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How would you deal with commission payout if a refund is initiated?

by fated82
9 replies
I have a question. Say I payout 25% commission to a sales guy for every site I rent out. (say I rent out the site for $250 a month, therefore, commission is $50 a month recurring) And in my policy, I allow 90 days money back guarantee. If after 60 days, the company wants a refund, what should I do with the commission I have alrdy paid out to the salesperson ($100)?

Do I take it as a business expense? I don't think it's the right thing to do to get the salesperson to refund the money and also it's not in the best interest for them if I hold their commission for 90 days.

One of my solution is that I will evaluate the number of refunds this salesperson have and cut him out if he hit 3 refunds in a 3 months period.

What are your solutions?
#commission #deal #initiated #payout #refund
  • Profile picture of the author David Miller
    Good salespeople are VERY hard to find. If you have a good rep and this sort of thing is not a common event, I think you would build a great deal of loyalty by just eating the loss as cost of doing business.

    I've made the mistake of doing exactly what you're asking and I lost an excellent rep because of it. But....I was young and stupid....I don't have ONE of those excuses any more.
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  • Profile picture of the author misterme
    Yet, the sales person did their job by landing the customer, correct? If the customer subsequent to that doesn't feel they're getting value or has another aspect they don't like doing business with you, then that's on you, not the salesperson. The salesperson is going to take the view that you're messing up all his hard work.

    Maybe your commission structure needs to be one that takes into account refunds so you're still making money even if you don't get money back from the salesperson.
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  • Profile picture of the author MartinBuckley
    fated82,

    I have 5-8 sales reps working for me on a regular basis with my pizza discount card business and I never hold my sales reps. resposible for any refunds from business accounts, I just chalk it up as the cost of doing business, but in your case I would put it in writting that if 3 refunds are requested in a one month period from the same sales rep that their next commission will be taken to cover losses and if 4 refunds are requested in one month period it's automatic termination.

    Just my 2 cents and i hope it helps.

    All the best,

    Martin
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    • Profile picture of the author fated82
      Originally Posted by MartinBuckley View Post

      fated82,

      I have 5-8 sales reps working for me on a regular basis with my pizza discount card business and I never hold my sales reps. resposible for any refunds from business accounts, I just chalk it up as the cost of doing business, but in your case I would put it in writting that if 3 refunds are requested in a one month period from the same sales rep that their next commission will be taken to cover losses and if 4 refunds are requested in one month period it's automatic termination.

      Just my 2 cents and i hope it helps.

      All the best,

      Martin
      Hi Martin,

      That was a great idea. I will digest it and see how can implement it.
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      • Profile picture of the author MikeFriedman
        The one problem with giving sales reps their commission for 3 months on something that is refunded is you are going to find that many sales reps will sell the 90-day guarantee instead of really selling the service provided.

        They will just want to make the sale and get something out of a customer that is on the fence and will tell them to just try it. Refund it in 90 days if you don't like it.

        You will find a higher refund rate I believe.

        Is a 90-day guarantee really necessary for what you are offering? If you cut it down to 30, that might solve the issue for you.
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        • Profile picture of the author kenmichaels
          Some of the posts here make it look like if the salesperson is getting charge backs or refunds, then he must be doing some thing wrong.

          @ least to me, that what i feel is being alluded to.

          I was told something a loooong time ago. And i have been around long enough to see the truth behind the statement.


          If a sales person does not generate charge-backs, then he is not doing his job.

          When you are deciding on how to handle the refund issue with your sales people. First thing you have to figure out is why is he getting refunds..
          is it because he is aggressive closer?
          or is it he doesn't know the product well enough, and pitches false claims,
          or is it a numbers game? Is he getting so many sales the numbers pan out to a high return rate...

          IMHO, all the variables need to be looked at to decide how or what your policy will be to your sales people.

          Some of them might need to be fired. some might need a raise.


          One other thing , you absolutely HAVE to have salespeople accountability
          or you will take away the only reason they have for being honest and representing your product / service in the manner you want it sold.

          just my 2 cents
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          • Profile picture of the author Jay Rhome
            Originally Posted by kenmichaels View Post

            If a sales person does not generate charge-backs, then he is not doing his job.

            When you are deciding on how to handle the refund issue with your sales people. First thing you have to figure out is why is he getting refunds..
            is it because he is aggressive closer?
            or is it he doesn't know the product well enough, and pitches false claims,
            or is it a numbers game? Is he getting so many sales the numbers pan out to a high return rate...

            IMHO, all the variables need to be looked at to decide how or what your policy will be to your sales people.

            Some of them might need to be fired. some might need a raise.


            One other thing , you absolutely HAVE to have salespeople accountability
            or you will take away the only reason they have for being honest and representing your product / service in the manner you want it sold.

            just my 2 cents
            Agreed! Have accountability in place, and do check on your sales rep in action from time to time. You can listen in on Skype while they talk on the phone, as an example. Just make it happen. Sleazy reps over promising and "selling the refund" need to go.

            But closers need to stay! Refunds are part of life. Yes there can be a quota or better yet, have BONUSES instead of a penalty system for sellers without refunds. After all, keeping the clients is usually not their responsibility so they shouldn't suffer for it.

            A good way to keep clients and check on your reps, is to call clients yourself and do a part of the after-sale process with them.
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  • Profile picture of the author Danielm
    The only thing I would be concerned about is the salesperson over-promising things that can't be delivered just to get the commission then you have to deal with the fallout. We had to deal with a bit of that with my wife's old business when we had a call center doing the bookings. They'd book lots of clients, but you found certain people that were working the phones would tell the client anything they wanted to hear to get the sale. Later when you have to do a refund, partial refund or even try to repair the situation it isn't worth it.
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