# informal salespeople - compensation



## n.signia (Nov 21, 2007)

I have a small crew interested in selling for me, but I am not sure how to fairly compensate. I want to be fair, at the same time don't want to rip myself off. 

Heres what I had in mind:
20% of net profits for first order - sound too high? too low?
10% for re-orders


the 10% for re-orders scares me because I don't want to be tied to these guys for life, but dont want to give the same percentage on a re-order because I feel that their experience with us and our quality will have a huge bearing on a re-order.

Am I way off here?


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## TshirtGuru (Jul 9, 2008)

n.signia said:


> I have a small crew interested in selling for me, but I am not sure how to fairly compensate. I want to be fair, at the same time don't want to rip myself off.
> 
> Heres what I had in mind:
> 20% of net profits for first order - sound too high? too low?
> ...


Sounds fair, but will it be worth it? I don't know where you live, but you might want to look into whether or not sales people need to go under as your employee. Employees mean taxes + insurance = overhead.

There's no such thing as informal sales people. If they are selling for you, they are part of your company.


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## n.signia (Nov 21, 2007)

Thanks Henry,

but I'm not interested in the laws surrounding this issue as much as just wanting some feedback on if what I am thinking about in terms of compensation sounds fair and in the ballpark. Once I determine compensation I will look into the legalities and whether it will all be worth it in the end.


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## Comin'OutSwingin (Oct 28, 2005)

Are they experienced?

20% is extremely high, even for a very experienced sales rep.

I would negotiate with them and offer around 10% with 15% being your ceiling. 

As far as re-orders go, you can give them a smaller percentage for a certain period of time, maybe a year. 

Also, you don't need to worry about them being employees, as you can certainly hire them for their services and not have them as part of your company. There are lots of independent reps that work for themselves and rep many different brands.


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## mikelmorgan (Nov 1, 2008)

I pay 20% of the printing charges on all orders. This is as long as they bring me new customers that I would not have gotten without their help.


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## numbercruncher (Feb 20, 2009)

*Independent Sales Reps(ICs) - compensation*

Compensation for sales people is a complicated issue.

To simplify matters I've made them independent contractors. It is important to define status first. If they are employees - eligible for company paid benefits then depending on what they are and what's covered($ expense to company)the compensation would change.

An independent contractor receives nothing from the company except compensation for sales,which is usually a % of something(gross sales, net profit, etc). This being the case some shops pay in the neighborhood of 50% of simple net profit(total sales minus cost of goods,freight and screen printing expenses). Payment is made when the sale is paid in full. Other shops will establish minimum acceptable margins and pay 10 to 20% on gross sales.

Depending on how you view the sales group(full time vs. part-time)and the importance to meeting your company
goals/forecasts(marketing support) often dictates the direction.

Well here is a starting point for discussion


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## n.signia (Nov 21, 2007)

Comin'OutSwingin said:


> 20% is extremely high, even for a very experienced sales rep.
> 
> I would negotiate with them and offer around 10% with 15% being your ceiling.


thanks Greg,

are you referring to gross sales or net profit?


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## fdsales (Jul 1, 2007)

If you treat this salesperson as an independent sales rep, then be prepared for when he "jumps ship" and goes with another company for a better compensation rate. You'll find that even though you think the customers he brought in are yours, think again. If the sales rep is very good, and takes good care of his customer base, most of those customers will follow the sales rep when he switches companies. Get a contract in writing. Don't think it won't happen,,,it will and does...been there.


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## mikelmorgan (Nov 1, 2008)

fdsales said:


> If you treat this salesperson as an independent sales rep, then be prepared for when he "jumps ship" and goes with another company for a better compensation rate. You'll find that even though you think the customers he brought in are yours, think again. If the sales rep is very good, and takes good care of his customer base, most of those customers will follow the sales rep when he switches companies. Get a contract in writing. Don't think it won't happen,,,it will and does...been there.


This is why I pay them to get the customer. As long as that customer orders from me I'll pay them the commission. It's new customers I'm looking for. Once we've done business with a new customer we consider them our customer. We will take care of the customer from that time forward. We believe that our quality will stand up to anyone. If we lose the customer it would be because of us not doing our job right.


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## intercontex (Apr 6, 2009)

In the apparel business it is typical to pay your independent sales reps between a 10% - 15% commission (12% being the average) of the total gross dollars shipped at the wholesale price (not total $$ secured, due to the fact many stores are going out of business after placing orders or canceling their orders last minute). If your sales rep has a showroom it is very likely you will need to pay a monthly fee for being in their showroom. These fees vary depending on who/where you are doing business with. 

Commissions are usually payable within 30 days after shipping date.

If you hire independent sales reps make sure you restrict them to specific and well-defined regions (i.e. West Coast, Central, Northeast, Southeast, etc.) so they do not fight over territories or approach the same stores. Additionally, I would establish sales goals and incentives in order to boost sales and manage performance.

As a brand you would be responsible for supplying each rep with the necessary samples they need to go out and promote your brand at retail. It would also be a good idea to provide your reps with sales tools such as catalogs/look books, price sheets, order forms, and "open to sell" reports so they have an accurate count of your inventory that is available to sell (should you be selling immediates aside from your upcoming collection).

Aside from securing new sales, your reps should be constantly seeking reorders from current customers. It would be best, however, for you to handle customer service issues directly should any arise.

Good luck.


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## AaronM (Mar 28, 2007)

I think a lot of your questions might be answered already as you have had what I think are some great responses. Anyway, I thought I would add my opinion, just to give you more thoughts. I come from both sides of the fence.

The sales person in me would certainly be more interested and aggressive in my efforts if I was getting paid a percentage of gross sale. The sales person has no control over the profitability of your shop. Now I can understand the factors like discounting etc., so you will have to make sure you are controlling the pricing. For the sales reps I work with now myself as a business owner, I have a set percentage of compensation for the sales people and then allow them to discount as they see fit and we split the difference. So if they discount the item $10, I pay them X percentage of the gross sale, less $5. Seems to work and allows them some room to "close" a sale.

I do fully agree that it is very important to get all of these items down in writing in a contract form and to outline the no-competes etc. You need to protect yourself and I am sure they want some protection as well.


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## Susa (Aug 17, 2009)

I've spent 20+ years in professional sales. A couple of thoughts:

1) *% of GROSS PROFIT can be manipulated* *by the owner*. I don't know a screen printers costs or how to control them...that's the printer's job - and not a sales function. There is often a wide disparity between projected costs and actual - and that allows WAY TOO MUCH variance for purposes of commission. If you spill a bucket of plastisol during the run, do you charge that "cost" against the job - thus eroding your salesman's commission-able gross profit? 

2) *% of TOTAL INVOICE (excluding tax/ shipping/handling) is the only real number that both the printer and the salesperson can both see*. You should be able to manage your costs and set a "discount range" that has an absolute bottom and pay a flat % commission against the total invoice. If you try to get greedy to protect a high margin, a more efficient competitor will get the business and everyone loses. 

*Example:* _Order for 100 sport grey Gildan teeshirts with single color ink image on front._

Your cost: $4 per shirt
Your authorized sales price range: $6 to $15+.
Gross margin range: $2 to $11+.

If $2 gross margin ($6 sales price minus $4 cost) is not enough, then raise your lowest authorized sales price range to $7/shirt. Then it's the salesperson's job to get the best deal he/she can above the lowest price. 

Let's assume the salesman sells the deal above for $10/shirt for 100 shirts. That's an invoice of $1000. Using a flat 25% commission, you pay the salesman $250. If he sells another 100 shirts at $7/shirt, then he gets $175.

The neat part is that the screen printer can always become more efficient and drive down their cost/shirt (in this case from $4 to $3.50) *without lowering their "lowest authorized sales price"* - and that means more money in the screen printer's pocket !!

I'd love to hear from others on this subject.


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## sjidohair (Apr 9, 2008)

Thanks for all this great info, guys, 
Sandy jo
MMM


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## numbercruncher (Feb 20, 2009)

*salespeople - compensation*



Susa said:


> I've spent 20+ years in professional sales. A couple of thoughts:
> 
> 1) *% of GROSS PROFIT can be manipulated* *by the owner*. I don't know a screen printers costs or how to control them...that's the printer's job - and not a sales function. There is often a wide disparity between projected costs and actual - and that allows WAY TOO MUCH variance for purposes of commission. If you spill a bucket of plastisol during the run, do you charge that "cost" against the job - thus eroding your salesman's commission-able gross profit?
> 
> ...


 These thoughts are exactly why sales people seldom work for screen printers. One they fear owner manipulation-the first point above. Two, when something goes wrong the screen printer often wants the sales rep to share in the cost(the ink problem referenced above was caused by the sales person?). Three,when production costs go down and margins improve why share with anyone...so as the sales reps $s go up will the proration change? % of total invoice while clear often is set too low and works best when the rep is selling not only apparel and decoration but a full line of equipment/items as well which many screen printers may not have or qualify to have... Lots of years here too-I've been on both sides of the fence and thought I'd throw a little boy scout juice on the fire.


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## mikelmorgan (Nov 1, 2008)

All of this is why I pay on a percentage of what I charge for printing. Not on art screen and shirt cost. All of the other charges are settled up front, the printing is also settled up front but changes with amount of colors and quantities and the like. I don't make any profit on art and screen charges and very little on the blank shirt. 

Most salesmen I deal with I do contract work for. They sell the garments for them selves and we are never mentioned. He pays me for what I print for him, what he charges and the profit he makes is his business. The profit I make is mine, everybody is happy.


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## GLembroidery (Aug 11, 2009)

Susa said:


> I've spent 20+ years in professional sales. A couple of thoughts:
> 
> 1) *% of GROSS PROFIT can be manipulated* *by the owner*. I don't know a screen printers costs or how to control them...that's the printer's job - and not a sales function. There is often a wide disparity between projected costs and actual - and that allows WAY TOO MUCH variance for purposes of commission. If you spill a bucket of plastisol during the run, do you charge that "cost" against the job - thus eroding your salesman's commission-able gross profit?
> 
> ...



#2 is really the only way to go. I've managed and owned a few businesses where I had commission only sales people.

When I was doing web sales, my sales people got 10% of the total sale starting commission. Top sellers got generous bonuses and increased commissions.


To the OP:

I would only offer a commission for new customers brought in through these people. Repeat business is solely because of your work and customer service. why should you pay someone else for your part of the work?

Make sure you set your pricing at a point that you are still making money on new customers they bring in. If you have a 25% profit margin and are giving 20% off of that to your sales people, you won't make much money.

Set the commission based off the total sale and offer 10-15% tops. If they sell the product for $25, you pay out $2.50-$3.75 a piece.

When I ran a DTG printer I had a few people that would go out and sell shirts for me. My cost was about $4 a shirt. I told them the minimum they could sell for was $7 a shirt and we would split 50/50 anything they sold it for over $7. I was guaranteed $3 profit per shirt and normally came out around $10 profit for me per shirt.


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## mikelmorgan (Nov 1, 2008)

OK so here is a question for you experienced sales people. If I wanted to hire a sales person for my company what should I be asking the potential employee? What perimeters should I set for them? I am a mid sized shop and don't want to fool with small orders (under 75 pieces). What about leads, is that my responsibility or his? What is a reasonable expectation of sales per month?


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## GLembroidery (Aug 11, 2009)

mikelmorgan said:


> OK so here is a question for you experienced sales people. If I wanted to hire a sales person for my company what should I be asking the potential employee? What perimeters should I set for them? I am a mid sized shop and don't want to fool with small orders (under 75 pieces). What about leads, is that my responsibility or his? What is a reasonable expectation of sales per month?


It all depends on the type of position you are offering. I am a HUGE fan of paying a "commission" to people that refer business to me. Sometimes that pay is cash. Sometimes it may be free goods with their order.

If you are looking for someone a dedicated sales person to go out and sell only for you, you may want to consider a base pay + commission type structure or just a set pay rate.

Remember to be up front about your expectations. If you're looking for someone to only sell orders bigger than 75 pieces, you need to make that very clear to them. 

I'd probably set up a pay scale that included bonuses for sales past a certain level. Also consider setting quarterly sales goals vs. monthly. Some months are real hard to sell anything, but you make it up other times.

If you want/need your person to sell 600 units a month, set that as the goal (or 1800 per quarter). Then set a bonus schedule that rewards significantly for numbers past that. 

In the past, I've bought computers, XBox 360s, paid for trips to Vegas, even bought a car for a sales person that landed a big account. Most of those were when I was building websites and would make considerably more per sale, but you get the idea. Cash bonuses are also a good motivator.

Lead generation is something else you'd have to discuss. A good sales person should be able to come up with their own leads, but at the start it never hurts to point someone in the right direction.


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## Crescent (Jul 25, 2009)

We do a 50/50 net profit split for our sales reps. They are selling wearables that we decorate, as well as the full range of outsourced promotional products.


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## TshirtGuru (Jul 9, 2008)

n.signia said:


> I have a small crew interested in selling for me, but I am not sure how to fairly compensate. I want to be fair, at the same time don't want to rip myself off.
> 
> Heres what I had in mind:
> 20% of net profits for first order - sound too high? too low?
> ...


Drue,

Have you hired a sales rep for your printing business after this post? If so, please share your story. Thanks.


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