. Are you saying that there is a 10% commission on a sale to the wholesaler, then they also work for the wholesale and sell the product again for another commission? That is a bit odd, but if they are adding value in both parts of the chain, then they might be deserving for both contributions.

    But it seems to me to be double-dipping in the following way: it seems that there is a commission on the sale, and also a share in the profits for setting up the deal with the wholesaler which usually go to the owners. So it almost seems as thought they are looking for some ownership participation.

    One way you might react is to propose a commission on the sale, and if they want to participate in the ownership revenue stream then they should buy in to the business.

    Or I may still be reading this wrongly. There might even be conflict of interest issues.

  245. Diane Hayes says:

    Hi Thanks for taking the time to answer my questions. The cimpany I work for decided in Sept that they were going to straight commission 25% plus medical benefits. My question two fold. First, less than 30 days notice was given to change over from salary plus cocommission to straight commission and is that legal? Two if a customer returns products either a. within 30 days or b. after 6mos cn after a year (there is no time policy in place for returns) and now the rep is on straight commission are they allowed to deduct from current month commission? Also they are paying taxes and medical costs outof this check as well.

  246. jas says:

    Both of your questions (notice period for changes of commission and how returns are handled against commissions) would be determined by the Sales Representation Agreement that you have in effect. You do have one, don’t you?

    As far as I know, neither of these are matters of statutory law, but I could be wrong. You should check with an attorney to see if your rights have been violated.

  247. Todd McMullin says:

    In a startup SaaS environment in Silicon Valley California with a commission-only independent sales rep:
    1) what commission % is reasonable based on deals which when closed would bring annual recurring revenues of US$50,000 per client (financial) to the organization. Once 2 are closed, then similar deals should replicate with other large financial clients over time.
    2) If a US$5,000 monthly salary were introduced, what change would this make to the commission percentage?
    3) Since revenue is recurring, would ongoing recurring commissions be reasonable? If not, for how long?

  248. jas says:

    Reasonable commission depends upon your volume. For most situations we give the guideline of 10 – 15% of invoice. Salary plus commission deals are common. We think of them as a base, or minimum amount. But a big difference between pure commission and a salary is that you are probably thinking of that rep as working exclusively for you as an employee. This is very different from a 100% commission rep carrying multiple lines. The entire dynamic is different, with too much detail to get into here.

    You should take the viewpoint of the rep in getting a feel for the overall commission rate. That is, what is the expected livelihood of the rep, and does your plan allow the rep to achieve that, whether as an employee dedicated 100% to you, or as a multi-line rep having other lines.

    Ongoing commissions are a big motivation for the rep, and we encourage such arrangements. Various time periods can be negotiated for the phase out periods. There are successful arrangements having indefinite periods, and those having phase out periods. A great rep that is making you rich should also become rich, so don’t get hung up on the concept that “the rep isn’t doing anything down the road.”

  249. Kostas says:

    In today’s economy, when the market is so saturated and competition too tight, a sales rep can’t predict the success of sales. I would love the option of getting a small fixed amount paid per month (something about 500 dollars) so that the company shares partially the risk taken by the sales rep. The sales rep might provide the company by a weekly report to document the activity. What do you think about this?

  250. jas says:

    All things are possible. A base with commission is a common thing. However, when you have a guarnanteed base, you are losing some independence and becoming a little bit of an employee. That goes both ways: it will be a value to the company to have the reports, and it is more worth your time to prepare them if paid. If you are taking on an unproven line, then it is more of a no-brainer that the company should take on some of the risk; with established business, not so much.

    When all is said and done, it depends upon your market: do other reps in your position receive a guaranteed base? Do you have the sales performance to justify the risk sharing?

  251. Dee says:

    I own a small consignment shop and would like to hire a sales rep. I have read 5-20% is the standard commission rate to pay the contractor. Wondering if between 10- 15% is appropriate for a consignment shop that only sales clothing?

  252. jas says:

    We usually give a rule of thumb between 10 – 15% for most retail. However, in consignment, the range may vary and that is what you might be seeing.

  253. Jay says:

    how much sales% of total sales should someone get in the auto accessories industry. the profit margin is about 45%

    and there is no base salary.

    lets say on average the sales sells about 20,000$ a month

    what % of total sales is a good rate to give?

  254. jas says:

    Generally we give a guideline of 10 – 15% commission.

  255. Kostas says:

    I have a question: when a sales agent finds a customer for the supplier, and the customer gets in contact with the supplier, how does the sales agent make sure that the supplier pays him comission on ALL orders they get from the customer?

  256. jas says:

    “Make sure” is based on trust, and supported by a solid contractual relationship. In many cases this means that you have a written Sales Representation Agreement, that spells out the details of what you get paid for. You can also ask for sales reports for your territory, to help you understand what is happening.

  257. Kostas says:

    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.

  258. jas says:

    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.

  259. Kostas says:

    Yes, I agree. Thank you.

  260. arun phull says:

    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.!!

  261. jas says:

    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.

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