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University of Massachusetts Amherst

Family Business Center

Beyond a Smile and a Shoeshine: Finding, Keeping, Paying Great (or even Good) Salespeople

THIS IS AN ONLINE FORUM where you can add your thoughts about sales reps, commissions, territories, etc etc. ASK YOUR QUESTIONS, OR ANSWER QUESTIONS ALREADY LISTED, by emailing bryck@contined.umass.edu PLEASE KEEP THE INFORMATION SOMEWHAT GENERIC AND ANONYMOUS; i will also edit it for clarity and brevity.

question for anyone willing to share their wisdom and experience on this site:

We have been approached by a salesperson from a competitor who is unhappy and would like to be considered for a sales role at our office. He would prefer to work as an outside independent contractor from his home and receive straight commission based on a percentage of the sale. We have pondered this and don't quite know how to set up an arrangement like this and what all the possible implications might be. Any advice on how to view this arrangement and structure a deal is appreciated.

answers from our wise readers:

We currently have two sales reps under this type of compensation program. This is unusual for us. We normally pay salary plus commission. In both cases the individuals did not want to make full time commitments to an employer as they are near or beyond retirement age and want flexibility. The arrangement is working out well so far. One is paid 10% of sales billed. The other is paid 5,10 or 15% of sales based on what product line is sold. We determined these percentages by calculating the average total compensation plus selling costs (like expenses) of our other sales reps relative to what they were selling. Our limited research showed that other employers were paying 10-12% of sales. I think it would be best to base the percentage on payments received so that they only get paid if you do. This may prevent them from wasting time on accounts with credit problems. We do however put their customers through the normal qualification processes which includes getting and checking credit references. We make sure that the sales rep is not the only contact that the customers have with our company so that if the rep leaves we will likely keep the customer.

Pros of this type of arrangement:
1. You don't have to invest months of salary before the sales rep generates a sufficient amount of business.
2. Very simple to calculate pay.
3. They are not covered by your health plan or 401(k) (no matching contribution)
4. No auto allowance, car maintenance or expenses to reimburse
5. Very motivating for a good sales rep who can be successful
6. You can vary commission % by product line to motivate them to sell more profitable product

Cons of this type of arrangement:
1. You have relatively little control of their activities
2. They may be selling for one of your competitors at the same time
3. They may represent themselves rather than your company, particularly if there is a problem with an order
4. They may not have the company's best interests in mind when making deals
5. They can pick up and leave without any notice, possibly taking the business with them.
6. You don't have to provide them with equipment such as phone and laptop.

My humble recommendations:
1. Check references on the person.
2. Have a full understanding of their objectives in wanting this type of arrangement.
3. Discuss who else, if anyone, the individual will be selling for.
4. Work together to set realistic sales goals for the person. This will help you plan for production capacity needs and give you a way of judging the success of the sales rep. You could add a bonus % to sales above a certain volume of sales to get them invested in the goals.
5. State in your employment contract that at least two weeks notice will be required in the case of voluntary termination. (You can use it or not.)
6. Set up a regular phone call or meeting with the person to check on activities. These people can easily disappear for periods of time and you want to make sure the customers are being serviced.
7. Maintain a database of their customer and prospect contact info in case they leave and you want to keep the customer.
8. Make sure other members of your organization establish relationships with these customers.

I hope this helps. Best of luck with it.
Laura Wright
President, CSW, Inc.

again, email the answers to Ira Bryck , and they will get posted on the site. Please let me know if you want your name and company attached to the answer, or generic (Western Mass. manufacturer) or anonymous.

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