Commission Rates

brwnee

Member
5
Looking for some feedback on a commission package working strictly sales for a 3pl as an agent.

Responsibility is strictly sales - no operations etc.

Is 30% of the profit fair?
 

PackRat

Site Supporter
20
30% is probably low for that type of sales arrangement. Points vary from 35-50 depending on what else goes with it if anything.
 

loaders

Site Supporter
30
I don't think that 30% is too low for a strict sales commission. If the sales rep only generates 1 million in business at approx. 18-20% profit margin, then yes $54-60K is not really enough to live on if he has to pay all of his expenses as well.

However, the numbers become much more attractive if he can generate closer to 2 million in sales......$108K+. Perhaps you could negotiate a scale where the commission is higher at the beginning to help you get established, then decreases as the sales volume increases?
 
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theman

Well-Known Member
20
It also depends on whether the agent is exclusive to you or not. Some outside agents don't give exclusive rights to any one party -- so usually that rate is fine ... if it's as I point out above you may actually get away with a bit less.

If the agent is exclusive to you though and working from your offices, 30% is on the low side ... average is probably closer to 35 or 40.
 

Freight Broker

Well-Known Member
30
I used to work for a broker on straight commission and loved it. After awhile you get your cut for doing almost nothing if its a good repeat client. This is also why in most sales offices the golf "clubhouse" atmosphere prevails on Friday afternoons...

If you want to maximize your sales team results you should compensate people for finding NEW accounts..offer a flat rate for each customer that comes in based on the customer's size and expected revenue..i..e. a fortune 100 client might be worth 20 thousand while Jimmy's machine shop might be worth only a couple of hundred bucks.
 

MikeJr

Moderator
Staff member
30
Those interested in this topic should have attended the Delta Nu Alpha/NTBA seminar on this exact topic (compensation).

http://www.insidetransport.com/delta-nu-alpha/12875-delta-nu-alpha-october-function.html

For the record, I currently work in operations and have zero 'real world' experience negotiating salaries with sales although I did spend several years in sales so I'm trying to see both sides of the coin...

Not picking on members, just being devils advocate:
The suggestion of a higher commission base early on with a sliding scale (lower) as the volume of business increases sounds great. What if all the early business is hardly any marign (not a win for the company)? What if the business brought on much later on is huge margin (not a win for sales as it's now paid on a smaller percentage)?

Looking at a compensation strictly from a revenue perspective is great, however; what if 'every' single order for the Fortune 500 company requires you to dedicate a large amount of resources (sales, dispatchers, customer service, admin, etc...) and ends up costing you more in resources than it brings in profits, but Jimmy's Machine Shop is a 1 phone call order and high margin?

What makes the most sense is a win/win situation, there are many ways to view this and all factors should be considered (including costs).

I wish I had the magic percentage for you, the bottom line is that both employer and employee need to have the same goal (is it low margin, high volume growth, high margin low volume steady paced growth, maintain current revenue but elimintate customers that cost more than generate?)... Once they can agree on what the 'goals' are they should be able to come up with the right copensation to achieve and reward accomplishing those goals whether it be revenue, profits, new customers, etc...

Pardon my ramble, I realized half way through this that it is DARK outside my window and it has slightly distracted me, not even 5:30PM...

Keep well,

Mike
 
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theman

Well-Known Member
20
I used to work on straight commission until a few years ago. There is some truth to what 'freight broker' is saying, though I personally wasn't nearly as much this way as many others I knew. The only thing I can tell you for sure is that sales prospecting on a Friday afternoon is usually fruitless -- if anything I would do research to figure out who I may call on later.

But the truth is, as the industry changes and buyer behaviour changes, the salesperson as well as the company and operations have to change with it. This means that a salesperson's job with a customer really is never done. If you're not growing, you're dying.

Where a salesperson should receive differences in compensation has to do with whether they are 'hunters' or 'farmers'. There is greater value in bringing new business in (assuming it can be fostered into a profitable relationship) than simply keeping up the relationship with existing customers ... though both are needed.

And it actually doesn't matter if you're looking from an asset based or non-asset based perspective.
 

MikeJr

Moderator
Staff member
30
theman,

I quite liked your summary.

The worst thing you can have happen is all your hunters turn into farmers... The same analogy was used in the lecture I was referring to...

Were you there?

Keep well,

Mike
 

theman

Well-Known Member
20
I've actually never been to a Delta Nu Alpha event. But the same analogy applies to any industry, I believe.
 

Freight Broker

Well-Known Member
30
Every year I hire a couple of college kids at minimum wage to beat the phones... 300 calls a day each ... day in and day out. no commissions paid. seems to work and far more efficient than handing my business over to commission sales people.
 

ROBBY

Member
5
I think if more people worked on commission maybe we would get more work out of them
better than salary
 

Henry

Active Member
10
30 Percent of the sale? SIGN ME UP. Ive never heard of commissions that high unless it is a percentage of profit.
 

Michael Ludwig

Well-Known Member
20
^^^ I love doing business with people that can't, or don't, read ... LOL (just poking a little fun at you Henry).
The OP did say percentage of profit. I'd have to say that 30% of profit is sliding to the low side. Remember, profit is after ALL of the expenses are paid, so if the carrier has to spend some extra money to start a new account, that lowers profit and the salesperson has to take their bite of it as well.
I am not paid, nor do I pay sales staff that way, but I know of many that are paid like that and they love it.
Probably one of the better gigs out there that I know of is 42.5% of profit, plus finder's fees, plus plateau milestones, plus quarterly and annual bonuses. These guys and gals work hard for their money though. They are brokerage outfit and have to source, and monitor, the carrier as well, but they also make high 6 figures, and the really good ones make 7 figures.
 

Henry

Active Member
10
Yes, i think profit can be translated in a few ways. Ive seen sometimes though its a percent of the sale versus the carrier cost. I have also seen percentages of the net net . It is important to be clear about all that when one enters into a sales contract. Thank you
 
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