Compensation for Independent Manufacturer Reps, Commission only sales agents
Some of the most common questions involved with the hiring of commission only Independent Manufacturer sales representatives relates to compensation.
Top three of the most common questions regarding commission compensation for sales reps:
- “How do we pay our manufacturer reps?”
- “Are we offering a competitive commission structure?”
- “What’s the average commission compensation for Independent Contractors?”
Our response to these questions:
there is no standard flat rate, commission percentage or easy answer.
Often times vendors and manufacturers present us with a very Common Misconception (and we have heard much more often than one might expect) – “The reps are already out there; our product {or service} is just another arrow in their quiver.” This may be a tool to justify paying a lower end commission than what the profit margin will actually allow. In the event the profit margins are not there for higher commission compensation, this may be an acceptable cause for lower commission percentages but always consider the following:
Nothing motivates sales better than a great product with a very attractive commission schedule for the independent sales reps!
Motivating your sales reps can be a very important guideline to keep in mind. It can be a determining factor to the success or failure of your relationship with, and results of, your sales team. Income Earnings for Independent Sales Reps and Distributors are often higher for reps paid on commission because they can leverage their already established relationships.
Below are Eleven (11) Tips for negotiating compensation for sales reps:
- Company’s Savings of utilizing Commission Only reps versus Direct Salary Reps – Estimated total cost of a direct (Salary) Sales Rep with base salary of $50,000.00 is estimated at $150,000.00 PER REP. (Consider the cost for recruiting, hiring & training expenses, salary, variable incentive compensation, payroll taxes & 401K contribution, paid vacation, insurance & workers’ comp, auto, travel, computer & communications equipment, inside sales support…..etc.)
- An attractive Commission Schedule may be an additional motivational needed to introduce YOUR product rather than other products in their sales portfolios.
- ROI for the reps – e.g. How much customer service do your sales reps need to provide to customers? Product training to staff, product installation, testing, repairs, etc.
- Residual Income – Does your product or service offered generate repeat business? (Disposables – consumables – renewables?)
- Brand or already established Market presence – Is your company or product well branded and already with strong market presence or are you mostly counting on the relationships the reps have with their customers to establish your first sales?
- Competitors’ Matrix – Where does your product or service stand with the competition?
- Company Support – Consider how much support will be provided by the company.
- Marketing Support – What is the budget for marketing to create the demand for your product – Consider: The average blockbuster product is backed with a marketing budget that is more than 230% higher than the average small brands, sales lower than $500 million.
- Utilizing Independent Reps to Create Product Demand – Are you counting on the independent reps to create the demand? Do your plans include Reasonable rewards for the independent reps’ efforts, relationships, follow up support and all involved?
- Gaining the most from independent manufacturer sales reps – Do you expect sales professionals to give your company a higher level sales focus? Determine what you believe to be a reasonable level of sales for a top sales rep in your company and compensation potential as a result. Be careful not to be unrealistic in making these estimates. Remember that salespeople need to have the ability to make big money if they perform. They must perform at a high level to achieve high levels of compensation.
- Additional factors to Consider: sales cycle, average sale (dollar amount), medical sales industry, local, state and governmental laws, cash flow, profit margins, company set up (S-Corporation, C-Corporation, L.L.C, sole proprietorship), customer payment terms, the number of salespeople needed, type of product or service offered, reimbursement potential, commission potential, residual income as with disposables / consumables or larger hits as with capital equipment sales.
Depending on the relative bargaining position of the parties, payment to the independent manufacturer rep can be more extensive than merely percentages of sales and can include many creative commission structure variables. Evaluate What makes a great product to promote – From the perspective of an independent rep so you can recognize what they are seeking in a product to reward the sales reps appropriately.