Commission-based sales arrangements can be attractive for B2B publishing companies seeking low-cost and low-risk sales muscle as well as contract salespeople in search of generous commissions.

 

For both, there is a vetting process in which the publisher determines the true effectiveness of the salesperson, and the salesperson assesses the true salability of what the publisher is promoting.

 

This introductory period goes a long way to establishing a long-term successful partnership.

 

Approaches vary and most are intuitive. We’ve built a model that compares approaches to this introductory period and suggests how these engagements can be structured.

 

ARRANGEMENT #1: STRAIGHT COMMISSION

Engagements based on straight commission are likely unattractive to contract salespeople because they are required to absorb upfront expenses before value propositions and sales commissions are realized. This is particularly the case for opportunity costs associated with the unpaid engagement, when time can be spent working for other clients. The publisher has little to change to test the salesperson’s effectiveness, so the commitment by both parties to a long-term partnership can be ambiguous.

 

This is an example of one scenario in which Arrangement #1 takes shape. (Feel free to reply to his email to see the model that created this graph.)

 

We see that the salesperson assumes negative net monthly income until a three-month sales cycle ends. Much of this loss is due to opportunity costs. While the publisher can consider this a test of the salesperson’s commitment to the project, the salesperson can consider this period unnecessarily ambiguous and expensive.

 

ARRANGEMENT #2: TRADITIONAL DRAW

An engagement that is based on a traditional monthly draw tips the value of the introductory period in the salesperson’s favor. These arrangements require publishers to front at least part of the monthly expenses of contract salespeople until sales are realized and commissions are paid.

 

Once commissions materialize, the monthly draw is deducted only from commissions that the salesperson earns each month. (Feel free to reply to his email also to see the model that created this graph.)

 

Here, the expense and the risk is more squarely on the publisher for the first three months. During this period, publishers are investing in the contract salesperson who may or may not be effective. Cash has been given, and the publisher may no longer receive value for having made this investment.

 

ARRANGEMENT #3: CUMULATIVE DRAW

An engagement based on a cumulative draw strikes a balance between the interests of the publisher and those of the salesperson. With this arrangement, the publisher continues to cover the salesperson’s opportunity costs while the sales cycle is proceeding, until sales materialize, and until commissions are paid. At that point, the salesperson’s commissions repay the cumulative draw that the publisher has paid to date. Afterwards, the engagement changes to straight commission. (Feel free to reply to this email also to see the model that created this graph.)

 

Here the publisher continues to front the salesperson’s opportunity costs during the outset of the engagement. When salespeople prove effective, however, their investment is returned immediately, and as the engagement transitions to a commission-only arrangement, the initial interests of both parties are being met.

 

A STARTING POINT

Six months after an engagement begins, the B2B publisher and the contract salesperson should have identical motivations. High value sales create meaningful revenues for the publisher and meaningful commissions for the salesperson.

 

Getting to that point can be the challenge.

 

The cumulative draw allows the contract salesperson to cover opportunity costs while allowing the publisher to receive compensation for all draw payments as soon as possible. This is an attractive arrangement that allows these engagements to begin on the same footing.