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paying commissions

I want to know what is customary when it comes to commission arrangments.
I have a communication consulting business and hire a dozen freelance coaches as needed. If one of these subcontractors brings in new business, I pay a commission on top of the usual fee. One of my trainers believes that he is permanently entitled to a commission whenever that client calls the business for services regardless if he participates. Is there usually a limit?

4 Responses

  • Apr 22, 2011

    Principal Owner

    Absolutely there is a limit. I pay a salesman on straight commission when he brings in a new business sale. But that is where it stops. If the client turns into a long-term arrangement, which has happened in many cases, I do not pay a residual fee. He understands completely that he's paid to bring in new business. The fact that I did a good job and kept that initial client and turned them into a long-term client, that is not to his salesmanship, but my business quality. I pay a 10-15 percent commission on that initial sales, but there is nothing more after that on the business that particular client does with my firm. I make this clear in my "Independent Contractor" agreement with my salesman, and he worked with me for six years and never once complained since I made the expectations clear up-front.

  • Apr 22, 2011

    President

    Thanks so much Preston. I have to revise my contract and make sure that everyone signs it!

  • Apr 22, 2011

    Proprietor

    I believe it depends on the type of business. If the salesperson calls and maintains the account on a regular basis, I believe the salesperson is entitiled to some residual.

  • Apr 22, 2011

    Owner

    I believe the key here is did you stipulate this when your sales person signed your "Independent Contractor" agreement.
    Preston Smith with Business Information Systems above made a very valid point, his independent contractors sign an "Independent Contract" agreement with his company this sets out the commission rate, how it applies to the clients they bring in, how and when they are paid, and the limits set up in the agreement.
    Have an agreement in place and I would consult an attorney to make sure you cover all your basis that your outside independent sales persons have to sign, and make sure there are no missunderstandings.
    These days you have to protect yourself we are such a litigious society.

What do you think?

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