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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.
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.
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.
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:
Sales commission agreements are typically managed by the following roles within an organization:
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.
Sales commission agreements are used in various scenarios, including the following situations:
A comprehensive sales commission agreement template should include the following elements:
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.
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.
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.
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 restricting who can access employment contracts.
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:
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.
A sales commission agreement is a contract between a business and a salesperson that explains how they earn commission on the deals they close. It sets out the commission rate, the targets that apply, when commission is paid and what happens to it if the salesperson leaves.
Usually, yes. Employment contracts often say a rep is eligible for commission without explaining how it’s calculated, and that gap is where most disputes over unpaid commission start. Some US states, including California, also require commission arrangements for employees to be put in writing.
A sales agency agreement appoints an independent agent to sell your products, so it covers the agent’s territory and authority as well as their pay. A sales commission agreement usually sits alongside a rep’s employment contract and focuses on how commission is calculated and paid.
Whenever the agreement says, so define the trigger clearly, for example when the customer signs or when the customer pays. Tying commission to payment protects the business from paying out on deals that fall through, and a clawback clause, where the law allows it, lets it recover commission if a customer cancels within a set period. Also state what happens to commission on deals that close after the rep leaves, because that is where many disputes start.
It’s a sound starting point, but tailor the commission rates and targets to each role and check the plan against wage rules in the states where your reps work. For specific legal advice on your contract templates, consult an attorney.
Set up the template in Juro once and let sales ops or HR generate each rep’s agreement from it, adding the rate and quota for that person. When the comp plan changes for a new year, you update one template and every new agreement follows. Signed agreements are stored together with access controls, so you can find a rep’s current terms quickly while keeping their pay private.
Yes. Operator, which is built into Juro, can draft a new template from the commission agreements you already have, following your drafting style and the positions you normally take on clawbacks and post-termination commission. Legal checks and approves that first draft before anyone uses it, so the template matches your risk appetite.
Answer
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