Not enough information. What are their margins? What is the product / service cost? If you don't know those, it's going to be difficult for you to provide them with a number. 15-25% is typical.
Dear Eric Foster,
The General Truth we know is that Mexico is the country with the world's third largest solar potential. The country's gross solar potential is estimated at 5kWh/m2 daily, which corresponds to 50 times national electricity generation.
How ever, given this and the hypothesis you put above its pretty hard to put expert guess unless you provide share of the companies of other countries,gross market and the shadow price of the sector.
In General i would its very hard to get scientific and expert guess with the above information.
Sounds like you're approaching this from the wrong angle. If you are doing end-to-end biz-dev, negotiations, and everything else why aren't you just setting a bulk rate and reselling yourself? Negotiate for a float while you make the first few sales, then take the distributors' margins - I mean from the sounds of it that's what you're doing now anyway...
A number of comments:
1) Commissions based on "profit" versus "revenue" are pretty dangerous unless you control Delivery as well as Sales. If you don't, there are a lot of ways the profits can and will move: I will guarantee that the tax accountants will have more control over where profits are booked than you will... especially in international trade.
2) Are you covering the office expenses? Travel? Legal?!
3) Have you factored in time to money, especially for a startup/missionary situation? Does the retainer compensate you enough that you will take "normal" commissions versus risk-adjusted commissions?
4) Are commissions paid at contract signing, at invoice, or when cash is received? See "time to money" above.
5) Are you doing all lead gen as well as sales? Do you have a Marketing and/or BD budget to cover this?
6) Standard questions: what's the average deal size? Time to a deal?
Given all of that, I can see this as anywhere from 10% of revenue (very large deals on warm leads with all expenses paid so all you do is close) to 50% (distributor/rep that is taking significant risk and expense). I knw that does not help much, but the true answer is "it depends."
I do have some experience with dealing with south and central american countries with similar products. Have dealt with Mexico in the past.
My advise is to count the cost before getting involved, or even thinking of a commission structure.
1- Do you speak Spanish? ( is a plus). Who is the company that is really making it happen there? Learn from them.
2-In Most cases...... The company that gives the bigger kick back gets the deal, even if your price is lower, is part of how they do business.
3- These projects take a long time to close, if they ever close. You have to invest lot of time, flights,hotels,phone calls and they might even change their minds last minute. Who would be covering your expenses? How would you qualify a project in order to make the decision to get involved or not.
If I was you, and had all the above items in place, and felt comfortable in going forward, I would get product cost to me,and would then put my profit on it. If you take that route , you must have great selling and negociation skills with Mexicans or whoever your prospect is. People sell more expensive products than their competition everyday because of those skills.Wish you all the best in your decisions going forward.
It varies by industy and -- my experience - not in solar - is, commission relates to total invoice before sales tax. Look for an industry association or publication for what is normal. And, make sure you and they understand and agree on the base amt for your commission. If you continue to discuss profit as a basis, is it gross? (and what do they want to deduct to determine gross) or is it net - after all the company bills are paid? Sometimes a business has a net loss - then what?
Personally it is hard to say what the right percent would be. You need to take into consideration the costs of operating some form of Satellite office as well as having some knowledge of the value of the contracts and the margins that can be generated. You may want to consider trying to obtain a fixed rate monthly rate with a profit sharing agreement of maybe 15 or 20%. If not, then certainly if you can obtain 40 or 50% go for it! Personally I cannot see someone passing 50% of the margin off to you. What ever you decide, best of luck!
They must have a commission structure. I would have thought you would have inquired about that before you began? Better ask now!
How much control do you have related to profits? In my view sales commission should be based on revenues unless you are a principal and have input or control related to profits. Otherwise, your compensation will be at the mercy of the entire organization and its ability to generate profit.
Depends on a few variables....In your paragraph above you mention sales and profits? Is the company a start up or an established business.
Don't go for a percentage of profit. Profit is a nebulous concept as any decent accountant will admit. Any set of numbers can be rejigged using a variety of defensible provisions to produce a loss rather than a profit (happens in Hollywood all the time). Ask for a percentage of turnover / gross sales. Or a flat fee.
I would suggest that you use comparison from an employee point of view. First get the employee compensation plan, then add 10%-15% to the compensation then negotiate with them. For one, since you are in a consultant or contracted BizDev person, you have to consider insurance, tax, and other associated fees that the company does not pay you for your work. This suggestion also refers back to Mel Atwood's suggestion of getting more information before hand and assess.
It depends on the size of the project and your value and uniqueness. The greater your knowledge, contacts and uniqueness, the higher % you can charge. Typical sales commissions run from 10% to 30%, but you can go higher if you're indispensable and a lot is at stake.
I agree with the first comment as there is not enough information. I can say this 50% of the profits is out of the question as I believe the norm is around 30% of the net profit margin.
Eric, Great question. What I do is take current profit and use % the increase as a multiplier. So If I have a base salary of $100 and profits increase 25% then I get $125. It is important to have a reasonable base. Also you can do the same for sales since you might not have control of pricing or costs. Or both. That would give you $150 which is a reasonable bonus all based on performance. Remember it's a multiplier of your base salary, not a fixed portion of the profit. Just and Idea. Good luck
Start the barrel of trust. Then as you deposit credibility, integrity, and value, the barrel will bust and you will get more than you asked for. Asking for percentage only creates a suspicion on the books. How are you going to verify the contractual numbers unless you are also handling that portion.
I would say, focus on how much you need to make that year and then reverse engineer on what cash velocity rate you need from this source. Also asking for percentages sends a wrong message early on that you are judging how much they should make. If you are comfortable with these factors and are in high demand, then start low, deliver and then ask for a stretch bonus.
I would go with low commission, high bonus and decent billing rates if they can also engage you in your services.
Make sure all expenses are met regardless of results.
I'd ask to see the margins on each of the products you would be selling. And based on those margins you can have a realistic conversation.
I'd also recommend being comped on sales - not margin - because you control the revenue, not the cost. You need to understand the margin so that you aren't asking for 20% on a 25% margin job.
I'd also want to understand the tail (service, etc...).
I agree not enough information. Typically sales commissions are not based on profitability (I assume they gave you a price list, price range or actually provided) but percentage of sales. Percentages depend on many factors some of which you listed. 10-25% are standard range. You should be reimbursed for certain out of pocket costs including travel and engineering studies. If not your percentage should be higher.