Know-How Exchange : Other

Start by looking at the kind of person you want to attract to be an independent sales rep/contractor? How much would that person need to earn to find your product an attractive way to spend his/her time? How difficult will it be to sell the product? How motivated do you want your reps to be to direct their talents to your product? What kind of support are you planning to provide for the sales effort?

Then go to the sales process. How many days/hours would be required to close a typical sale? What percentage of customers will renew? How much would you expect the average billing to be in each year for the next 5 years?

When you have answers to those questions, it should be a relatively simple calculation to figure out what the sales commission should be. Usually the most critical questions are: How much time/effort/skill will be required to close a sale? How much will a good, highly-motivated sales rep need to earn in order to be attracted to your proposition?

There are cases where commissions are less than 10% and others where it's close to 100% (of the initial sale), so it's really critical that you answer the questions posed above.

Chuck,
Hopefully you have some track record that gives you the average lifetime value of the client. That's where you want to start.

One idea that is used a lot in the insurance industry is "persistency"....basically the odds that a client will renew. If the average client keeps your service for 5 years and your sales person's customers average 6 years, you can pay a bonus.

Now, if you really don't want the sales person handling any support you'll need to pay them more upfront. If they see potential add-ons as another revenue stream you can lower the upfront commission. You do have to ask how sales savvy your customer support team is before you banish the salesman from supporting the account.

Michael