Ask a GoForth Expert
People Management
- I'm a one-man operation. What should I be paying an independent sales person who works solely on commission?
Dawn McCooey
People ManagementDepending on the environment in which this person will be selling, the compensation will vary considerably. If one is selling higher priced commodities and does so less frequently you should pay a relatively high commission rate. For example, is copy machines are the item for sale and the average purchase price ranges from $5,000 - $50,000 then it is likely going to take time for the sales person to complete a sale and will therefore take more time to earn money.
If on the other hand, the sales rep is selling lower priced items more frequently, a lower commission rate is acceptable.
Follow these calculation tips to determine a rate for your sales person:
How much do you wish to pay or have budgeted to pay the sales person over the course of one year? Let's pretend you'll pay $50,000…
Three quarters of whatever you decide to pay should be considered commission and the rest salary. In our example that means $37,500/year commission at $3,125/month. If you decide to pay commission only then you'd be prepared to pay $4,166/month.
What's the value of sales you anticipate their territory to generate (based on your market research)? If you anticipate sales of $500,000 you divide either the $37,500 or the $50,000 by $500,000 to get the rate. Therefore you pay 10% or 7.5% commission.
If sales are going to be lower than that, say $200,000 then you'd likely lower the amount you're prepared to pay them…
For more information on calculating commission rates, check out www.qcommission.com/salescommission
View all answers from Dawn McCooey
About Dawn McCooey
A veteran entrepreneur, Dawn McCooey ran her own HR Consultancy for 18 years and managed a staff of 32 people. Her efforts earned her the title "Best Boss in Victoria." Last year her book, Keeping Good Employees On Board was published by Morgan James Publishing, NY. and quickly became an Amazon.ca bestseller. Today, Dawn works as a Business Advisor with the Women's Enterprise Centre BC and also provides consulting and key note speaker services at www.employeeretentiontools.ca. Dawn holds a Master's degree in Leadership and Training from Royal Roads University. In her off hours? She's either cooking or sailing!
