Sales agents serve as the direct sellers of your products, acting on behalf of your company. It is imperative for your sales agents to have sufficient knowledge about your product, a decent market reputation and financial strength to help you achieve your business goals. But what fee or percentage should you pay to your agent and how to contract him?
Roles of a commission agent
A sales agent performs part or most of your sales activities abroad. Which activities lie with the sales agent and which with your company, mostly relies on the complexity of the offering. The less complex your product or service is, the more the agent can do:
- Researching the market
- Generating leads
- Initial calling and sending information
- First meeting to present the offering and check the demand
- Second meeting to further define the offering
- Making a proposal
- Entering in negotiations
- Closing the sales
- Delivering the product or giving access to/confirming the service
- After sales service or account management
In case of a simple service like a car insurance the agent can do everything. In case of delivering a complex product like a production line the manufacturer should be involved already from the second meeting.
How to find sales agents?
First of all the sales agent must be capable of performing all the activities that are necessary to get to a sales. Since this practically always includes lead generation, the sales agent should have a sufficient network in the market that you want to enter, or have plenty of experience with (mass) marketing. And their should be a genuine interest to represent you brand, because for example it is a logical addition to the product or service range of the agent.
The commission rate for your sales agent
First of all the fee that you can pay to your agent is limited by the difference between the maximum sales price that you can expect in the market and your own production costs. If you have to give away your whole margin to your agent, there is no use of exporting your products or service.
The second aspect is to see how much effort your sales agent should take. Not all leads will end in a sales, so you will also have to take that into account. The more expensive the product, the smaller the percentage in general will be.
For example if we are talking about selling professional services, like those of lawyers, engineers or cleaners, for a full sales including account management the fee for the agent can be 25 to 40%. For only generating a ‘lukewarm’ lead, this may just be 5%.
For selling custom made speedboats, with a high order value of for example 300,000 USD, the sales fee may be 10%. But in that case from the second meeting onwards the manufacturer will join in the meetings and he will be the one making the proposal, because this is much too complex for the sales agent.
Forging a good, solid business relationship with your sales agent requires trust from both sides. Involve a lawyer for a legally written contract with the necessary elements to avoid unnecessary obligations, restrictions or misunderstandings. In this way, the agent will be aware of their limitations, their benefits and the services they require to increase sales.
Here are some tips for a sales agency agreement:
- Part of the agreement is the agent’s territory. Your sales agent must know where you want them to sell your products and/or services. Some agents may disapprove of you selling in the same territory through different means, so notify them about this if ever it happens.
- Your sales agent must have sufficient knowledge of your products. They should be able to promote your products with its credentials and not exaggerating on its contents and effects.
- The contract must state a limitation on the agent’s authority to act on your behalf, and the corresponding penalties in not doing so.
- You should not forget to identify the restrictions of selling competing products. Some agents would accept different products to increase their own commission, so it’s highly recommended for you to emphasize on the limits of selling different brands. Also, your sales agent may sell some of your own products which aren’t part of their jurisdiction, so you need to be clear on which products they should focus.
- The contract must also explain your duties and responsibilities as the manufacturer; you should give credit where credit is due. However, beware of implementing major restrictions and control on your agents without seeking their advice on the matter.
- Confidential information must be kept hidden at all times to avoid information leakage and duplication of ideas.
- Rates of commission and compensation payments must be clearly defined to assure both parties. You should also notify your sales agent about changes in their compensation if ever a deficit occurs.
- The last term of the contract must include the arrangement on termination. The termination process must be legal and mutual to avoid hard feelings and bad blood between you and your agent.
Some agents may prove to have lesser sales than the agreed quota. Before, jumping to conclusions, make sure that you have played your part well e.g. making sure those supplies are adequate and not lacking, to enable the agent to sell more. Under the UK and European law, failure to notify agents of insufficient supply will make you liable to cover any compensation loss.
Contracts and agreements with agencies must indicate either a fixed date of termination or an indefinite one. UK and European law state that the notice should have a minimum of one month for the first year, two months for the second year and three months thereafter. You may have to pay your agent one year of fees if you terminate the contract. However, if a breach has occurred on the agent’s part, then you have the right to terminate the contract as you wish.
Remember to always seek legal advice before going into a termination agreement with your sales agent to avoid unnecessary payments and trouble.