A written, mutually-signed sales rep agreement is essential regardless of your sales commission plan. There are 3 key reasons to create a sales commission agreement. You need to believe only one of them to start creating this agreement.
Most organizations with an active sales team create agreements for safety. It gives peace of mind knowing that once you have agreed upon the terms, you freeze them in black and white.
Salespeople need the agreement to understand the commissions and payout policies of the company. It’s a negotiation tool as well, so salespeople must read it in full before signing it.
Another option is to create a template once and use it to onboard your sales team. This way, you don’t need to repeat the whole creation process for every agent. Make a copy of the template and making changes in that agreement copy as needed.
Types of sales rep agreements
Before you begin defining your sales rep agreements, look at how you would be employing your salespeople.
Questions to answer are:
- Will they work for you as full-time employees? OR
- Will they work for you as individual contributors?
If the person is an employee, your sales rep agreement will be part of a full-employment agreement. The sales rep will have to follow all rules of your company as an employee.
But what if there is disagreement over the “employment terms” in the agreement?
You could hire them as an “individual contributor” with a relaxed employment agreement. Your sales commissions would differ and so you will need a modified sales rep agreement with such agents. The right sales commission tracking software will make it easy for you to change the commission tracking process.
You might not want the salesperson to work for any other company besides yours. In that case, use an exclusive sales rep agreement with them.
Contents of the sales commissions agreement
Your agreement must answer some basic questions such as:
- What is a valid commission? Is it when the client places the order or when they send the payment? What happens when the payment comes in installments?
- What's the monthly cut-off date to earn commissions for that month?
- What happens when the client asks for a refund, cancels the order, or defaults on a payment?
- How do you calculate commission? Include examples in this section to make it crystal clear.
- What are the performance incentives if a salesperson exceeds monthly goals?
Address all potential scenarios in your sales commissions agreement to improve its depth. Here are some tips to add details to your sales commissions agreement:
- Define when exactly the agreement comes into force. Are sales reps on probation or a performance improvement plan eligible for commissions?
- Make it a bilateral agreement. Add your company's responsibilities and your sales rep's rights.
- Ensure that no clause is predatory or unfair for the salesperson in any way. It creates litigation challenges when you need to enforce the agreement.
- Enlist clear and unambiguous criteria for promotion and when those criteria will apply. A mere promise of promotion without a formal role change is not considered a promotion in court.
- Tighten your non-compete clauses. Ensure your salespersons follow them after leaving the company.
- Add non-solicitation clauses and other restrictions so your customers don't leave with your agents.
- Tie serious but reasonable violations of the agreement to penalties on commission. Don’t make the agreement unilateral i.e. unfair to the salesperson.
Peaceful termination of sales rep agreements
What happens when the sales rep decides to leave while commissions are still pending?
Also, what happens to any future commissions that come after the termination of the agreement?
Once you define these details, it'll save you hours of time in separation negotiations.
Blitz is your reliable partner for sales commissions tracking
One of the main reasons customers love Blitz is the ease of change when they revise sales commissions.
With spreadsheets, data inconsistency errors are common. The software might slow down while handling data of large teams with complex sales commissions.
Blitz can automate all that so sales managers can focus on executing the sales process. Book an appointment today to know more or read about how much sales automation can save you.