Sales commission agreement template

Ensuring your sales reps are motivated and aligned with your business goals is crucial to your success. A sales commission agreement can help you achieve this by clearly outlining the terms of commission payments, expectations, and responsibilities. 

In this article, we will explore everything you need to know about sales commission agreements, their purpose, management, and how to effectively use a sales commission agreement template.

What is a sales commission agreement?

A sales commission agreement is a contract between an employer and a sales agent or representative. This document outlines the terms and conditions of the commission-based compensation structure. It specifies how commissions will be calculated, when they will be paid, and any conditions that must be met for the commissions to be earned.

Sales commission agreements are essential in providing clarity and transparency, ensuring that both parties understand their roles, responsibilities, and the criteria for earning commissions.

What is sales commission?

Sales commission is a variable form of compensation that's added to the base salary of an employee if they meet certain performance objectives, like quotas, or KPIs.

The percentage of commission obtainable, and the way it is calculated, will vary between different businesses and industries. However, Mailshake estimate that the average commission rate is between 20 to 30 per cent of gross margins.

Sales commission agreements are most common in industries like real estate, SaaS, finance, and advertising.

What is the purpose of a sales commission agreement?

The primary purpose of a sales commission agreement is to align the interests of the sales team with the company's goals and incentivise high performance. By clearly defining the commission structure and terms, a sales commission agreement helps to:

• Motivate sales agents to achieve their targets and exceed expectations
• Reduce disputes and misunderstandings about commission payments
• Ensure fair and transparent compensation for sales performance
• Provide a legal framework that protects both the company and the sales agents
• Facilitate better performance tracking and management

Who manages sales commission agreements?

Sales commission agreements are typically managed by the following roles within an organization:

1. Sales managers: They oversee the sales team and ensure that commission structures align with sales targets and company goals. They track performance and approve commissions based on achieved targets.
2. Human resources (HR): HR departments often handle the administrative aspects of sales commission agreements, including the creation, maintenance, and updates of these agreements. They ensure compliance with labor laws and internal policies.
3. Finance department: The finance team is responsible for calculating and processing commission payments. They ensure accuracy in commission payouts and manage the financial aspects of these agreements.
4. Legal team: Legal departments draft and review sales commission agreements to ensure they are legally sound and protect the company's interests. They handle any disputes or modifications to the agreements.
5. Sales operations: This team supports the sales force by managing the operational aspects of sales activities, including the implementation and monitoring of sales commission plans. They often work closely with finance and HR to ensure smooth execution.
6. Executives and senior leadership: Senior leaders including the chief sales officer (CSO) or chief revenue officer (CRO) may also be involved in setting high-level strategies and objectives for sales commission structures.

Each of these roles plays a crucial part in ensuring that sales commission agreements are effectively managed, accurately implemented, and aligned with the company's overall business objectives.

When are sales commission agreements used?

Sales commission agreements are used in various scenarios, including the following situations:

• ‍Hiring new sales staff: When onboarding new sales employees, companies establish sales commission agreements to outline how commissions will be calculated and paid. This ensures clarity and sets expectations from the very beginning.‍
• Launching new products or services: When a company introduces new offerings, sales commission agreements can be used to incentivize the sales team to focus on promoting these new products or services.‍
• Changing sales strategies or targets: If a company modifies its sales strategies or targets, updated sales commission agreements, or employment contract amendments, will be shared to make sure new expectations are made clear.‍
• Sales promotions or campaigns: During specific sales promotions or campaigns, temporary commission agreements might be put in place to motivate the sales team to achieve short-term objectives.‍
• Partnerships and resellers: In arrangements involving third-party partners or resellers, sales commission agreements define how commissions are shared and what conditions must be met to earn them. Although, this information can also be captured in partnership agreements, or reseller agreements.‍
• Mergers and acquisitions: During corporate restructuring, such as mergers or acquisitions, new sales commission agreements may be established to align the combined sales teams with the unified company goals.

What should a sales commission agreement template include?

A comprehensive sales commission agreement template should include the following elements:

• Parties involved: Names and addresses of the company and the sales agent, making it clear who owns which obligations.
• Effective date: The date when the agreement becomes effective, also known as the contract execution date.
• Term of the agreement: The duration of the agreement, including start and end dates that the commission structures apply to.
• Commission structure: Detailed explanation of how commissions are calculated, including rates, percentages, and any tiered structures that apply to that particular salesperson.
• Authorization: Explicit authorization from the company to sell products, services, or property on behalf of the business.
• Fees upon termination: Clear understanding of what happens to commissions earned if and when a sales rep's employment contract ends.
• Payment terms: When and how commissions will be paid out to the employee (e.g., monthly, quarterly).
• Deal eligibility terms: A clear explanation of when a deal will (and will not) meet eligibility criteria and unlock commission for the salesperson.
• Performance metrics: Specific sales targets and criteria that must be met to earn commissions, and how these work within the commission structure.
• Confidentiality clause: Instructions on how to protect company information and trade secrets throughout the contract's duration.
• Termination conditions: Conditions under which the agreement can be terminated by either party, and what happens if a salary increase letter is introduced.
• Dispute resolution: Process for resolving any disputes related to the agreement.

How to create and manage sales commission agreements

Managing sales commission agreement templates manually involves several steps to ensure the agreements are accurate, up-to-date, and compliant with company policies and employment laws.

1. Draft the contract using an existing template

The initial contract template is drafted by the legal team with the support of the HR team and sales manager. This involves outlining the commission structure, terms, conditions, and any specific clauses relevant to the company's sales policies.

When a new sales commission agreement is needed, the template is customized to fit the specific role, individual, or situation. This includes inserting personal details, specific sales targets, and any unique terms relevant to the particular salesperson or scenario.

The sales commission agreement is then reviewed by relevant stakeholders, including finance teams that make sure the commission structures agreed align with the company's budget. Once reviewed, it is approved by senior management or the executive team and passed on to the HR team to share with a candidate.

2. Shared the approved version with the counterparties for signing

Once the sales commission agreement has received the seal of approval from the key business stakeholders, it is shared with the candidate or employee. In more traditional workflows, the contract will be printed and signed using a wet ink signature. In more modern businesses, the parties will use an electronic signature, instead.

3. The agreement is filed and stored for future reference

Post-signature, the sales commission agreement is uploaded to shared drives or captured in a secure contract repository. You may even choose to record the details of the agreement in a contract management spreadsheet of some sort.

If your HRIS supports file uploads, you can even upload a version of the sales commission agreement to the employee's profile, along with their other employment contracts.

Better yet, if you create and manage your contracts in a contract management system like Juro, you can automate this process using an integration. This creates an up-to-date source of truth for all onboarding documents.

Whatever you do, it's important to protect the confidentiality of the salesperson and their earnings. This can be achieved by setting up contract permissions and restriction who can access employment contracts.

Automate sales commission agreements in Juro

Automating sales commission agreements in Juro can streamline the entire process, from creation and customization to distribution and storage. Here’s how teams can leverage Juro’s capabilities to automate these tasks:

Automated contract templates and drafting

• Juro empowers sales managers and HR teams to create automated contract templates that capture the contract terms drafted and approved by legal. This enables them to generate sales commission agreements on demand, with no legal support required. They can grab-and-go with Juro, trusting that the template they're using is the most current version.
• Juro integrates seamlessly with your favourite HR platforms, including Workday, Greenhouse, Personio, BambooHR, HiBob, and many more. These integrations mean you can automatically customize sales commission contracts, with the agreed commission terms pulling into the contract directly from the HRIS or ATS you use.
• Juro enables businesses to implement conditional logic within their templates. This empowers them to automatically adjust terms based on predefined criteria, such as different commission rates for different sales targets or roles.
• Juro's legal AI assistant gives enables you to automatically generate standard clauses based on predefined guidelines and playbooks. This makes it quick and easy to update your contracts during negotiations and times of change.

Faster and more streamlined collaboration

• Juro users can set up automated approval workflows within the platform. When a sales commission agreement is created or modified, it can be routed to the relevant stakeholders for review and approval without manual intervention.
• Juro's contract platform is browser-based and facilitates real-time collaboration on contracts. Counterparties can add suggestions, comments, and redlines to contracts, and you can respond to these instantly in the same workspace/version.
• Juro users can enable automatic notifications and reminders to alert stakeholders when their approval is required, which means shorter wait times and even shorter time-to-hire for new sales reps and leaders.
• Juro makes it quick and easy to sign contracts once you've agreed the terms. Users can sign contracts electronically with legally binding eSignatures.

Secure and searchable contract storage

• Juro's contracts are built as structured data, which means they're fully searchable. Want to check which commission structure you agreed again? Juro's OCR search functionality enables you to find contracts in seconds.
• Juro offers a secure storage solution, meaning you can capture and maintain all executed agreements in one place. This provides easy access and ensures that all documents are stored in compliance with data protection regulations. In other words, you'll have fewer headaches during a contract audit.
• Juro gives users access to real-time analytics to track the status and performance of sales commission agreements. This includes metrics such as approval times and more, making it a perfect way to spot and address bottlenecks throughout the process

Juro empowers modern businesses to agree and manage contracts faster, with businesses like Trustpilot, Deliveroo, and Remote already reaping the benefits of more efficient and reliable contract processes. Want to find out how Juro can provide value for your business? Fill in the form below.