Aligning your business with the right sales reps is an integral part of making sure you have the ideal people to represent your products and services in territories across the country. One key aspect of the process is the sales commission agreement contract you create with your sales reps.
You’ll want to make sure that everyone understands all elements of this agreement. It should be comprehensive and cover any type of issue that could arise between you and your independent contractor sales reps. Keeping everyone on the same page—and covering anything that could cause headaches down the road—is necessary to keep everyone happy.
5 Key Components in a Well-Crafted Sales Commission Agreement Contract
How Will CompensationsCommissions be Paid? The details and “nitty-gritty” in sales commission agreements should be very evident as you create a payment structure that covers things like “salary”, “salary plus commission” or “commission only.” Details matter in these types of agreements, so be sure everyone is familiar with the formula that will be used to calculate compensation. Examples of things to detail include how commissions are paid, i.e., on sales net of taxes or on amounts that include shipping costs. The more you both know upfront, the better your relationship will be.
- How Will Compensations be Paid? The details and “nitty-gritty” in sales commission agreements should be very evident as you create a payment structure that covers things like “salary”, “salary plus commission” or “commission only.” Details matter in these types of agreements, so be sure everyone is familiar with the formula that will be used to calculate compensation. Examples of things to detail include how commissions are paid, i.e., on sales net of taxes or on amounts that include shipping costs. The more you both know upfront, the better your relationship will be.
- When Will Commissions be Delivered? Having a set payment schedule can be difficult, especially in new sales rep relationships. However, it is always good to set timeframes for payment delivery once sales begin to close. You could set a payment date of the 1st of each month or even something like 60 days after the sales closes. In addition, make sure that the sales reps understand the cutoff date for payment and that your accounts payable department needs time to calculate and process commission payments.
- When are Commissions Actually Earned? In the world of sales there can be differences between the sales date and the date that the customer pays for the products. Most sales commission agreements note that commissions are only payable after the customer has paid for the products sold. If the customer decides to back out at the last minute, it can be problematic if commissions have already been paid.
- Refunds, Defaults on Payments or Outright Cancellations: It’s no fun when an independent sales rep is expecting a lofty commission payment that becomes unpayable because of a number of issues. Vendors sometimes return products, don’t make the necessary payment obligations or outright cancel orders before the scheduled delivery dates. As sales often happen months in advance of delivery, it’s good to have a plan of action that both you and your sales reps understand for these types of unavoidable scenarios. Most sales reps understand that things sometimes change, but having things written down in a format that you can refer to will help you maintain a good relationship.
- Performance Bonuses or Incentives: It just makes sense to reward sales reps who go above and beyond to get your products on shelves. These types of incentives can be great motivators for sales reps to work harder to get your inventory placed in vertical markets or new territories.
Many manufacturers create tiered performance structures that clearly layout bonus payments for reaching sales goals. As with commission payment schedules, make sure that the pay dates for these additional incentives are clear in your sales commission agreement. Maybe they are paid on a quarterly basis, but no matter the structure, make sure that you and your sales reps are on the same page.
A Final Word on Sales Commission Agreement Contracts
As with anything, preparation is key to success. Just as you assemble all of the necessary ingredients for a recipe, you’ll need to include everything that matters to both you and your sales reps in sales commission agreements. Sit down with them, ask them what they’d like to see and don’t hesitate to create a commission agreement that makes everyone feel happy, secure and ready to get the job done.
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Once you have found the right people, creating a sales commission agreement that keeps everyone happy will keep your new relationships strong and ready for new growth.
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Aligning your business with the right sales reps is an integral part of making sure you have the ideal people to represent your products and services in territories across the country. One key aspect of the process is the sales commission agreement contract you create with your sales reps.
You’ll want to make sure that everyone understands all elements of this agreement. It should be comprehensive and cover any type of issue that could arise between you and your independent contractor sales reps. Keeping everyone on the same page—and covering anything that could cause headaches down the road—is necessary to keep everyone happy.