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November 2, 2005 12:28 PM

Categories: Human Resources

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Joined: 09/27/2005

I'm advising a pre-startup software development company on hiring a business development/sales person. The company wants to offer a straight 10% commission only, I suspect as a result of having been spun out from a consulting/professional services firm. The prospective independent contractor maintains 20-30% commission rates are more common for software sales & has other clients paying in that range. The ASP company is still in its infancy, has applied for a patent, but not yet developed its product, & has not yet determined pricing. If this product is completed/sold, it will sell in a big way, with 1000's of users & multiples of that in revenues.

What do you think is fair compensation for the salesperson & the company?

& Are there any other resources to which you can point for back-up/verification of industry norms/standards on software sales commisions?

Discussion:    Add a Comment | Comments 1-9 of 9 | Latest Comment

November 2, 2005 12:48 PM

I've seen percentages that are all over the map. For an existing business with existing sales it's pretty easy to work out because you can compare against your costs for doing sales in-house on a 100% salary basis. In that case, the most typical range is between 5-10%. For this company, it think it is too early. The company should develop its product and get its pricing worked out and make some sales calls themselves to see how easy the product will be to sell and how long the sales cycle will be. Only then can you come up with a good recommendation of a fair commission structure.

November 3, 2005 12:56 PM

20-30% sounds high, unless he will be doing a lot of marketing, not simply selling, or is expected to fly around the country and/or wine-and-dine prospects.

Straight commission is a bad idea. Search these forums on "commission only" (IIRC) for a discussion. I know it's an appealing idea, so appealing that you will probably ignore my advice, but trust me, it's generally counter-productive.

Setting commission percentages is neither rocket science nor guesswork. What do you think this person will need in total compensation? What percentage of that will be commission? How many licenses do you expect him to sell in a year? What is the average sale? It's fairly simple arithmetic to use those numbers to derive a commission percentage.

Make sure that the number of licenses figure is realistic. You should be able to derive that figure from: How many "touches" will the advertising produce? What percentage of those people will respond? What percentage of those is it reasonable to expect him to close?

The above two formulas are more relevant than "industry standards."

November 3, 2005 6:55 PM

From the sales guy here, let me throw in my 2 cents.

First, stop paying attention to simple percentages. What is most important is the target revenue AND the associated compensation for genetating that revenue. Once you know those two numbers, the percentage is easy.

For example, target revenue (quota) equals $1Million, Target commission compensation might be $50,000. The resulting % is 5. I think that makes more sense.

As for commission only, answer this simple question. If I am working on commission only and I find a lead ... who owns the lead? The sales person does.

More importantly, you lose all control over the sales process. If your commission only sales guy would rather go sailing, how can you get pissy with him or her. They are on commission only.

Can you tell, I don't like commission only deals. Bad for the sales person, but worse for the employer.

April 18, 2006 9:54 AM

The previous post makes sense, but it begs the question:

What are typical targets for sales rep compensation as a percentage of sales or quota? In the previous example, you had $50K on $1M quota, or 5%. Is that typical? What's the range?

I would think you would need to factor in their expenses in that equation as well, so you have a target percentage of what your sales rep costs compared to the sales they bring in . . .

brian leach
Steelray Software

April 18, 2006 1:34 PM

We have commission only sales reps and it works well for all of us. We pay 50% commission on the first five licenses sold each month, it drops for the next 10 and then goes back up again for 15+. They make good money. We only do W-2 employees (they are part of the company, team members) and we provide them with everything they need to do their work. We don't dictate hours but if we did it right and found a good fit, then they like to work and they are earning the money for their work.

I knew when I started this company that I wanted to make it flexible, I've been a mom working in a place that didn't understand that sometimes being a mom or dad comes first and I wanted to create that place. The same goes for non-moms or non-dads, they need flexibility too. What if it's just a really nice day and they want to take the day off, I support that. It's all about balance, find the right people, give them the freedom they need and it's a win/win. (It's a whole 'nother post when you don't find the right people, but you take care of the problem, if you made a mistake.)

We had a very good infrastructure set up and I had no problem giving them deals that I already had in progress to get them launched. We are an established small business that has grown over 200% each year, the last two years. All of our sales were through referrals and people I met at conferences. We had Salesforce.com, Webex and payroll services all in place before we even thought of trying to bring someone on board. One of our commission only people is traveling with me to a conference and will get the leads. I want her to follow up on them, I want to enjoy her success.

Is it for everyone? Absolutely not! You have to establish the company yourself first, build your brand, get the deals, have case studies, create the infrastructure and have a self-sustaining company before you branch out and bring others in, but if you can find really great people that believe in what you're doing (I used craigslist to find these absolutely incredible people) and you support them and help them and give them deals and show them how important they are and they can earn money right away, they'll be completely on board.

I also do direct mailing for them whenever they ask and they make the calls and follow up on them, in addition to the other marketing and advertising that we're doing. It can be done successfully, but you have to know exactly what you want and what success you can promise them and then you have to help them make it happen!

I didn't use the target revenue and target commission methods to figure out the percentage. I figured out what would give them a nice monthly income based on my previous sales years without putting in the sales effort, because I have never made a sales call out. You have to have a baseline of what you can do before you can ask someone else to do it for you.


May 20, 2006 6:11 PM

I have sliding scale, plus an hourly rate... the more they sell, the more the percentage increases... and if they hit the monthly goal (18% above the previous year's number for the same month), then they get a percentage of the overage.

October 12, 2012 4:34 AM

I recently interviewded with a new start-up company and after reading all of these posts I realized I didn't recieve a fair offer, of course I am going to counter offer.

I sold restaurants for 2 years so I don't have any experience in selling apps to businesses. I feell confident that I can do this but as someone posted thay have to give you something for your work and time, other wise you wouldn't feel appreciated and there is no insentive to work

I will also be bringing to the table, all of my previous clients/contacts to promote/sell their product.

I would appreciate any suggestions anyone might have. I also am including my offer that was made to me and would love to hear some feedback. I left out the name of the company as I am looking for help in this situation before I counter offer.
I really like the owners and would like to work for them, but I need something for my time...here is the offer!

It is my pleasure to extend to you this offer of employment to join _____________Your position will be that of Account Representative and your responsibilities will be to source, contact and finalize sales of the ______________. Other marketing duties may be assigned to you from time to time.

We are unable, at this time, to make you an offer that will fulfill your financial requirements. Therefore we will consider you as a part-time employee, allowing you to pursue other avenues. We will leave it up to you as to how much time you devote to ______________; however, we will expect you to meet your sales goals - as described below. AS ______________ grows we hope to be in a position to change your status to full-time.

Your compensation for the first 6 weeks will be a combination of draw and commission:
? A draw of $250/week will be paid to you on a bi-weekly schedule. Commission earnings will be netted against any outstanding draw balance.
? For each App that you sell you will earn a commission of 10% of the total sale.

Following this six week period your compensation will continue to be a combination of draw and commission as follows:
? A draw of $125/week will be paid to you on a bi-weekly schedule. Commission earnings will be netted against any outstanding draw balance.
? For each App that you sell you will earn a commission of 10% of the total sale.

Please note that if the draw balance at any time during your employment reaches a total of $5,000 it will stop being paid to you until such time as your earned commissions bring the draw total to under the limit of $5,000.

As an employee of _____________, all applicable federal and state taxes and withholdings will be deducted from your paycheck.

As a part time employee in good standing with ____________ you will be provided with an iPad and SmartPhone for sales use. You will work out of a home office but be expected to attend staff meetings at the offices in ________________.

During your employment with _____________ you will devote 100% of the hours dedicated to ______________ with your attention, skill and efforts.

During your employment with _______________ you will be expected to meet the following minimum sales goals:

Time Period Minimum Sales Goal
Weeks 1 and 2 of employment 1 App
Weeks 3 through 6 (1 month) of employment 4 Apps
Weeks 7 and thereafter 1 App/day; approximately 20 apps /month

I don't feel that this is realistic and I will counter offer...Thanks for your help.

February 27, 2013 2:58 AM

what i have read here is really very valuable.
I would like to ask how much sales commision should be paid for selling IPTV & Interactive solution for Hospitality ?

November 26, 2014 5:26 AM

The Sales Representative`s commission can be 10%. Normally it`s OK. For comparison the average amount software development project - 15000-3000 USD. If you pay 20% or 30% you will get no profit because everything will be eaten by sales, development and other charges.

Discussion:    Add a Comment | Back to Top | Comments 1-9 of 9 | Latest Comment

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