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What's A Fair Sales Commission?

Posted by Anonymous on 9/8/2006 at 3:31 PM ET 215 Points

I've been playing the part of a marketing director for a document management company for close to 18 months now - www.casoinc.com. During that time I have initiated several programs to improve and bolster leads generation; improved the parent company's website; developed new partnerships; and launched a national document hosting service - www.documentaccess.com. At this stage I have been asked to develop and manage an outsourced telemarketing program. The goal is to obtain appointments for our core products - namely, document management systems. No problem. Where's the rub Ramstedt? Wasting our time again. Really.

Well, the partner has asked me to take the lead in following up, meeting with and general tackling the entire sales process for any leads generated from this program on my own. He wants me to suggest a commission that I think is fair for any sales derived from this program, which I think is great. Here's the rub: I am uncertain what is a fair percentage for an arrangement of this kind.

Anyone have any bright ideas with respect to a commission for this sort of incentive arrangement? Finders fees are what, 10%.

Please consider the following before sharing your answers:

The smallest implementation ordinarily runs about $20,000. Larger implementations ordinarily run several hundred thousand dollars. And, enterprise solutions can run into the millions of dollars. Having said that, anyone familair with the sale of these products know that even a $20,000 sale can take as many months to close as a multi-million dollar sale.

Thanks for the assist.

Kindly,

FHR

Posted by mgoodman on 9/8/2006 at 8:11 PM Accepted

Like so many things, it depends. A "fair" commission is what it takes to motivate you and deliver a profitable sale for the company. If the commission is too low, you won't be highly motivated. If it's too high it won't be profitable (enough) for the company. The key is to find that happy medium.

I'd start by asking what a good sales rep would need to earn to keep him/her motivated. Let's say the number is $100,000/year. Then I'd ask how much revenue is reasonable to expect from a good person working full time on selling the product/service. How long is the sales cycle? How many leads can a person bird-dog at one time? What kind of closing ratio is reasonable in your industry?

Let's say you conclude that a good person can close a $20,000 sale (on average) once every 2 weeks, once the pipeline is filled. That's $500,000 per year. On that basis you might conclude that a 20% commission is appropriate.

Of course, you probably want to provide some non-recoverable draw while the pipeline fills up, and you might want a bonus commission on sales over some number. But the basic idea is to figure out what the salesperson would need to earn and divide that by a reasonable sales target.

Hope this helps.
Posted by GJA-Miami on 9/9/2006 at 5:50 PM Accepted

How about something like 2% of sales, subject to a minimum of $1,000? That way, in the event of a small money transaction there is still some incentive to work (and it costs you only 5%), while on a larger transaction like $1MM, the $20K commission provides incentive without breaking your bank account.