Business question.

[John Jones Jr]

Guys, I'm in the process of setting a business colleague up as an agent for a large international company.

The job is commission based only but all expenses are covered by the company. The projected sales T/O for the first year will be £35-40k p.m., so my question is what would you consider a reasonable percentage commission initially while taking into account that T/O will increase in the proceeding years at proposed/expected rate of 10% + p.a..

The company manufactures specialised machine tools and associated products, if that helps.

Thanks in advance.

 

[Red C220]

That's a bit vague to give any meaningful answer.

Is the chap going to be spending 5 hours or 50 hours a week marketing this companies product?

Is he otherwise salaried?

What is the upside, in so much as do these tool sales have the potential to grow exponentially or is it a limited market?

Can you actually buy the product and sell it on for a fixed mark up?

My business is tools and consumables for stone masonry, we make our own and resell others products. The only time I've ever had the compulsion to act as an agent was when the products in question were so expensive I couldn't afford (and didn't want the risk) to bankroll them. This is generally high value low volume items such as CNC machines or complex power tools that have a very niche market.

The turnover you've stated doesn't sound like enough to warrant a commission based income unless it's a large amount, such as 100%.

At £40K and increasing 10%pa I'd be inclined to buy the product in and act as a distributor at a suitable mark up rather than an agent, with geographical distribution rights of course.

EDIT:- sorry just read it's pm not pa.

You need to cover the salary of the person concerned plus a reasonable margin for your business and a little contingency. Work that backwards and you arrive at your rate.

 

[Dave.tam]

Isn't the £35k-£45k per month though, not per annum?

Sounds like quite a big turnover to me.

 

[Red C220]

Isn't the £35-£45 per month though, not per annum?

Sounds like quite a big turnover to me.

Yeah just read that through my beer goggles and put in an edit.

Still at that level I'd still be inclined to act as a distributor. That's assuming this is 100 items pm worth £400 average each.

If it's 2 items a month worth £20K each pm then agent is the way to go, there's too much potential variance in that.

 

[Dave.tam]

We must have posted at the same time lol

I'm no business man, but what you've put makes sense to me.

Like you said, you need more info on what's being sold and at what price point.

 

[John Jones Jr]

Yes Red, it is a bit vague but thanks for the feedback. I'll try and answer your questions anyway.

Initially he'll be working a two to three days week I'd suspect, it won't be full time but the view taken is that it will become full after at some stage and he does have a good income from elsewhere.

The market area is untapped with massive potential. Currently on last count there was only six customers from what I understood with a realistic potential for 2- 300 customers both large and small.

Deal is to act as an agent only. This is suitable to both parties currently but distribution rights along with a specific geographical area was discussed, that might be something for the future. But for now it's an agent without carrying stock and all marketing will carried out by the company itself working in conjunction with the agent.

Hope that's a bit more enlightening but being a third party I can't be more specific.

So, on that basis what do you consider a reasonable & fair commission?

 

[John Jones Jr]

Just read the previous posts. To clarify, we're talking £35-40k p.m average for the first year or so.

 

[Red C220]

It would need to be 20% at least to make it worthwhile, preferably more, at least to start with. That's assuming your chap is salaried at the £35k to £40Kpa mark. If you're really keen on the product and think it has legs then pitching in at 10% might be the way to go, covering most of your guy's income with any future growth becoming upside for the company.

It all kind of revolves on what you realistically think sales will be at in 5 years time and what your long term arrangements are.

With the agent arrangement you would also need to tie in geographical exclusivity (as an agent) so they don't dip their toe in the market with you to find out what sales potential there is then once you've built the foundations fill their boots elsewhere.

This also need to be time limited, i.e. for the next 5 years or so.

The upside of distribution rights is you control everything in your country, full stop. Agent arrangements may have a bit more wiggle room on both sides.

What do we do?

We work on a simple margin for most of our manufactured products:-

Cost x 2.5 + shipping, that's for lower value items that we manufacture ourselves. Some items that are competitive can be as little as x1.8

For branded items we resell.

FLEX powertools we get around 35% off MRRP we're lucky to make 10% on most with the on line market these days.

Consumable abrasive products we get 50% off MRRP, we discount for volume but make a minimum 20% an mostly 30% on average.

 

[bolide]

What happens when the company employs someone else / sets up a UK distributor / takes on another agent / fires him?

If "the market area is untapped with massive potential" then, sooner or later, things will change and I'd be looking to setup a bulletproof exit strategy and/or make sure the remuneration reflects the effort & opening up of a new market. His efforts (hopefully) won't just result in sales in the years he's employed by the company

If the parent company is billing then I imagine prices will be set in Euros so his commission will go up & down at the whim of the markets

Nick Froome

 

[John Jones Jr]

Good man Red. Just the sort of feedback I was hoping for. Thank you for that.

 

[John Jones Jr]

What happens when the company employs someone else / sets up a UK distributor / takes on another agent / fires him?

If "the market area is untapped with massive potential" then, sooner or later, things will change and I'd be looking to setup a bulletproof exit strategy and/or make sure the remuneration reflects the effort & opening up of a new market. His efforts (hopefully) won't just result in sales in the years he's employed by the company

If the parent company is billing then I imagine prices will be set in Euros so his commission will go up & down at the whim of the markets

Nick Froome

Good points.

There will be binding contract (our man is well versed in most aspects of this) covering these potential issues. Yes, the company is French, so it will be Euros but that will be a non issue as sales market is Euros also.

Thanks for your input anyway.

 

[John Jones Jr]

Red, I may send you a p.m. at some point if you don't mind?

 

[Red C220]

Red, I may send you a p.m. at some point if you don't mind?

Sure I'm always interested in business things it makes my mind tick.

 

[John Jones Jr]

Sure I'm always interested in business things it makes my mind tick.

That's great. Yes, I think it interesting too even from the sidelines. I'll get some detailed info including a greater understanding of the agent's role and expectations etc, etc. I should have this over the next couple of weeks.

Again, thanks for your input.