Advice When Drafting and Signing a Commission Agreement

The lure of commission rests at the heart of the modern sales industry. After all, few incentives encourage sales quite like the possibility of an impressive monetary reward. That being said, commission arrangements can be risky for both businesses and salespeople. Without a clear contract, conflicts may emerge regarding when and how commission is provided. Follow these suggestions to minimize risk when drafting and signing a commission agreement:

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PDF Template - commission agreement template

Use a Commission Agreement Template

A detailed template provides a blueprint to guide you through the contract drafting process. This streamlines the process, so you can focus on getting the contract signed rather than worrying about whether included stipulations are allowable or enforceable. Templates can be adjusted as needed to reflect the unique realities of your approach to commission.

Look carefully at various commission agreement templates before you proceed. Do these reflect your intentions for sales commissions? Once this agreement has been modified with the correct names, dates, and commission rates, will you feel comfortable signing?

Define Worker Type and Commission Structure

How you proceed with commission agreements will largely depend on whether your staff primarily consists of hourly employees, independent contractors, or sales reps with exclusive rights. This employment status may influence the commission structure. The following arrangements are especially common:

  • Base salary. Under this popular approach, employees are guaranteed wages even when they don't make sales. Added commission can be provided beyond this base salary, as stipulated in the contract.
  • Straight commission. Often, professionals are only paid when they complete sales. This option often involves a higher commission rate in lieu of a base salary.
  • Gross margin. This approach factors in expenses related to the sales process. A specific percentage of the final product forms the salesperson's pay. 

Once you've determined the pay structure for each salesperson, provide a detailed explanation of how, exactly, commission will be determined — and under which circumstances it can be earned. There should never be any question as to what role commission plays in the salesperson's compensation.

List All Activities That Will Provide Commission Pay

With some jobs, only specific tasks are associated with commission pay, while others are covered by hourly wages. A commission agreement should detail both types of activities, specifying when, exactly, salespeople can expect to earn commission. Attention to detail is crucial for this section, as this will minimize the potential for confusion or conflict later on.

Define the Commission Rate

Once you've determined how commission is earned, highlight the actual rate of commission that will be provided upon making a sale. Don't forget to include the equation used to determine the sales amounts on which commissions are based.

Identify Any Potential Bonuses Above And Beyond Commission

Some commission agreements highlight the potential for additional bonuses that can be earned upon achieving specific results. Often, commission rates are provided in a tiered structure, with the rate increasing substantially as professionals achieve higher sales volumes. Either way, all extra forms of compensation must be thoroughly described in the commission agreement.

Explain Termination Procedures

What happens when your relationship with a particular salesperson ends? Will continuing commissions be provided based on sales this person made while under your employment? This is a common concern when sales involve ongoing maintenance or services. To avoid confusion, clearly address how such future commissions will be handled.

Include a Confidentiality Clause, If Relevant

Some commission agreements include confidentiality clauses, which outline when and how certain information can be disclosed as part of the sales process. If confidentiality concerns are mentioned within the commission agreement, the document should also explain how the disclosure of proprietary information will be handled if it occurs after the commission agreement is terminated.

As you finalize each commission agreement, make sure any additions are outlined in writing. Verbal agreements not made under the scope of the contract may not be possible to enforce. During the signing process, verify that all parties involved have signed the document in all the specified locations.

Equipped with a detailed commission agreement template, you will feel confident about pay arrangements as you move forward. Look to Nitro Sign to streamline the process and provide valuable peace of mind.

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