What should be the commission % of a rep who sells linens?
Friends of mine have a start up import business which imports towels, throws, and bed covers from Turkey. They are selling their products in Quebec and want to expand to Ontario where I live. I thought I could do this to supplement my current income but the commission they are offering seems pretty low. Assuming the average towel sells for $25 they are offering 15% commission and no base salary or no other paid expenses such as km etc. I've researched this and found that average is around 25%-30%. I would need to sell $7,000 towels to make a $50,000 yearly salary. They use ABC HOME NY as a bench mark saying they pay their reps commission only 5%? Maybe on a $5,000 carpet that makes sense but on a $25 towel seems incredibly low. Can someone help me. How do you calculate your commission, should it not depend on the product you sell and its value? Thanks your advice is appreciated.
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Nov 24, 2016
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Nov 23, 2016
They are not hiring you as a full time salesperson they are basically setting you up as an independent rep. You mentioned in your question that you were wanting to do this to "supplement" your income so you are evidently looking at it as a part time thing. That being the case it is extra money not what you have to make to live a comfortable life. You would also be free to add other complimentary product lines which would make it more profitable and boost your income.
I spent the first 20 years of my work life being an independent rep but in a far different field. Based on the information you provided the 15% you mention seems very fair. Most of the commissions I got were in the 5-10% range. I did have a few items less than 5% and a few that were as high as 15-20%.
The percent you are paid is not as important as what you can earn for the time you invest. If you can't get a good return on your time then you either need to add products or find something else to do. It isn't worth their effort to come up with a program that won't let you make money. Turnover is never good.
Having done this and having been heavily involved with the trade organization of others who did this I will add a few things that might be different from what the others have said. You should not have to invoice them for your commissions. They should automatically pay you once a month. You should have Ontario or whatever your territory is on an exclusive basis and be paid on all orders coming from that territory regardless of if you write that order or not. You need to determine if you are paid on orders being shipped or invoices being paid. The most common is when they get paid but if you can negotiate your commissions to be paid when they ship and invoice the product that is a plus. You should be paid on the invoice price less shipping which will be less than being paid on the retail price.
If in the future you want to grow this business and make it a full time business adding other products you might want to look into joining MANA. That is the manufacturer's Agents National Association. I believe their web site is manaonline.com
Nov 22, 2016
Hi Helene
Firstly, let's remember many people mistake Mark-up with Margin. For example if you buy something for $100 you mark it up by 50% to $150, you now have 33% margin (not 50%). To gain 50% margin, you need to double the buy-in price namely 100% mark up. It is important to clarify this at the get go, as the semantics in this case are important.
Secondly, in general businesses need 25%-30% margin to survive no matter what the size of their operation except truly high volume businesses such as Supermarkets, Component Manufacturers, etc. This margin level will cover most businesses overheads, costs, and make a profit.
Of course you can reduce the need for higher margins if the supplier is picking up some of the costs, for example if the supplier generates leads, does pull marketing, provides appointments, etc. Take the example of Apple or Samsung where their marketing and branding activities creates demand for retailers, in which case retailers are happy to sell the product for much less margin than their relative competitors.
A commission only salesperson is a business entity so they need to be making the same margins on sales of their “Core/Primary” products. They can afford to make less if the product is not “Core” (or Primary). Non-Core or Secondary products are not main-line revenue generator. So the question you have to ask (as you have rightly indicated), is what does a salesperson need to make in order to reach a salary level that sustains a reasonable living standard (otherwise why would they get out of bed in the morning!).
Suppliers need to decide if they want their products to be Primary product (or Core product) or Secondary product (non-core). If you set your commission low, then you will fall into secondary product level no matter what you think your product is or should be as this is basic economics at work. People sell products that they make most margin from.
Core/Primary products are products that the salesperson will make real effort by spending time and money to market, generate leads, and create demand. Secondary products are also known as pull-through products as they are pulled through as a result of selling and marketing Core/Primary products. For example a salesperson would market, generate leads, and makes visits for Primary products (in your case Sheets, Throw-over, etc. with 25%-30% commission) but will only use the meeting or the sales call to sell Toiletries such as soaps, shampoos, etc, that offer 5%-10% commission.
It is just common sense that this might not apply to larger ticket items such as $10,000 carpet or $50,000 car, or products with high brand awareness, but the economic calculus of what you need to earn to make a decent standard of living does not change.
I hope this helps.
Nov 23, 2016
Thanks Helene for your comment. I remember Uni days though it was a life time ago :-)
I always think of commission as payable on Retail Price (the price end-user pays), otherwise we are talking about Mark Up. The question is if the supplier invoices the end-user and subsequently you invoice the supplier for your commission (Retail x 25% or 30% or whatever rate you agree). If you are invoicing the end-user (and by implication the supplier is invoicing you for the goods), then you need to mark up your buy-in price by 50% to achieve 33% margin or 44% mark up to achieve 30% margin (hence my first comment about clarifying the semantics).
Nov 22, 2016
You cannot link commission with business i.e. it can not be fixed or standardized. Commission solely depends upon business margin. While finalizing commission from supplier you need to bargain maximum, as sometime or always, to achieve good sale, you need to pass on part of your commission to customers.
Also, I suggest you, before finalizing commission with your supplier, you must do some market research. Otherwise, some times, you may be forced to sell you products at zero or below margin. A through market valuation is a must.
Nov 22, 2016
Depends on the brand. Leading brands probably would offer lower rates like 10% but if the brand is new or unknown you may have to shell upto 30%.
Hope this helps!
Hello Ali,
Thank you so much for that reply I feel like I'm back at University :) so well explained.
So just to clarify would that commission be on the wholesale price or the retail price of the product. And this is indeed an unknown company or brand so yes the 25-30% would apply in this case.
Thank you
Regards
Helene