Sales agent commission?

[Ian PES]

Hello

I have been offered an opportunity to function as a sales agent for someone but the rate of commission seems to be very low at 2.5% so I would value some advice please.

It's a bit complicated because it also involves licensing issues but the main thing I need to try and get clear in my mind at the moment is how to set up the sales agent agreement.

This is regarding a B2B product for roofers that they sell directly for £19.99.

It has UK patent pending.

The client has manufactured the roofing product themselves. They have had these made in China and have sold 500 just via Ebay and with 1500 more on the way.

So what they want is an agent to help with licensing and also sales.

It's the sales agent role that I'm having trouble with.

The proposed 2.5% seems to be very low as a commission. I approached salesagents.uk for advice and they suggested 10% of invoice value for products sales.

Does that chime with what anyone here has experience of?

Also what is normal practice for repeat sales?

I'm mainly involved in R&D but having a product to sell would be helpful in a lot of ways. My business is a small consultancy with 2 full time people and a few part-timers.

Ok thanks

 

[IanSuth]

Ignore "on the way"

If you had created all their existing sales to date they would be paying you £250 for them getting £9750

Is it any work for you to make sales of it ?

If so how many hours to make that £250

AND


Does it cannibalise sales of the other things you sell OR add value ?

Likely this later part is more useful - it is such a low commission in absolute value, that realistically it will come down to "Does this add extra value to other things you do for little extra effort so allows you to make more £ from your core business"

 

[Ian PES]

Ignore "on the way"

If you had created all their existing sales to date they would be paying you £250 for them getting £9750

Is it any work for you to make sales of it ?

If so how many hours to make that £250

AND


Does it cannibalise sales of the other things you sell OR add value ?

Likely this later part is more useful - it is such a low commission in absolute value, that realistically it will come down to "Does this add extra value to other things you do for little extra effort so allows you to make more £ from your core business"

Thanks very much.

No, I agree 2.5% is not worth it -the question is not if I should accept it it is what would be a reasonable counter offer? The client hasn't done this before so they are not aware of common practice.

Yes it would add value in a number of ways but I still need it to make money.

 

[AlanJ1]

2.5% on a £19.99 item is laughable when you have been given no leads and sales to date are 500.

I would be very cautious on contracts even if you do get the percentage you want. Horror stories out there where companies can take back control of accounts after X years to become "house accounts."

With a brand new product, unless it was something ground breaking and was going to be selling in the hundreds of thousands quickly I would be looking for 15-20%. Remember you need to pay for travel to meet clients etc.

 

[MBE2017]

I would just add, any commission would be on the before VAT figure, so if selling £19.99 inc VAT, your commission is 2.5% on £16.99. As for a counter offer, why not simply say no?

This bunch have no clue on what they are doing.

 

[MRQ]

This bunch have no clue on what they are doing.

Possibly so... the question that springs to my mind is; do they have something which is unique and innovative enough to be a possible 'ground floor' opportunity? - Or are they just blaggers who are trying it on and need a good boot? - Who needs who here?

...The O/P will have the due diligence to hand I assume; having, of course, cross-checked the backstory to them and their product.

 

[Ian PES]

2.5% on a £19.99 item is laughable when you have been given no leads and sales to date are 500.

I would be very cautious on contracts even if you do get the percentage you want. Horror stories out there where companies can take back control of accounts after X years to become "house accounts."

With a brand new product, unless it was something ground breaking and was going to be selling in the hundreds of thousands quickly I would be looking for 15-20%. Remember you need to pay for travel to meet clients etc.

Horror stories - house accounts...That's the kind of thing I am trying to plan for.

It is a new invention and 15% to 20% sounds more like it!

 

[Ian PES]

I would just add, any commission would be on the before VAT figure, so if selling £19.99 inc VAT, your commission is 2.5% on £16.99. As for a counter offer, why not simply say no?

This bunch have no clue on what they are doing.

The client is guy with a building business who has also successfully brought 3 concepts from nothing to sales and one is under license to a significant tool manufacturer. They are just feeling their way in terms of some aspects of the sales of things.

 

[Ian PES]

Possibly so... the question that springs to my mind is; do they have something which is unique and innovative enough to be a possible 'ground floor' opportunity? - Or are they just blaggers who are trying it on and need a good boot? - Who needs who here?

...The O/P will have the due diligence to hand I assume; having, of course, cross-checked the backstory to them and their product.

Yes it is a ground floor opportunity and worth taking a risk with I think.

What i am hoping for is some insight from people who have experience with sales agent contracts

 

[MRQ]

From the outside looking in Ian... what readers will see here is the 'lowball offer' and your statement that 'The client hasn't done this before so they are not aware of common practice.'

The additional clarification of them having previously brought three products to market lends a different light to the situation. - And there's the rub.

a B2B product for roofers that they sell directly for £19.99.

Assuming that's +VAT (being B2B) this 'to the door' price must include a margin which accounts for the cost of making that sale - i.e. any retailer's profit, platform commission etc.

They have had these made in China and have sold 500 just via Ebay

Which (rhetorically) charges how much in commission and involves what platforming/distribution costs? (i.e. the time taken for their staff to list and distribute items in addition to Ebay's costs/commission).

What part of that is it that you, as a sales agent, are alleviating for them? And what is it that they believe/require an agent to bring to the overall sales process? What is the worth of this as a percentage of the £19.99 final price?

The client is guy with a building business who has also successfully brought 3 concepts from nothing to sales and one is under license to a significant tool manufacturer.

So, not some bloke in a shed who has stumbled upon the better mousetrap, but an experienced businessman ...which makes the lowball offer all the more disappointing; he should (arguably) know better. And I suspect that's why you're seeing some of the reactions you are seeing here.

I don't doubt for a moment that you would indeed add value in a number of ways; and that too must be reflected in the commission rate and conditions that are ultimately negotiated. - You're not only mitigating costs for them but developing the brand. -And having done this; what degree of exclusivity (and for how long) is necessary for it to make business sense for you?

These are questions that of course only you can answer... contributors here can only put the general thoughts into your head; offering them as points for reflection.

However ...I'm fairly sure your contribution is worth far more than the price of an Ebay listing!

 

[J_A_M_E_S]

Another angle that may give you more information to negotiate the commission up would be to try and find out what the principal's costs are of the products you're selling (mainly, but not exclusively, labour+materials+delivery costs)?

If their costs (at a £16.99+vat selling price) are £5.00, you've got negotiating power to increase your commission. If their costs are £15.00, you haven't (or they need to be selling it for more than £16.99+vat).

 

[Ian PES]

Another angle that may give you more information to negotiate the commission up would be to try and find out what the principal's costs are of the products you're selling (mainly, but not exclusively, labour+materials+delivery costs)?

If their costs (at a £16.99+vat selling price) are £5.00, you've got negotiating power to increase your commission. If their costs are £15.00, you haven't (or they need to be selling it for more than £16.99+vat).

Thanks...yes and i have a rough idea: I think it is £5 basic manufacturing costs so maybe £8 to cover freight etc. But other costs are hard to quantify as it is only such a small scale operation at the moment

 

[AlanJ1]

Thanks...yes and i have a rough idea: I think it is £5 basic manufacturing costs so maybe £8 to cover freight etc. But other costs are hard to quantify as it is only such a small scale operation at the moment

Did they mention rough price to be sold at B2B?

 

[Ian PES]

From the outside looking in Ian... what readers will see here is the 'lowball offer' and your statement that 'The client hasn't done this before so they are not aware of common practice.'

The additional clarification of them having previously brought three products to market lends a different light to the situation. - And there's the rub.



Assuming that's +VAT (being B2B) this 'to the door' price must include a margin which accounts for the cost of making that sale - i.e. any retailer's profit, platform commission etc.



Which (rhetorically) charges how much in commission and involves what platforming/distribution costs? (i.e. the time taken for their staff to list and distribute items in addition to Ebay's costs/commission).

What part of that is it that you, as a sales agent, are alleviating for them? And what is it that they believe/require an agent to bring to the overall sales process? What is the worth of this as a percentage of the £19.99 final price?



So, not some bloke in a shed who has stumbled upon the better mousetrap, but an experienced businessman ...which makes the lowball offer all the more disappointing; he should (arguably) know better. And I suspect that's why you're seeing some of the reactions you are seeing here.

I don't doubt for a moment that you would indeed add value in a number of ways; and that too must be reflected in the commission rate and conditions that are ultimately negotiated. - You're not only mitigating costs for them but developing the brand. -And having done this; what degree of exclusivity (and for how long) is necessary for it to make business sense for you?

These are questions that of course only you can answer... contributors here can only put the general thoughts into your head; offering them as points for reflection.

However ...I'm fairly sure your contribution is worth far more than the price of an Ebay listing!

Thanks very much. The client's main focus is not making and selling these but licensing or an outright sale. Individual sales or even small bulk orders are too labour-intensive to be profitable but can be seen as a way to make the product more viable from a licensee's point of view. But that will take time and I need some short-term income from it.

So the main things are :

- what % commission is reasonable ?
- what kind of exclusivity should be written in?
- what about repeat orders?
- other?

What I am hoping for is some help so that I can work out an agreement.

In terms of % commission, this is where I am at at the moment:

50% of profit? (Example offer for sales work that i found on salesagents dot uk). That seems reasonable but its too difficult to quantify the costs I would say.

10% of invoice? (Suggested by help desk at salesagents dot uk). That would apply if there were established leads.

15% - 20% of invoice ? (Suggested by you). This would be for a completely new product with no leads.

 

[Ian PES]

Did they mention rough price to be sold at B2B?

Not yet, zoom call tomorrow to cover details. I have been assuming a 50% markup by resellers.

One option is to put the price up a bit £25 say

 

[MRQ]

15% - 20% of invoice ? (Suggested by you). This would be for a completely new product with no leads.

Not by me... no; it may have been Alan. One thing I will pick up and agree on though is that it sounds as if the price should be nearer £25.

 

[AlanJ1]

Not by me... no; it may have been Alan. One thing I will pick up and agree on though is that it sounds as if the price should be nearer £25.

Yeah was 15-20% suggested by me. Still stand by this unless it is something that is going to fly.

You are going to have to do a lot of the donkey work to make it happen.

 

[Ian PES]

Yeah was 15-20% suggested by me. Still stand by this unless it is something that is going to fly.

You are going to have to do a lot of the donkey work to make it happen.

Thanks and sorry to both for that mix up!

 

[Ian PES]

Just a quick update. We had a Zoom meeting today and that was very helpful. The offer is 20% and the 2.5% (that confused me and was the subject of this post) is a 'courtesy payment' to cover anything they sign that is not directly achieved through my efforts (there are several leads unresolved or in negotiation). Thanks again for all inputs here which was very helpful and appreciated!