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July 22, 2009

Pay Sales Commissions for What?

Filed under: Marketing — Tags: , , , , — Mike Van Horn @ 6:23 pm

Question: I am close to hiring a marketing rep—part base and part commission–and have questions about the commission structure. For new business she brings in, she would get 5% of the gross revenue for 24 months. No commissions on referrals from existing clients or already-established referral sources. But she would get commissions on referrals from new lead sources, even if we introduce her to them.
Any comments or questions on this?
Kim, owner, professional services firm

Kim, here are some questions you should resolve up front:

What does it mean, “new business she brings in”? Does she have to close the deal? What if she turns over to you a strong, interested, qualified candidate, but then you (or someone else) actually closes the deal?

Here are some other “What ifs?” you should think through before coming to a final agreement with her:

Will she get a commission if she . . .
— sells added services to an existing client?
— resurrects a former client?
I would say yes.

What will you say if . . .

•• She asks for 5% on ALL sales (except for specified excluded names)? This often comes up. She will say, “After awhile, we don’t really know where the lead came from. It could have been mine.”
I would counter by saying that this goes both ways: she will benefit by selling work aided by others–such as you. You will specify in the beginning where a prospective client comes from, as soon as a prospect enters the pipeline.

•• A client she brings in then refers you to another, who just calls the office and says, “Sign me up!”
I would say she gets the commission. When you ask for the “source,” they’ll refer you to a client she brought you. But, how long is this chain? Does it extend to the referral of a referral of a referral? Yes, if she’s involved in the contact and sale.

•• A referral source she brings in (a CPA, wealth manager, banker, etc.) sends you a steady stream of prospects, without further input from your rep.
I would say yes, but condition it upon her staying in contact with these ref sources in a defined way.

•• She makes a presentation to an organization, then some time later you get a client through that connection that doesn’t remember how they learned about you.
You need to get sources for every prospect: “How’d you learn of us? Did you meet/work through so-and-so?

•• She works awhile, then departs. Does she still get the bonus on business she has brought in for the rest of the 24 months?
Spell out in your agreement if she must continue employment with you to continue earning extended commission.

In your agreement with her, spell out when will you pay these commissions, e.g.,
— as fees are paid, not when billed, so that you don’t pay commission on accounts in arrears.
— with the next paycheck after the receipt of the client’s payment

Let me know if any other issues come up.

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