Hiring a sales representative has the potential to be a profitable activity for any entrepreneur or business owner. However, there is a lot to it. If you’re considering hiring a freelance sales rep, you may be wondering how you should pay a sales rep commission? And if you’re reading this, you’re likely on the fence about hiring your first sales rep. So how do you know when it’s really time to do so?
Knowing the answers to these questions will help you not only hire someone who is right for your company but also hire at the right time for your business. We’ll address these common queries and more below.
What Is a Sales Rep?
Before you hire your first sales rep, it’s essential to know what exactly a sales rep is. That’s a hard question to answer, as a sales rep’s responsibilities will vary from business to business, and industry to industry. In general, a sales rep is a member of staff that promotes goods and services that your business sells. Their ultimate aim is to maximize sales to ensure that profitability and income at a company is as high as it can be.
What Is Sales Commission?
Sales reps for companies are often incentivized to reach sales targets through commission. Commission is payment on top of a person’s regular salary, which they receive only when they make a sale or a certain number of sales. Companies can structure their sales commissions in a number of ways. The structure they pick is that which the company believes will motivate their sales staff the most, while also ensuring their profit margin is one which drives long term success.
The advantages of commissions work for both the company and the sales rep. The sales rep can earn more money, so the better they become at their job (the more sales they close), the more money they make. In turn, a company can ensure their outgoings (in terms of personnel pay) stay in tune with the number of sales they are making.
When it comes to paying staff, a company knows it should always have enough cash to cover this expenditure. If a sales rep sells more, the company makes more money from which it can pay that individual. If a sales rep has a bad month and income from sales is low, the company has a correspondingly lower payment to make to its sales staff. Additionally, by paying sales reps via commission, companies can set their standard salary lower, minimizing overhead costs.
How Much Should the Sales Commission Be?
Setting a sales commission depends on the position you are hiring for and what the market rate is. It is up to you whether you want to go above or below the average commission rate or structure. Obviously, the higher you go, the more chance you have of attracting the best candidates. However, if you cannot afford to pay that rate long term, you risk your cash flow turning negative.
You may want to pay a higher fee to attract a more experienced person who has many years’ knowledge in the field. Not only should you see higher sales figures, you may even benefit from their market knowledge to help improve your firm elsewhere. If you structure your sales correctly, luring a high caliber sales rep is possible, but it takes careful consideration.
When to Hire Your First Sales Rep
It’s important to ensure that you are hiring a sales rep at a time your business can afford to, as without one, growth could be sluggish. If you hire a sales rep too late, you could do your company a disservice as your sales figures may flatline if you don’t have enough staff on hand to further grow your customer base. However, if you hire too early in your company’s life cycle, you risk increasing your overheads, or suddenly having more customers than you are capable of actually serving.
Sometimes it is prudent to hire a sales rep before you even have a service or products to ship. Presales can produce an income that helps pay for the production of your upcoming products or services. Additionally, hiring a sales rep before you have items to sell can make a good opportunity for training. Not all products are straightforward and therefore easy to understand and sell. Many are exceptionally complex – increasingly so in our technological age with complicated software packages and other high-tech products hitting the shelves. A sales rep may well need a great deal of training before your company even technically launches.
Hiring a Sales Rep
To sum up, hiring a sales rep can be a great move to help increase the profitability of your company. However, it requires careful consideration as to the compensation package and timing of the hire. Too early, and you risk paying a salary that you do not gain any value from. Too late, and you risk missing out on the best rep for your business or losing sales that could help drive growth at your firm.
