I am working with a manufactor company that is just starting to set up a sales force. He wants sells people to set up their own companys to be an independent distributor of his product. We pay all our own expense, and no drawns or base pay. There will be a lot of travel and trade show expense. He is offering a 20% commission. A average sale per client would be a couple to three units/ 16K to 30K. and replacement would be a 10 year turn. Does this sound like a good comission plan for this layout of business arrangement?
Sales Commissions Plan For Independent Distributors
Answers
1. The arrangement is not a "sales force". You are paid in commissions and not salary. It is a distribution channel. You are setting up your own company which means extra expenses.
2. How long is the projected sales cycle and commission payout cycle? If you bag your first sale in 2 months + 1 month invoicing and terms + 1 month of payout time, you could be looking at 4 months funding your own expenses for 20% of $30k.
3. What is the product and what is the likelihood that sales will grow/explode and your commissions will be able to support you and your expenses? Especially the introductory phase of the product?
4. Are sales territories/classifications limited or exclusive?
5. You should understand that the manufacturer is off loading some of the risks and costs to YOU!
No one can tell you if it is a good deal or not without more details The above questions however will help you in your decision.
1.Emerson thank you for the feed back and I would like to answer your questions back to you as I am new to this type of sales and am hoping to get more detail feed back to be able to suggest a possible different layout to the owner if his perposal is way off path to us as a distributor channel.
2. Sales cycle is 6 months to a year or more in most cases. Purchase has to be approved in capital budget, which can take up and over a year for approval. 60 day payout after purchase. "I gave you the numbers for an average sale but the larger hostipals could place orders that could be as high as 40K to 70K"
3. The product is a little over a year and a half in its first stages of introduction to the market and has shown to be an needed/desired product for the Industry. Referrals to other client has been very strong because of the need for the product within the Industry. (hostipals are our main client)
4. Territories currently are open with no borders, which I thought could be a better option due to the fact this will not be a recurring sale. Once client has completed the number of units they need for their facility they will not have a need to reorder for at least 10 years or longer " Open to input on if I should be asking for limited or exclusive territores." .
5. I agree and understand the manufacturer is off loading some of the expense and
Anon,
It is a risk-time-reward decision.
I have no experience in Medical Cap Equipments so I cannot comment on industry norms. However, if I were on the financial side of the manufacturer, 20% commission is a tad high for me. So from that standpoint, I believe that is in your favor. Of course it is all relative to the cost to manufacture which if I am correct should be in the 35%-45% range on average. Add the overhead and the commissions, it will definitely extend my financial profitability ratios.
My (emphasis) decision factors would be:
1. Do I have the financial capacity to (a) establish a company (b) support myself and shoulder the expenses until the financial rewards of the venture bears fruit.
2. Realistic projection of sales in terms of number and time frame. - I have to emphasize this because most startups have a "god's gift to mankind" perspective and also most "non binding" calls and discussions with prospective customers paint a brighter picture/prospect that what it really is.
From a non-industry practioner perspective that is what I see. I am sure there will be some industry practioners in the community that will chime in.
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Human Capital