What is a fair commission and expected workload of a promotional product sales rep?
My company sells/distributes promotional products. We are basically a middleman between customers and promotional products vendors. I am the owner, and I have one salesperson (a family member). We are more like partners rather than employer/employee. I am wondering what the performance expectations should be for my salesperson and for myself, as well as expected compensation.
Currently, we split the profits 60%/40%. I get 40% and my salesperson gets 60%. I maintain the financial records, front all the money for orders, place all orders, and create and send invoices. My salesperson communicates with customers and gets orders. We disagree on whose responsibility it is to do certain things. I believe my salesperson should be dealing with the customer side of things and I should be dealing with the supplier side of things. However, she believes I should be doing anything that is considered office work while she only worries about the sales. I AM NEW TO THIS, so I've never seen how it works in any comparable situation. However, considering that she is making more money off of everything than I am, I believe she should at least be doing the same amount of work as me. Especially since in addition to my work input, I am taking on all the financial risks.
Is our setup equitable? Or do we need to rethink our profit sharing % or work distribution?
Yours is an interesting question/s:
First of all, your definition of a sales rep is questionable:
**A sales rep generally doesn't take title of goods, and has no significant capital requirement, or receivables risk; you appear to be a "jobber," or a distributor/wholesaler. You own the goods, hold the receivables, pay the rent, insure the goods, cover the product liability, workers compensation, etc.
**As an owner, your job is to make decisions:
---Who is the administrator/manager/who runs the business
---The salesperson performs the exact duties assigned, or leaves! They may make suggestions, but are/is not a decision maker. A salesperson should have an agreed upon compensation package;>salary or > draw + commission, >commission. Expenses can be on top of the options. Your company structure should cover proper insurance for both you, and the salesperson; the workload is dynamic - what does she want to earn? She in turn, is entitled to earn whatever she is able, and you should not put a limit on her potential earnings. The more she makes, the more you should make. If this isn't true, your pricing/profit structure is wrong.
---Hire additional salespersons to enhance your bottom line, you are not entitled to share in her earning, and she is not entitled to yours.
---A rep earns a commission as agreed, the jobber earns what ever they can, based upon what the market will pay!
---A SCORE mentor is "almost" a consultant. The one who can understand your needs, will help , other will not be of any value; check your SCORE mentor's background. The SCORE mentor's job is to help you understand the ramifications of your decision, not to tell you what actions to take. The latter is the job of a consultant.
You have the toughest job on the planet; working with an unsophisticated, if that is the case, family member. A family member, I opine, should have proven their abilities in a business setting away from a family business prior to joining family business.
Meredith, I always thought the hardest thing to do in business was to sell and be a successful professional sales person. That said, the key word here is professional in that opening up accounts that buy is important but they must pay for the order and at some point, you both should know whether or not you are making money on the account, product line, how much and where we go from here.
That said you are taking on all the financial risks, therefore that becomes just as difficult and stressful as selling the products to the correct customers/markets. This sounds like a full blow partnership to me, and as in any situation TRUST must be maintained.....Relationships must work equally well for both parties in both and financial terms or reassess.... TRUST is so important here and cross fertilization of the tasks in the processes is also important...... Suggested book Positioning----by Reis and Trout.... Have a open meeting and don't hold back any cards either one of you....also In Search of Excellence by Peters and Waterman
Also suggest you familiarize yourself with a business plan----A Score counselor in your area could help you immensely....If you do not have one....Good luck and BUILD TRUST
One of the most common questions involved with the hiring of independent sales reps relates to compensation.
I recommend you keep 75% and your sales person gets 25% because you run the all business.
A few big questions, is she being paid a base salary or is her comp commissions plus profits? Are you making a base salary? How do you calculate profit? Other than product costs how to you account for the other expenses?
If you were to pay her a commission, then that would come out of the "profit" and she'd actually be paying 60% of it to herself. Sounds weird.
Let's do a calculation:
Price to customer = $100
Product cost = $50
Gross profit = $50 - is this your "profit" upon which you split 60/40? You get $20 and she gets $30
G&A Overhead = $20
Net profit = $30 - or is this your profit? You get $12 and she gets $18
Now put a 20% commission in there which would be reasonable
Price to customer = $100
Product cost = $50
Commission = $20
Gross profit = $30, of which she gets $18 and you get $12. So, so far she's received $38 and you $12
G&A Overhead = $20
Net profit = $10 and she gets another $6 and you get $4
There is no right or wrong answer. Most of the time people split income upon two themes: how much risk they take or how much work they put in. I've known "money people" to get 70% of the net profit and I've known them to get 10% of the net profit. There are just too many variables.
If it were me, I'd sit down and figure out, at the end of the year, what should the split be between the two people? i.e. if you think it should be fairly split, then figure out the math accordingly.
Regarding your question about inside/outside or customer-facing/supplier-facing, again there is no right answer. I'd divide this by two factors: who is the best at each and which division of labor would yield the most profit. Most people want to unburden their salespeople with administrivia and let them do what they do best, sell. If an hour of work for the sales person yields $100 in profit then you should hire someone for $30 to do the office functions.
Your question, like so many in here is tough to answer without a lot of information and homework. Have you looked at getting a SCORE adviser?
Oh my, are you ever a generous owner! As a Business Consultant and professional salesperson, I will share that you are allowing this rep way too much latitude. Yes, it's nice to be generous; however, NOT to the 'bottom line' of sustainability and $ profit to grow your business.
If I may suggest, she should be working on the 40%, with you taking the 60% to run everything, including fulfilling her sales orders. And she should express some interest and responsibility for performing minimal "office-type" tasks that will allow the information she gathers to get into your database for creating a customer/client history--- and, frankly, future sales expectations.
Even if she just submits a Daily Call Report to you via email, rather than her having to get into "data entry", which so many salespeople don't like to do.
As far as additional earnings for her, I suggest a bonus $ set-up, based on her measurable productivity for a certain period, say, per month? Per quarter?
Business Development Consultant