Are you wondering how much to pay your sales team for delivery services? If your payees are Service Engineers, this other post should help you decide whether they should be commissioned or not. However, if you are wondering how much commissions to offer your Account Executives for selling delivery services, this article is for you.
Examples of Commission Rates for Delivery Services
Here at Sales Cookie, we automate commissions for many companies (from publicly traded manufacturing organizations to small businesses). While commissions vary significantly from business to business, a typical range for delivery services is from 1% to 5%. Please note that there is a higher concentration towards lower rates (ex: 1.5%, 2%). We were unable to find an organization paying more than 8% in commissions over delivery services.
Here are some examples of commission rates paid to AEs for delivery services:
- Client #1 in the software SaaS space = 1.00% to 1.50%
- Client #2 in the software delivery space = 1.50% to 2.50%
- Client #3 in the software implementation space = 5.00%
Rates often vary within each organization depending on factors such as:
- Quota attainment (ex: +1% after exceeding quota, etc.)
- Payee seniority (ex: 1% for junior AEs, 2% for senior AEs, etc.)
- Contract duration (ex: 1% for 1-year contracts, 2% for 2-year contracts, etc.)
- Service type (ex: 1% for setup, 2% for customization, 3% for consulting)
Should Delivery Service Rates be Higher or Lower Than Other Commissions?
Let’s compare service delivery commissions with ARR commissions. There are two main reasons why service delivery commission rates are typically lower than ARR commissions (Annual Recurring Revenue):
- One-time implementation service revenue is often considered less “valuable” than recurring ARR revenue. For example, $1000 in repeatable ARR is worth more than $1000 in one-time fees. However, this logic may not apply to maintenance service contracts (since there is some expectation they will be renewed).
- Margins are often lower for implementation services than ARR because of higher costs. First, legal costs may be incurred when negotiating service agreements. Second, service delivery is more labor-intensive because human resources must be assigned to a project.
On the other hand, service delivery commission rates are often higher than physical product commissions. Indeed, with services, there is an opportunity for higher margins. You are selling some unique domain expertise. Most physical products come with (somewhat firm) price expectations which limit profit.
So Which Commission Rate for Delivery Services?
A good starting point is to review your existing commission rates and review relative profitability. If service delivery margins are higher than for other commissionable product/services, then higher commission rates make sense. Conversely, if service delivery margins are lower than for other commissionable product/services, then lower commission rates make sense.
Another key factor is whether you want to promote service delivery or not. If service delivery is a drag on your business (ex: you’d rather have your team work on other things, and delivering services mostly as a favor to your clients), then lower commission rates. On the other hand, if your business model is based primarily on consulting fees, then increase commission rate to encourage associated sales behaviors.
Finally, once you’ve established the appropriate rate, consider automating your commissions. Sales Cookie can help you make sure your commissions are always accurate, easy to calculate, and transparent to each payee. Visit us online to learn more!