How to calculate commisions when a distributor is involved

Our products are typically sold as solutions that consist of hardware, software and sometimes custom engineering. In the past we have had two tiers of pricing: Reseller and End User. We now have a keen distributor and we have introduced a third tier of pricing, Distributor to accommodate them. It is likely that the number of distributors we have will grow.

In the past we have paid commissions as a percentage of a nominated gross margin on the sale. If the goods cost us $70, we nominate $85 as the price where commissions are payable from. In this example the distributor price is $100, reseller price is $120 and end user price is $145.

Up until now we have been able to calculate the Commissions payable based on the geographic territory our actual end user is located because this information is available at the time of sale. The successful sale of our solutions normally requires that support/training occurs at the reseller level. To date this has rewarded our sales staff based on the actual effort they are putting in each instance.

We are now moving into a model for some sales where the goods will be sold centrally through a distributor and we will have no knowledge of who the reseller or end user is or which territory they are located. The distributor has outlets in each of the locations our territories cover. In this circumstance the support/training will be done at the distributor level by our local sales staff. The distributor will then pass this support/training onto the reseller without our involvement.

We need to consider our head office sales staff that should be rewarded for the groundwork to get the distributor and the ongoing support to keep the distributor that they will provide. We also need to consider that the territory/local sales staff are rewarded for the support/training they will be provide at the distributor outlets at the territory/locations. The worst situation would be if our territory/local sales staff are not incentivised to provide this training and our distributors are left hanging. Both groups of sales staff need to be rewarded – for their benefit and also the business’s.

So, with the above background, what sort of models can we use that will achieve the following:
· Rewarding our head office sales staff that setup the distributor relationships for each sale that is made and providing ongoing support
· Rewarding our territory sales staff based on the level of support they provide to the distributor without any concrete knowledge of the results this is actually providing, instead using other performance indicators to evaluate results

This is an interesting question. Does anyone have a suggestion?

I have sold in environments like this and the best way to handle is to establish monthly "Sales Out" reports:

Each distributor provides a monthly sales out report.
Each reseller provides a monthly sales out report.
The minimum requirements for the sales out report would be PRODUCT#, DATE SHIPPED, QUANTITY, SHIP TO ZIP CODE - no need to require that they put in customer names, etc.

In this fashion, you use sales out reports to establish the tier of distribution, the geography of the sale and the allocation of compensation to the appropriate centralized or field staff.

COMPLIANCE ENFORCEMENT: These reporting requirements can easily be mandated in a new reseller/distributor agreement - however incentives or penalties should be established for existing relationships. For example, if you provide monthly sales out reports, you maintain your current discount level (or you get an extra couple of points). The largest "what's in it for them" is to explain that if they do not comply, then the local rep will not be compensated - which impacts their motivation to support them.

Hope that helps - ERIC

	#1
ebola	How to calculate commisions when a distributor is involved Our products are typically sold as solutions that consist of hardware, software and sometimes custom engineering. In the past we have had two tiers of pricing: Reseller and End User. We now have a keen distributor and we have introduced a third tier of pricing, Distributor to accommodate them. It is likely that the number of distributors we have will grow. In the past we have paid commissions as a percentage of a nominated gross margin on the sale. If the goods cost us $70, we nominate $85 as the price where commissions are payable from. In this example the distributor price is $100, reseller price is $120 and end user price is $145. Up until now we have been able to calculate the Commissions payable based on the geographic territory our actual end user is located because this information is available at the time of sale. The successful sale of our solutions normally requires that support/training occurs at the reseller level. To date this has rewarded our sales staff based on the actual effort they are putting in each instance. We are now moving into a model for some sales where the goods will be sold centrally through a distributor and we will have no knowledge of who the reseller or end user is or which territory they are located. The distributor has outlets in each of the locations our territories cover. In this circumstance the support/training will be done at the distributor level by our local sales staff. The distributor will then pass this support/training onto the reseller without our involvement. We need to consider our head office sales staff that should be rewarded for the groundwork to get the distributor and the ongoing support to keep the distributor that they will provide. We also need to consider that the territory/local sales staff are rewarded for the support/training they will be provide at the distributor outlets at the territory/locations. The worst situation would be if our territory/local sales staff are not incentivised to provide this training and our distributors are left hanging. Both groups of sales staff need to be rewarded – for their benefit and also the business’s. So, with the above background, what sort of models can we use that will achieve the following: · Rewarding our head office sales staff that setup the distributor relationships for each sale that is made and providing ongoing support · Rewarding our territory sales staff based on the level of support they provide to the distributor without any concrete knowledge of the results this is actually providing, instead using other performance indicators to evaluate results

	#2
Mikey	This is an interesting question. Does anyone have a suggestion? __________________ "You're only as good as what you did yesterday, not a month ago, not a year ago."

	#3
Eric Count5	I have sold in environments like this and the best way to handle is to establish monthly "Sales Out" reports: Each distributor provides a monthly sales out report. Each reseller provides a monthly sales out report. The minimum requirements for the sales out report would be PRODUCT#, DATE SHIPPED, QUANTITY, SHIP TO ZIP CODE - no need to require that they put in customer names, etc. In this fashion, you use sales out reports to establish the tier of distribution, the geography of the sale and the allocation of compensation to the appropriate centralized or field staff. COMPLIANCE ENFORCEMENT: These reporting requirements can easily be mandated in a new reseller/distributor agreement - however incentives or penalties should be established for existing relationships. For example, if you provide monthly sales out reports, you maintain your current discount level (or you get an extra couple of points). The largest "what's in it for them" is to explain that if they do not comply, then the local rep will not be compensated - which impacts their motivation to support them. Hope that helps - ERIC

How to calculate commisions when a distributor is involved

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