Should there be a different commission rate on a "new" sale versus a repeat sale for an existing customer?
I am looking for advice on paying commission to independent sales reps. Should there be a different commission rate on a "new" sale versus a repeat sale for an existing customer?
Typically yes. It is more difficult to sell a new product/service or to a new customer becuase there are no prior reference or experience respectively. Also a repeat sale requires much lesser effort if customer is happy with fulfilment of preveious sale contracts. The added commision motivates the sales person to put that extra bit of effort to break new grounds
A conundrum indeed.New commissions motivate you to seek out new clients, but having said that I have never been motivated by contract or commission, but rather is it is the job or opportunity that attracts me.I made my most $ in a company whose president showed me the contract once.I never read it, and according to my lawyer you need to ask if you can change the contract; if no then it is a condition of employment, and you do not want to enter that realm of how you get paid.Commission of repeat sales are going to be important to your succession plan.
It isn't a question of need, but rather something that's dictated by your strategy. Do you need a new customer commission rate? Not necessarily.
I've used new customer bonuses with great success, and they work well when you have a great product and service to back it up.
There should be some kind of time limit placed on how long the extra commission would be paid out - first order, first month, first year? You need to decide when a customer is no longer new. In my experience, the new customer bonus would apply for the first year of sales, but then I've worked in industries with long selling cycles.
HIRE GRAY MATTER
Absolutely. Your sales reps are having to do a lot less work to retain customers. Unless your service or produce or customer experience is not up to par.
Pass the savings on to your customers and they will remain happy customers.
if you would like to expand your business and motivate your sales reps. yes the best way is to make a higher commission rate for the "new" sales.
the reason is most of the sales reps do their best to get more commission, and in this case they will not only concentrate in how to get a commission, but also on the new comers customers :)
I agree with Jeff, it is a proven fact that 80% of your sales come from 20% of your customers, so it is very important to manage, service and grow those loyal clients. These people will usually have their favourite salesperson they want to deal with, being the one that built the rapport with them in the early stages and keeps it strong ongoing.They became loyal in the first place because of their initial experience but don't expect them to remain so, if that experience doesn't continue and they get 'taken for granted' instead.
I too have been in sales a long time, 22 years in frontline retail and 8 years in management consulting to retailers and suppliers. I have been the million dollar salesperson as well as the manager who has had to get the best out of my sales teams. If you want results, the only variable commission rates you should consider are tiered target percentages, (one rate for hitting target and then increasing the higher above it they get), otherwise they will see repeat custom as not being worth their effort unless there are no prospects floating.
In short, farming is just as important, if not more so, than prospecting and if you encourage your staff to pay less attention to repeat custom in preference to someone else who comes through your door, don't be surprised if your regulars start to no longer feel valued, (which is what it is all about), and quietly move on.
I should say that, in all of this, I am assuming that you allow your reps to manage their own clients; if you simply have a support team who take orders and the reps are no longer involved after the initial deal, then that would be a different story.
No, the commission should remain the same. There is a high cost to getting customers and keeping them is important. I know of no industry where the commission is reduced for repeat orders. Some companies peg commission rates to the price list/rate/ and quantity of an order. If the margin on a sale is small the commission may be less than that if the margin on the sale is larger.
The independent sales rep ultimately may control the buyer as to whose product they buy, so I would not alter commission rates.
No I do not think there should be a difference as long as you are consistent with your commission structure...For new business you might want to try a long weekend getaway as a prize, new clothes, a sporting event, a play in NY etc. I had good success with these
I look at it this way. New sales should be higher residual should be lower. After a point why would I want to pick up business if I can be comfortable on residual sales?
You need growth so this is important. Constantly picking up new business allows you to cover for lost business unless you are the very few that does not have competitors.
Best of success. Gil