Salesman Commission...

kdw75

Well-known member
Several years ago we hired a guy in his 80s that was looking for a part time sales position. He had sold everything but printing. He said he would have us rolling in the work. We started out paying him a weekly rate of $500 plus a 10% of profit commission. After a year we realized he wasn't even paying for himself. We then parted ways, but told him any new clients he brought in would get him 35% commission of the profit and 25% on the clients he had previously picked up.

A year later he now wants 40% commission of the profit on all the clients old and new. He only brings in about 5 thousand dollars worth of work a year, so his problem is his lack of sales, not the percentage.

I wondered if anyone cared to share their thoughts on the situation and if you thought 40% of the profit was reasonable without any other compensation.

We are a tiny family shop and our experience with salesmen over the years hasn't been very good. We have hired a handful over the years and they either don't perform, steal clients or just quit.
 
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MailGuru

Well-known member
Yep, sales commissions are certainly a sticky-wicket. Back in the day, when I was in sales, all I wanted was 10% of the non-postage revenue. A percentage of the "profit" makes it too easy for your employer to play with the numbers (assign an overhead cost, jack up the paper or labor cost, etc.). If 10% of the revenue doesn't make it possible for the employer to make money, then, he/she really has no business being in the industry. If your guy was bringing in $5,000 worth of work per year, he would only be entitled to $500 a year.
 

kansasquaker

Well-known member
If 10% of the revenue doesn't make it possible for the employer to make money, then, he/she really has no business being in the industry.
Boy, I'd sure add a bunch of qualifiers and implicit assumptions to a statement like that. It is certainly true in many cases but not nearly all.

Take KDW's case. I'm guessing that sales guy won't bring him any work for $500 per year total. But the question KDW should be asking himself is, am I better off with or without this work at the given margins? (or alternately, at what price am I indifferent to having the work?) That depends on a host of factors. E.g. let's say the guy only generates 5k of revenue with a gross profit of 50% or 2.5k. Now he wants 40% of that or $1000. That leaves $1500 for the shop. If the relationship doesn't require a lot of capital or other intangible support, why not pocket the $1500?
 

davarino

Well-known member
...10% of the non-postage revenue. A percentage of the "profit" makes it too easy for your employer to play with the numbers (assign an overhead cost, jack up the paper or labor cost, etc.). If 10% of the revenue doesn't make it possible for the employer to make money, then, he/she really has no business being in the industry.
One of the shops I associate with does operate on percentage of profit and, because they are meticulously honest, it works very well for them and their salespeople.

However, the percentage of revenue is more transparent for most shops. The shop loses more on some jobs, but it incents the salesperson to sell even if the price has to be cut a bit.

That he trusted KDW75 to be honest about the profit is either a testament to KDW75's honesty or to the salesman's foolishness.
 

kdw75

Well-known member
Thank you for the replies. I was thinking along the lines of what Kansas said and agree it is better to have a little than none. The biggest issue I see with such a large commission is that he will claim some client that we would have gotten anyway through advertising, as we are in a small city. We frequently have confusion too over whether or not he has picked up a client or a dormant client has simply started ordering again. We have had many that we worked with before he started, but quit ordering for a few months and then he stirs them up.
 

kansasquaker

Well-known member
The biggest issue I see with such a large commission is that he will claim some client that we would have gotten anyway through advertising, as we are in a small city.
Can you have him document who he is calling on ahead of time to resolve the ambiguity? Although I can see where some independent reps wouldn't want to divulge that info.
 

kdw75

Well-known member
He does currently, but he has tried calling on current clients saying that he "stirred them up" and wanting a commission. We also haven't discussed how long after picking up a client he should get a commission. Should it be forever?
 

kansasquaker

Well-known member
He does currently, but he has tried calling on current clients saying that he "stirred them up" and wanting a commission. We also haven't discussed how long after picking up a client he should get a commission. Should it be forever?
That's a really great question. There are a couple approaches to that. Obviously, forever can be an answer and IMO that's fine if rep is providing value to all those future transactions. On the other hand, if they just bring the customer in and do little after that, a hunter/farmer approach might be better. The Hunter's job is to bring in customers, they get a larger upfront commission for a relatively short duration. (6 moths, 1yr, 2yr). The farmer takes over for the hunter, working for a small commission that does last forever (or perhaps just an internal customer service person paid hourly or salary). I think the right answer depends on your specific circumstances. You could also mix the approaches, pay a higher commission for a short period and then reduce after a year. Again, assuming that reflects the value the rep is creating.
 

davarino

Well-known member
He does currently, but he has tried calling on current clients saying that he "stirred them up" and wanting a commission. We also haven't discussed how long after picking up a client he should get a commission. Should it be forever?
I would say that as long as he keeps "stirring up" work out of clients he should get commission on those clients. (Residuals are different to this.)

Out of YOUR current clients, I'd say settle on half commission. That's similar to stealing work from a fellow salesperson inside a friendly shop (different contact in the same customer firm, etc., and taking advantage of the "good name of the shop"). This of course is a sticky wicket.

Instead, I'd prefer to draw lines of whom he can't solicit. It's somewhat confrontative and uncomfortable to bring up, but as we all know, "good fences make good neighbors".

And while you're at it, you should come to some agreement to how commissions and customers get dealt if/when your relationship changes.
 

davarino

Well-known member
I've been thinking about the reply I gave yesterday and there is one area that I had forgotten to address:

Is he being a "hunter or a farmer"? (To use kansasquaker's phrase.) Or is he just trying to get whatever he can?

I'd say you'd be best to consider this:

If he's expected to be a hunter, consider paying him about 125% of your going commission per account gathered that he serves for about 6 months. Then it would reduce to say 25% of going commission for the next 2 years, as long as he's doing nothing to maintain the account for you. If he IS maintaining the account, cut to 75% for the next 6 months and then take him to farmer status and full commission.

If he's expected to be a farmer, pay according to your usual commission schedule.

In any case, make sure you both address who "owns" the accounts he works on, and what that "ownership" means.
 

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