Creating a Commission Only Contract with a Sales Representative

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Creating a Commission Only Contract with a Sales Representative

Young woman looking at necklace on mannequin in showroom

When small fashion companies are seeking to expand the number of retailers or potential customers that they can reach, they often seek out a sales representative who can act as an independent contractor, receiving a percentage of each representative facilitated sale. This relationship, while seemly simple, is full of complex logistics and a trust that each party fully understands their role. Below are some topics that can be included in a contract with a sales representative who is working on commission. Today’s blog is meant to address the company perspective, but it hopefully offers some thought topics for a sales representative as well. ┬áLike all Law On The Runway blogs, this just general information, not legal advice. To discuss your specific needs for this type of contract, please contact an attorney.

Role

Be clear with the sales representative about the roles or duties that he or she can take on. Some companies prefer that the sales representative makes the initial contact with a retailer or individual, but that the company itself will handle the negotiation and the final agreement to provide products to the retailer. Discuss with the sales representative whether or not you are comfortable with retailers or consumers are placing orders through the representative directly. If you prefer to handle the pricing and final sales details, let the representative know how to identify when to get your company directly involved in the conversation and sale.

Marketing Materials

Some fashion companies look for a public relations or marketing expert who can also take the lead on securing sales. Have a discussion with your sales representative regarding which type of marketing or promotional material you’d like him or her to use, and how that material may be created. If you are allowing the representative to make marketing or PR material, talk about a budget for creating these materials, and an approval process where you can look over the materials and request changes before they get distributed.

Territory

A fashion company may ask a sales representative focus on specific territories or geographic regions for sales. This request could be because the fashion company wishes to build a brand in particular cities, or because the sales representative has strong contacts with retailers in certain areas. The territory becomes particularly important if you wish to have multiple sales representatives, and you don’t wish for their efforts to overlap. If you are the sales representative, you may want to request exclusivity for certain regions to ensure that you have the maximum opportunities to make a sale and you aren’t competing with other representatives. Be sure to include a discussion of online sales if this is applicable to your business. To track sales from certain representatives, you may want to give representatives a discount coupon or a free shipping coupon to offer consumers.

On the same topic, you may have a desired list of retailers that you’d like the sales representative to reach out to. Let them know if you’d like approval of all retailers or if you’d like to create a list of target retailers before the sales representative spends time promoting the products for you.

Payment

When discussing payment, talk about how long the relationship will last, which sales will be included, and how the percentage of commission will be calculated. Term is important because the sales representative may connect you with a retailer or an individual who will make multiple purchases over a long period of time. You have to decide which of those sales will in be included in the calculation of commission. Additionally, you and the sales representative will want to come up with a system for how you will decide which connections count for the commission. It can become difficult to track how a retailer learns about your products, particularly if they are exposed to the product through several marketing channels (again special coupons or tracking codes could help). Finally, you and the sales representative should agree on how the commission will be calculated. For example, will it be a percentage of the net sale, or of the profit of the sale? Will there be a different commission percentage for wholesale prices verses retail prices, or for discounted items? What happens if a retailer or individual customer returns or exchanges a purchased item?

Expense Reimbursement

Many sales representatives will incur costs as they provide their services, such as transportation costs, communication costs, and tradeshow or event fees. Let the sales representative know which costs you are open to paying and how the sales representative can get your approval for the expenses.

Take the time to walk slowly through the sales and marketing process with each other. Be open about your concerns so that you can fully rely and believe in each other. There is trust in the company to do accurate accounting and tracking of sales. There is trust in the sales representative to build the reputation of the company. These topics are meant to be a starting point for your negotiation with a sales representative, and not legal advice. For assistance with your specific goals, please contact an attorney. If you wish to contact Law On The Runway with questions regarding this blog post, please email rachel@lawontherunway.com