What's the best way to split a sales commission?
(Different from yesterday's question.) Professional Service / Consultant receives a substantial commission (35%) when they both open and service an account or project. If instead they receive a call in (perhaps because of their network or reputation) or do know a prospect, and intend to hand the client and servicing over to a colleague, what percent of first fees should the first consultant receive for the intro?
Hi Jeremy, Splitting commissions is always an hard area to receive full agreement on.
There are so many ways an order can be obtained.
Usually the sales person who has done the most work would receive the highest % of the first commission. This is recognition for the work. The smallest commission would be 50% of the standard commission. up to 80% of the same.
Afterwards I would usually provide a follow on split for the next 6 to 12 months. Depending on the industry. This is just a token amount around 10%.
After that it's all the other guys.
The commission needs to be fair, so that there is an incentive for everyone to work as a team. Also it is fair that the one who has work the most in bringing in or maintaining or saving / re capturing an client receives recognition for their effort. But at the same time the rep who will be maintaining the account needs to have an incentive to do so. Plus to grow the account.
I have always found it best to have a discussion with the reps before hand, provide a general understanding, and to keep the structure flexible, and open for negotiation. That way the rep who is chasing the client can come and discuss this with you before it becomes messy. At some stage there needs to be a hand over, It's always better to have this happen at an early stage once the first order is cleared and paid for.
I have always insisted that this be done with the two reps visiting together, so that this is done as transparent as possible for the customer.
50-50 is always fair but if it's a referral than it always depends.
I would consider your described scenario to be a referral. Referrals are generally 10% of the value over a 1 year period.
As part of a consulting/bidder team (50+) we split the deals that come in the form of referrals/emails/others customers at 10% this seems to be the norm in the DoD IT Bidding Industry...
I have always thought of this as a cost of marketing plus a profit on it. So, if your colleague's cost of marketing is 15% of revenue (you are pretty much in the right ball park between 15% and 25%, in case you have to estimate this), you have helped him/her avoid that cost because you performed marketing to find the client on their behalf. As a base, ask for that percentage of the revenue of the project for your marketing work. If the project is an ongoing service, I suggest you cap it at the first year's revenue.
That was for marketing expense. If you in fact also closed the sale, you would also take an additional percentage that represents the cost of sales as a percentage of the revenue.
Finally, add the amount of profit you would have expected for expending this amount of marketing work.
In other words, think of it as you being compensated for marketing and sales work on behalf of your colleague. What would it have cost your colleagues to have done this for themselves and what profit would you have expected for expending this amount of effort?
I think a one time finders fee is appropriate...In the case above. I might suggest that initially the finders fee be a one time payment based upon the projected sales for a specific time period...If for the first 90 days you would normally receive 35%, you may want to negotiate a one time finders fee of so of 20% or some dollar figure that would incentive those to find similar type accounts with similar awards...
It is a very good question. The basis is different depending on Strategy, and how the Engagement with the Customer will go. I don't buy that there is a one size fits all problem. I think it is important to understand the entire sales process AND Customer Management Philosophy.
Thank you four for your responses. More detail will be helpful, so here goes:
Consulting firm. A high producing and well comp’d consultant gets / uncovers new consulting opportunities that are either more than they (the consultant) can handle at the time or are smaller than their “sweet spot” engagement. At this point they engage another consultant, a colleague in the firm, in the sales process. The second consultant takes over the sales process, wins the job, and does the work.
Typical commission for selling and doing the work is 35%. How would you divide that up for the above situation?
Not to play favorites, but of the responses thus far I like Robert Bob Cox Jr's most because it is simple. Deciding what that flat number should be could be a wee bit challenging, getting all to agree on what's fair, but once established and executed consistently I think there'd be peace!
That said, I'm still interested in / open to different thinking. Thank you!
I agree with David Truong, the biggest thing to remember here is that without that referral you would have 100% of nothing. Be generous with your commissions and that person is going to be more likely to do it again and again. I also recommend send the person who gave the referral a written thank you note for sending you the referral!