Fair commission rates for freelance sales rep and a creative services business


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I have been pouring over books and the internet for an answer to this question. I understand that this type of question "depends" on many things but if people have had similar experience if would be great to hear what they came across as my head is spinning with a dozen different answers.

Essentially we are a 3D creative studio. We build things like mobile apps and games for our clients and are now looking at virtual reality. So we are helping clients build products for their brand. We have been going 1.5 years and between two directors we have generated approx £200K in revenue. So, it's not amazing but we have been selling fairly well (in our opinion) for our first year and a half with just 2 people. So we are currently in a new business drive to generate some growth.

Over the last few months we have started attracting sales reps who work on a commission basis but I would like to know what the going market rates are for commissions. In terms of the relationship, we are one of a collection of companies they are generating leads for so it basically works as they have a relationship with a client, they then give us the referral. Either just passing on a contact or coming in to pitch with us.

If we were to work with them we would probably work in 2 ways. They would have leads and set up a meeting for us to go in and chat/pitch. The sales rep would step away and do nothing else. Currently we are thinking 5%-7.5%.The other way is they come in with us and help us pitch to the client and secure the deal. Being in the room with us and helping us assemble pitch documents. We normally have a 2 week turnaround for a pitch before going in so we we are thinking of 10-20% seems fair. Again, once we win the pitch we take on the work and sales rep is finished and gets their commission.

As nothing is cut and dry, some clients can take 3 meetings before a deal is closed. With leads times ranging from 1-3 months so I would predict actual time spent would range from 1-2 weeks for the sales person coming in on a pitch with us spread over 1 -3 months. The actual cost of a project will always be defined by us and we will always be in the pitching room to make sure no crazy promises are thrown into the mix.

So couple of questions, is this normally based on Net revenue or Net profit? So on a 100K project that would be 20K (@20%) for 1-2 weeks of work and we then have 80K in the pot to pay staff, cover studio costs etc. So if our operational costs of the project are 80K (20% profit on top to hit 100K) the sales rep will eat all the company profits and leave us at break even. Does this mean you factor in the sales rep commission to make sure you get your profit or just use net profit for determining commission. Also, repeat business from the same client, do you continue to give commission at a reduced rate?

I have seen dozens of different ways to approach but really not sure what would be the best option. We are interested in working with an external to take some of the pressure off of us. We want to make sure the sales rep is paid fairly but we also want to still be able to make profit as a business.

Sorry for the long post, interested to see how other people running creative service companies have approached this.

Any help much appreciated
thanks

Matt

Sales

asked Sep 16 '13 at 01:29
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Matt R
1 point
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • In general, sales commissions are percentage of revenue (excluding any applicable sales taxes), but it doesn't have to be. Anyone who is any good won't fall for a promise of share of net profit, as the shareholders can elect for there to be no net profit if they want to (by re-investing revenues, for example). If you are getting people coming to you, ask them what they'd want. Also, in your example, if 80% of revenues go on overheads, you've got a bigger issue to worry about than paying your sales guys (for that kind of business). – Steve Jones 8 years ago
  • As you start to contact potential candidates, you should be able to get some idea of what they expect?It really is going to be relative to location, industry, and experience. – Jeff O 8 years ago
  • Thanks Stave, Jeff for your thoughts, much appreciated. Will take it all into consideration. – Matt R 7 years ago

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