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How best to structure sales commissions for a startup high end womens products?

My company is a 5 year startup that designs and manufacture very expensive women clothing and cosmetic products. We finally are ready for wholesale business and need to come up with a sales commission structure for our own sales team. I think the industry average is 12% but giving we do not have a brand name and track record, we need to pay more. Any suggestions?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Dear Anonymous.

Please see the Q &A : https://www.proformative.com/questions/when-are-you-no-longer-startup about whether you should be calling yourself a "start-up".

One can't really "go back" on salary and commissions without damaging the relationship between employer and employee.

If the average is 12%, you can either pay just a little more than average or (and you don't say whether or not you provide this) increase the base (non-draw) pay.

Both have downsides. The upside for increasing commission would be knowing your variable cost per dollar sold. The downside for increasing base (non-draw) pay is your fix costs will increase.

I would choose variable cost, the more you sell, the more money both of you make; making both of you very happy!

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

First of all, women's clothing is typically sold to retail customers through manufacturer's reps in the US and many other countries. Unless you have a seasoned in-house sales team (or can attract such sales reps), you may find your that sales are challenging and slower than you forecast. If you go the manufacturer's rep route, you'll have to pay the "going rate" of commission or more until you establish a brand and demand, then you can renegotiate. Outside sales reps are accustomed to re-negotiating and are willing to do so when the revenue volume warrants it. If you choose to sell through manufacturer's reps, you'll need an experienced VP Sales to manage the channel and she/he will need a variable comp bonus or over-ride based on achieving sales goals.

Sales commission rates to can be a very touchy and difficult subject for employees. Businesses without customer and revenue traction typically have to pay more to get the seasoned sales people to join up, then as you create your brand and demand and as sales volume increases, they will not be excited about reducing commission rates - make sure that you set expectations up front and can show them that their overall comp will increase and is effectively "unlimited" by the comp plan.

Another thought if you decide to employ your sales team, consider paying a commission only after the customer pays you and based on the net sales (gross sales less returns) or the gross profit (sales less returns less cost of goods sold). These policies will motivate them to make profitable sales not just stuff the channel in order to earn commissions.

Good Luck!

Anonymous
(Founder) |

Thanks for the comments and they are very helpful. In this case, we are not involve with manufacture reps but our own internal sales team. I got some good points here, much appreciated.

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