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I'm looking for some input/guidance on how to best and fairly compensate a business developer (sales). Specific questions are: on top of salary and car allowance, what is a "standard" commission percentage paid for new jobs, recurring jobs, media, retainers, and how to handle commissions in year two and beyond in the life of the client (assuming the salesperson is still employed). Any input would be most appreciated!
Depending on the salary you plan to pay, the commission amount can certainly vary. We like to see a new businessperson earn about 50% of their compensation in salary and 50% in commission. So, if they would like to be in the range of $100,000 per year (which most new business people do), they would receive $50,000 in salary and earn $50,000 in commission.
Many agencies pay anywhere from 5-7% commission on AGI for the first year. With that said, to earn $50,000 in commission they would need to bring in anywhere from $800,000 to $1,000,000 in AGI to make that amount.
You have to determine if that is feasible and potentially adjust the numbers from there. It’s always helpful to have an idea of what they would like to earn so you can play with the numbers. If they want to earn more, you can increase commission percentage or make the sales goals higher, etc.
Also, some agencies pay a smaller percent on the second year, maybe 2%. I do not recommend paying anything on the third year. The longer new business people are paid on the same piece of business the more complacent they can become.
Let me know if you want to chat and run through some numbers.
Most new business people make around 5% commission. I know that Laurie said that it's best to have commission be 50% of their income but that can become problematic and I think it depends on what kind of agency you have. If the person has a lot of pressure to land new business (50% of their income) then they might be willing to overlook "red flags" with prospects and bring in bad clients just to earn what they expect to earn. This can also lead to a new business person lingering around an account once it comes on board just to make sure everything is running smoothly when the goal is to transition that person off as soon as possible so they can focus on the next piece of business.
Another thing to consider is how many leads are coming in on a monthly basis and how viable are they. If a new business person is going to be "hunting" for all their business, then it could take them 6 months to 2 years to close a prospect that shows interest. When joining a new agency, new business people typically need a year to ramp up and understand how to sell the agency they currently work for. They probably are going to have to spend that first year building sales tools for themselves too.
My suggestion is to pay a salary that is 70%-80% of what the candidate would like to make and give them a 5% commission. After the first year, the commission percentage gets cut in half to 2.5% and then goes away all together for the 3rd year of the account. Hopefully this helps!