Questions

What type & percentage commission to pay this "unique" salesman for a upstart digital ads agency?

Hi everyone, I'm a Google ads feelancer with just 2 clients in a construction niche, I don't do SEO but only PPC ads on Google/Bing. I wanted to ask for your opinions on a unique situation where one client of mine (minority co-owner of a relatively successful business) wants to get involved with helping me get OTHER clients in the same industry, just in different cities? Essentially a salesman, and I'd likely pay him only comission per client. He's asked about it twice in the last 4 months, and I think his motivation is that he's somewhat tired after a little under a decade with his current business (and possibly with his less growth oriented co-owner as well) and likely wants to explore other pastures, he's originally a tradesman in a niche of the construction industry. He might also be somewhat bitten by the guru/passive income/scale/location independent bug. I'm actually open to his help, as it would free up my time to focus on other ventures as well as other non-construction niches, and I think he'd be a good salesman too given he'd be pitching other owners in the same industry. I wouldn't plan to solely rely on him to get new clients either..just wondering if this might be a good or bad idea and more importantly what would be a fair compensation structure to pay him? A finite amount based on the retainer he closes? or a % perpetual commission ? I hear 10-15% of MRR is standard although I'm not sure. I'm ok with 15% but think 20% would be too much (I would not expect him to deal with client / do client management activities, only to get the sale) Would appreciate any thoughts and insights on this.

4answers

Some other things to consider:

There are a lot of different things sales people do. For example, a different sales person might do any of the following:

1. Make the phone ring that you answer.
2. Answers the phone and convinces them to talk to you so you can close the deal.
3. Closes the deal and hands you an actual client.
4. Babysits top clients to keep them happy for years.

Each has a different value. You may give 2% to the person who made the phone ring, 5% to the next person, 10% to the next, for total of 17%, plus another 5% to the next person.

Those are random numbers. You need to figure out you can spend on sales and how much they will get over time.

If you give a straight percentage commission on products that have a long stick rate, eventually they will sell enough that they don't need to sell any more, and then your new leads dry up. So, you may need to put caps on commissions. Good sales people have a magical power. They can swoop in, make some sales, earn a lot of commissions, take a vacation for six months and repeat when they run out of cash. They are always in demand.

So, caps might look like 5% of the first 100k, 2.5% next 100k, 0.5% of rest.

And of course, there are junior people and senior people, and combinations of pay + commissions or straight commissions. For example, you might have a college kid who makes the phone ring for 1% with caps + $2k/monthly, and the senior guy who closes them for 10% commissions with caps.

Hope that helps,
John


Answered 2 months ago

Well explained question.
I have a lot of experience with affiliate marketing (which is very similar to the situation you’re describing). The commission range varies widely depending on the industry, and can be anything between 2%-30% of the sale - depending on how high the sale is (usually, the higher the sale value the lower the percentage).
In your case, and assuming that you charge your clients a monthly fee, then the best 2 options would be:
1. A one time fee which would be a percentage (10-20%) of the first months payment from the new client.
2. A smaller percentage (5%) of the monthly fee that the new client is paying you, over a 2-3 month period.
Each option has as a stages and disadvantages.
* the above is assuming you only pay the commission for actual sales (a new client who actually pays you) and not just a lead.

There are numerous other payment options, but here is what is important:
1. Offer the salesmen at least 2 options, after you’ve calculated both and are sure that you’re happy with both. This is important because it shows him that you are letting HIM choose (gives a feeling of respect, cooperation etc.).
2. Offer him a fair percentage because at the end of the day, he is bringing you new business.
3. Taking point #2 into account, if you want to offer him 15%, start by offering 12%. At the end of the day this is a business negotiation, so chances are he will ask to raise the percentages a bit, and if you start a bit lower, you will have the flexibility to agree to his higher percentage request (which again shows your flexibility, fairness and willing to compromise- which will make him feel better).
I’ve successfully helped over 300 startups and businesses and would be happy to help you.
Good luck


Answered 2 months ago

Easy, give him the freedom to go after clients his way as it's worked for him in the past. As for the commission, base that on the amount of the sale with a scale so it's fair to you both. Commission only is rough, get to know your sales people personally. At times, a small base pay is good to keep their bills paid, gas in the car, travel etc.. as people need to eat and take care of family.

The base is purely for a limited time, like say 3 - 6 months as they are working for you. Don't micro manage, just each week have 1 on 1 meetings to know the progress and adjust since you do not want to repeat the same approach that's not working.

As the sales increase, start reducing the base then eventually remove the base as they are on their feet. It's also normal to provide advances to good salespeople and deduct from the pay in stages.

The main thing, be fair to you both.

I've experienced this for over 20 years as a salesmen, owner and investor in people. If you have specific questions or want to know more? I'm more than happy to advise, let's connect as I just joined and ready to assist you and others.


Answered 2 months ago

John Reel has it correct. What value will he bring? If he closes the deal and brings you a real client, then he's worth 20-25%. If he brings you a warm, unqualified lead, then 2-5%.

Then, the question is for how long do you pay him? If he wants to be paid for the lifetime of the client, then it's much smaller (10-15% assuming he closed the deal versus 20 - 25%) than if he wants a one-time payment for bringing the client. If he wants lifetime, then HE is responsible for renewals. If you are doing the renewals then he doesn't deserve lifetime payments.

From your perspective you need to ask "what is my cost of acquiring a customer". I'll bet it's a lot higher than you think!

In my world of big-ticket, B2B, complex selling, 20 - 25% is very reasonable.


Answered a month ago

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