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IN-DEPTH
ARTICLES

WHY DON'T I TAKE COMMISSION ONLY MANDATES?

There are many expressions for this kind of remuneration:

  • Results based compensation
  • Pay per lead/appointment/contact/performance
  • Commission pay
  • Variable pay
  • Etc ...
  • But the pay structure is always the same; one gets paid according to the results. You sell; you make money. Otherwise, you get nothing for your efforts.

    However, several industries work this way:

  • Real estate agents
  • Insurance representatives
  • Travel agents (generally)
  • Some manufacturing agents/distributors
  • Some high profile sales representatives
  • Some influencers
  • Other
  • In the past, I did work on commission only for certain international market development mandates. But the mandate that worked best was that which had commission pay, but also a portion of fixed compensation.

    Why am I talking about this in this newsletter? Because I am seeing, a multiplication of mandates either to make market development or to manage advertising on commission.

    I even had to defend my point with people who were offering commission-only mandates by answering comments like "if you are good, you will have no problem selling our product/service and make lots of money ". And it is true that some people are able to make a lot of money with this kind of arrangement, but several conditions must be in place for this reality to exist. And this is rarely the case.

    If we look at the list above (it is not an exhaustive list), the real estate and insurance representative groups have several elements that make success not a guarantee, but increase its likelihood:

  • They have a system in place that ensures a certain amount of "leads";
  • They have visibility and a place which is defined in the market (the competition is more active for real estate agents, but until very recently, not many people thought of selling their home without their help);
  • A way of doing that is established (there is a series of courses that we must do to be able to exercise the profession);
  • Companies that oversee new agents in their activities and offer support;
  • And many others ...
  • As you can see, there is an infrastructure that allows for some help and maximizes the chances of success. Despite all this support, not all agents are wealthy or successful.

    For manufacturing agents who provide their service on commission-only, they will take an important amount of time to do the product/service market analysis and sometimes this analysis will be invoiced to the manufacturer. Subsequently, an elaborate agreement will be signed between the parties which is more like a "partnership" agreement where both parties help each other in opening a new market than a commission-based agreement. This is done to maximize the chances of the project's success.

    And finally, the last group that works in a slightly different way is that of influencers. Some will ask for fixed amounts in addition to commission based on the sales volume they will be able to generate. Others will be comfortable with a commission-only set-up. But in either case, it's the rental of the contact network we're talking about. There is no development, no personalized approach, only visibility with an audience that will have been developed either through notoriety or through an online activity (generally).

    When small businesses offer commission or performance-based mandates, the chances of success are very low because they only offer compensation without having any of the conditions listed above in place. In addition, for most companies, they operate in an ultra-competitive environment and offer little or no differentiation.

    Normally, when a company enters into a commission-only agreement, it does so casually. Few have a well-developed system in place. The attitude is: it costs us nothing, only if we sell. And it is exactly this kind of situation that I experienced with a few clients when I was doing market development in Mexico. At that time, I was concentrating on two segments; medical devices and food. For a food client, I managed to get an order for OXXO, a chain of convenience stores (they can be compared to Couche Tard here or Seven-Eleven in the States). The order was substantial, and it was a gateway into this important chain of stores for the other products of the company. The problem was that the company was not ready. It couldn't find the FOB Mexico price (price including the shipping costs to Mexico). After more than six months of waiting for this information, the OXXO buyer lost interest and the opportunity was gone.

    Why am I talking about this experience here? Because it denotes a problem that is common for companies that use the services of subcontractors or agencies based only on commission. As it is a variable cost, they are generally less prepared. And when the time comes to respond to requests, they are simply not ready. The company for which I had good success in Mexico, used a mix of fixed and commission. They were committed, proactive and very attentive. When we had orders and requests, they were ready and responded in a timely fashion. With this company, we were able to sell to SAMs and Costco chains in Mexico and had good success.

    Market development is done over several months, often several years. If you pay only on commission, you may have to manage a high turnover rate of your commission-only team, especially if after making a few attempts, success is not as easy as expected, they will lose interest. You have to be realistic, the majority of us are in a hypercompetitive environment with little or no support as described above.

    So, if you plan to add a commission member to your team, consider adding a fixed also to ensure the support of their development efforts.

    If you have any questions or comments, please do not hesitate to contact me.

     

    Stéphane Elmaleh-Riel, B.Ed., MBA
    Marketing consultant