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Third Party Sales Person - Commission or Shares?

Hi there - I recently had a conversation where a sales person who wants to
sell our solutions in Europe, which we don't cover at the moment. He is an
independent who sells our partner solutions, so he is optimistic he can
sell since he has existing relationships. When discussing financials, I was
thinking a 20% commission for the first year. He was asking 10% of the
overall lifetime value of the contract or shares within the company for
every sale that he does.

I can easily negotiate sales commissions, but I am intrigued if I should
entertain the idea of providing shares for every time this individual signs
on a customer. Would you avoid providing shares at all costs, or would you
elect to do this? I am interested in the pros and cons for both.

Thanks,

Harpaul

5 Replies

Derek Dukes
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Derek Dukes Entrepreneur • Advisor
Business Development, Startups at Amazon Web Services

In general, when you can keep shares out of the mix, it's better for
everyone. There can be some risk in paying for contracting with equity as
it CAN establish a new value for the stock. Meaning if someone charges $100
per hour and you're compensating them with X% of stock for Y a mount of
time, you just set the valuation and you might run into problems when the
enterprise is evaluated pre the next round of financing.

There's a decent Quora thread here, though it's about convertible debt
(pre-equity):
http://www.quora.com/Is-it-advisable-for-a-startup-to-use-convertible...

- d

--
Derek Dukes | [removed to protect privacy] | @ddukes

Max Avroutski
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Max Avroutski Entrepreneur
eCommerce, Software Developer, Usability, Marketing & Product Creation consulting services.

You got to be kidding me. Do you pay takeout delivery boy's tips in stock too? :)

How are you planing to calculate value of shares for every sales specially since value of the company will increase with every sale and also change up or down based on many other events?
There is a reason why doing private company stock valuation cost a lot of money, one of them is it requires a lot of accounting.

You didn't say what you selling, but generally you would want to have 60-65% of pure profit, then:
20% for the first year sounds reasonable if there is at least 40%+ left for you in pure profit. Then the next year you will have all 60%+
10% customer lifetime also sounds reasonable in some cases, but usually only should be looked at if you need to have your sales person to maintain the relationship during customer's lifetime. Otherwise, sales person costs too much and de-facto licensed you a customer. I bet your sales person doesn't own the customer outright so that no other sales person can sell stuff to him. I bet other sales people can also sell to that customer and so your sales person can't demand any lifetime.

Also, if it will be so easy to sell your complementary product to his existing customers then it is your counter argument to pay him less since he will have to do less work.

Just because first person whats to sell your product doesn't mean that there will not be others who will compete with other sales people to sell your product. Don't be lazy and find additional sales people.

Have your sales person sign agreement not to poach the customers he sells for you if possible.

Many things depend on if your product has direct competitors, if your sales person sells your competitors already and if  your product has customer retention component.

All sales commissions should be always paid after you receive money from the customer.
If the customer stops paying you don't owe the sales person anything
else.

Max

--- On Sat, 11/24/12, hsambhi <hsamhttp://groups.google.com/group/founderdating?hl=en.

?

?

Seth Kaplan
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Seth Kaplan Entrepreneur • Advisor
Healthcare Technology Executive, Product Manager, Enterprise Architect, IT Strategist and Intrepreneur

Not for nothing, but when I worked retail, the mother company took our commissions back when the customer return to the product the following Monday :-)

-- Seth

On Nov 24, 2012, at 2:52 PM, Max <alphaon...@yahoo.com> wrote:

Kerry Finsand
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Kerry Finsand Entrepreneur
CEO at Taplister, INC.

Harpaul,

I recommend you doing a test with him to see if he is the right fit.  You
could offer him 10% of any referral he gives you or commissions ranging
from 30-50%.  If he is going to be a hired gun for you he needs to be paid
a higher commission since it is a risk to him.  For you it will get sales
that you would have not been able to get.  If he does not sell anything it
allows you to learn more about that market.  Giving him commission on the
lifetime value of a customer can be tricky.  I would offer him commission's
on the first sale only.  Or you could create an agreement that if he makes
a certain number of sales his commission goes up, or you could possibly add
a bonus.  You should also think about what type of customer service (if
any) that he needs to provide.

Thanks

Kerry

Harpaul Sambhi
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0
Harpaul Sambhi Entrepreneur • Advisor
Doing disruptive things at LinkedIn.

Thanks Kerry, Seth, Max and Derek for the input,

He is a technical implementer so he will be providing customer and first
level tech support. I agree that the stock option route is complicated, and
I am always a big fan of keeping everything internal. Appreciate the
insight.

Harpaul

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