Commission rates

Should your sales representation agreement include a commission calculated on a descending scale?

by Randall J. Gillary

Descending-scale commission structures are often the result of the principal’s objectives being somewhat skewed.

The principal frequently seems to be more concerned with the amount of commissions paid to the manufacturer’s representative, rather than with the total amount of sales and overall profitability.

In other cases, the reason for the descending scale commission plan is the principal will grant price breaks to its customers on large-volume orders.

But, it often seems there is little or no correlation between the price break and the commission reduction.

The next time you face a situation where your principal attempts to negotiate a graduated commission scale with a lower commission rate applied as sales increase, have a heart-to-heart discussion with your sales manager.

If his purpose is to demotivate you, then he will likely succeed. Too often, sales managers seek to have the manufacturer’s representative significantly increase sales, while at the same time reduce the representative’s commission rate.

In the event you have the opportunity to discuss this issue with your sales manager, and he turns a deaf ear to your discussion of the demotivating nature of the reduced-commission rate on higher volume sales, do not push the matter.

Instead, let your sales manager ponder why there is a plateau in sales.

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