This week, as I coached one of the start-ups in my network, we came to a crossroad that required additional sales help outside the sweat equity of the founders. What came to be was their Sales Affiliate Agreement to bring outside contractors on board in order to scale and sell more products. As a salesman myself, Sales Affiliate Agreements are something that I see regularly and can easily distinguish the good from the bad.
In the same way that many entrepreneurs are unwilling to give up equity for the right team (a topic I discussed a in previous post), they are also hesitant to incentivize people to help them grow. It should go without saying, but unfortunately it doesn’t, that without sales there is no business for an entrepreneur to run. Sales are the heart and soul of any thriving business. Whether you are selling to a company (B2B) or an individual (B2C) you can’t pay any employees without sales.
So, how do we put together Affiliate Sales Agreements that make people want to sell for your start-up? After-all, you can’t afford, nor do you want to pay them a salary, but you want them to want to sell for you. We do this by sweetening the deal. We make a salesperson WANT to sell our products. We build an agreement that can and will make our sales affiliates grow as we grow.
What I look for in a good affiliate sales agreement:
- Commissions are paid on gross sales: This is a big one. For a salesperson, payment against net sales instills fear that the company might fudge the numbers in order to pay less commission to them. Rather than offering a big percentage of net sales, which might actually end up being a very small percentage of gross, offer a smaller percentage of overall gross sales that they bring in. Not only is the accounting easier on your end, but your sales affiliates will also get excited that every dollar you make is also making them money.
- Trailing commissions: As a salesperson, I don’t just want to get paid on the first sale, but also as I continue to sell for your start-up. For instance, let’s say we are selling a new meal replacement shake and a sales affiliate gets us into a major retailer. The retailer wants to pilot in 20 stores and purchase 10 units per store for 200 units total. Sales are so-so for the pilot but after 9 months the retailer decides that they want to do a full chain order for 200 stores because it’s now the New Year and resolutions will likely drive more sales. We want to make sure that our salespeople get compensated for this and are incentivized for growing their accounts. Enter trailing commissions. A structure I often suggest for this is 5% for year one, 4% for year two and 3% for year three and beyond for the life of the account. This keeps your sales affiliates motivated to keep the account going.
- Threshold Bonuses for Size: Want to quickly differentiate between the good sales affiliates and the bad? Offer bonus incentives for growth. This will quickly allow you to see who is a good salesperson or a great one. Think of the great salespeople as those who are driving Pink Mary Kay Cadillacs. Why are those people driving them, because they sold enough to earn them. Now, you may not be able to start buying cars or offering vacations, plus you don’t want to seem like a Ponzi Scheme, but you can offer higher commissions to the high achievers. As they sell to grow your business, your business will get better buying power, shorter lead times, and brand awareness that will continue to help you grow. Make sure you reward the people that helped you get there and motivate them to keep selling.
The absolute worst thing you can do to a salesperson, whether you are an established business or in your infancy is to put a cap on commissions. To a rock star salesperson, a commission cap creates a subliminal road block that they cannot achieve anymore inside your company. Even before they make their first sale, they have a sense that they may sell too much or not get paid. If you land a sales affiliate that takes your company from $100 in sales a day to $1000, why cripple them in taking you from $1,000 to $10,000, or $100,000. DO NOT create superficial road blocks for your companies growth, i.e. commission caps.
In summary, sales are the life blood of your business. Without sales, you cannot have a successful business. It doesn’t matter what you are selling, or who you are selling too, just make sure that you are compensating salespeople accordingly for their efforts. As they succeed, you will succeed too.