legal, salesFor an enterprise software sale, what does a standard agent (sales agent) agreement look like? It has been suggested as standard to me that such agreements are evergreen, which means the commission is paid on a particular account forever. Also, it has been suggested as standard, that as the account grows, the commission schedule increases slightly. Finally, the commission schedule can change at any point, but any accounts that have closed are on the commission schedule as it existed at that time.
So there are, as you say, several models to take into consideration in terms of giving / calculating commission. But let’s take your question and break it down to pieces, since the commission is really only a part of it.
So in a sales representative/agent contract you would preferably have the following sections specified in order to protect yourself, your product, your brand and the end-customer.
They are as follows;
Which legal entities are partaking in this contract, and for what period of time is the contract valid?
Which products/brands/software solutions is the ‘Agent’ allowed (and which is he not allowed) to market and sell? Are there minimum/maximum quantities, order-sizes, amounts, amount of users etc before he is allowed to make the sale?
Define the geographical or segmented space (i.e. territory) the Agent is allowed to market and sell.
Are the agent offered any kind of exclusivity? State the requirements and limitations of such exclusivity.
Are there any trademarks, copyrights or similar the Agent should be aware of? Is he allowed to use take the trademark/copyright into use when selling, in his printed materials or similar? Is there a time limit for the duration of his use of the trademark or copyrighted material?
What are the overall code of conduct? How should the Agent go about selling/marketing this brand? Are there stuff he is not allowed to say, do, state - competitors he can not mention etc. - This is here you’d state the good behaviour you expect from this Agent when representing your enterprise software sale.
Costs and expenses. Who covers the cost related to marketing your product? You, the Agent or is it split?
Commission/earnings on sales. What is the Agent entitled to and at what point in time? Does it decrease/increase in relation to sales volumes? Is it in perpetuity or for a limited time only?
Overall confidentiality. You should definitely define and set a limitation to what can be said; sales numbers, internal sales pitches, underlying functionality that is not proprietary but which could speed up competitor-development if the knowledge was shared etc.
Term & termination to secure you from the Agent being able to give/sell/join the competition the day after termination of your contract.
Signatures from all involved parties.
So this a ‘draft’ setup for the minimum of sections you would include in a sales representative contract (Agent contract). Albeit some might seem overkill or useless at this point, you should at least consider if it would hurt the deal on your part, to include some beneficial regulations in each section anyway. It is better that they are there, in a broad definition rather than not at all.
Now to your considerations on commission.
There are several known models - they are as follows:
CPA. Cost per acquisition. You would calculate the average customer lifetime value (CLV) and what margin you have on this. From that margin, you would set a CPA that you find motivating for your Agent and which keeps you happy with your margins as well.
One-off commission in % of a sale. Ie. 10% (the larger the order, the larger the USD amount of commission)
Commission in perpetuity, in % or USD amount. If it is SaaS or similar monthly/yearly fee-based software, a commission on the monthly/yearly value can be set. As you said, this can be interchangeable - however, the industry standard is a fixed commission in either % or USD.
Stairway commission. When certain levels has been met, the commission either rises or falls (typically depending on whether it’s a one-off or in perpetuity commission).
Depending on the cashflow in your business, you would probably be better of with a CPA-commission. This is expensive up front, but can secure a lot of freed cashflow later in your processes.
Hope it all makes sense.
Good luck.
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