Commission Question - Up front commission vs residual

I'll leave it up to others experienced in offline sales to chime in on the commissions questions. My question is this:



I would think if you OWN this company your time would be better spent building more routes, looking for more customers, monitoring the routes you have. Of course you would want to do some patrols to monitor the service and make certain the business is running as it should.


I would think it would be easier for the owner of the security company to sell new routes. Just my take on it.

I agree with Kay about selling yourself.

But other than that...why a salesperson wouldn't take the residual would be nutty to me...

but that's just going off my thinking.

I'm sure someone like Claude would have better insights since he's been in sales for decades.

Maybe an issue with either plan would be how soon the salesperson would start getting paid and whether there would be a draw until they started getting paid. In other words, would there be fuel reimbursement, time, materials, etc?

I believe in something like real estate it's all commission and they pay for all their stuff...but this is different because you have recurring monthly charges. And I also know very little about being a real estate agent.

Hopefully, you would also be advertising to help the salespeople out.

Does sound like you've got a good thing going and I can see why you want to expand it.

As Kay and Max have already said, you're the owner. You should be doing the selling.
The only reason you would farm that out is if you are just terrible at it.

And if you are terrible at it...who is going to train your rep?

You can hire out just about everything...even the prospecting calls, But the actual sales? That what the business is. And that will be only as successful as your sales efforts are.

But...to answer your question......I think you are paying way...way too much for a residual income.

Commission sales relies on new business. And new business is generated by paying for new accounts.

If you have a new rep (and again, who is training this person?) you need to figure out the fastest way to put the most money in their pocket.

Every industry that has outside salespeople pays the same way. They pay a great up front commission, and either a very low residual...or none at all.

Why? Up front commissions make the person sell. And it keeps them selling.

If you want continuous growth, don't pay the monthly residual. There will soon come a time when you would resent paying that every month to someone who is no longer doing anything.

As an example, life insurance agents get maybe 80% of what is paid the first year...and about 2% the following years. Why? To force new business.

You going on patrols sounds like a great way to avoid actually selling anything. And selling is the business, not going on patrols. That...you can hire out to the 99% of people who cannot sell, but are great employees.

I agree to a point - in this type of service business, a secondary (smaller) commission would be good if paid when contract is renewed. That puts your salespeople to work on KEEPING the accounts they have sold.

I don't know either, Claude. Just seemed to me that if you are taking the trouble to train a new 'crew' to protect a specific area there would have to be a time frame involved.



Knowing you have a residual income at stake would be enough for a skilled salesperson to go back prior to 'renewal' to make sure customer is happy....or to keep in touch with customers you sold to keep them 'in the fold'.


Would be interesting to know more about how the contracts work.

Thanks for the great replies.



On the comment my time would be better off building routes. - Your right. In this business, a lot of jobs are through RFP's public and private. I am writing those. We also get calls, usually from a business that just had an issue.


On the comment Up front commissions make the person sell. And it keeps them selling. - That is a good point. Hunger drives sales


I thought most would chose residual.


I know some of the very large security companies (worldwide) pay very low percentage and a low hourly rate, but their accounts are usually over 6 figure.



I am going to do up front commission only.

I think you said it all right here. The residual commission option is the way more attractive option in my opinion. For a salesperson, getting paid out residually from a sale already made previously is a dream; but depends on how renewing the contracts would work.

When I sold life insurance...and worked with life insurance salespeople....

I talked to a company representative. He told me they had two ways of bring compensated...

1) Earn your commissions as the client pays. It builds up a solid monthly income, and there is never a chargeback.

2) Get paid 75% as much up front...and if the client stopped paying, you had to pay it back. It was essentially a loan with a 25% interest rate.

I asked him which plan was more popular. He told me that all agents took the 75% up front...even though it was 25% less money, and it was a loan, subject to charge backs.

When I sold and financed encyclopedias (maybe 30 years ago), I told my reps that I would either pay them $500 per sale, but pay them as the customer made their monthly payments.....or they could be paid $250 up front, and then no money later. If the customer didn't pay, they kept the $250.

Everyone...I mean everyone ...took the $250 up front.

Sales reps think differently from business owners.


It occurs to me that this is an awful lot of money that could be used for marketing, to bring in customers that are ready to buy...instead of paying it out in commissions.

And unless you have experience hiring and managing reps...I have a secret for you.

It's a whole new skill set...and it ain't pretty.

Years ago I vowed to never again have either tenants or employees. The hassles of either can take years off your life.

I run a private security company too, so I get where you're coming from. When we faced a similar situation, we went with the residual commission model.

Given your options, I think the residual commission is more attractive. It encourages salespeople to build and maintain long-term client relationships. You might also consider a small upfront bonus to give immediate cash flow while they're building their routes.

Best of luck with your expansion!