Cliff Ennico

"After being laid off from a company last year, I've started my own consulting business.

"Things have been going pretty smoothly, at least until now.

"I struck an agreement with a local company to perform services for its clients. They are willing to pay me by the hour, plus a commission. When I received their consulting agreement, however, there was no reference to a specific commission -- just a statement that I would be paid a commission "in the company's sole discretion" if they were satisfied with my work.

"I'm happy with the hourly fee, but I would like to get some assurance from this company that I will indeed receive a commission if I give them stellar performance. What's the best way to approach this with them?"

Whenever a company says they will pay something "in their sole discretion," what that means is "I will pay it when I can, and then only if I feel like it." You are right that this agreement does not obligate the company to pay you anything over your base hourly rate.

While a commission can be a flat amount, more commonly it is a percentage of something. You need to think about what that something is. Then, offer the company a menu of choices you can live with.

Consulting commissions are paid either on the gross revenue a company receives from a client or customer, or the net profits from a job or contract. I'm not wild about commissions based on net profits, because there are too many ways a company can fool around with its figures to deny you a commission you earned legitimately. For example, the company could add a portion of its overhead or administrative expenses to the cost of doing a job in addition to the direct costs it incurred in getting the job done, thereby reducing net profits and your commission.

Consulting commissions should, in my opinion, always be based on gross revenue. Sales are sales; either a company sold something or it didn't. The only way your client can monkey around with the figures is to commit fraud, and you can nail the company on that when you review their books (more on that later).

To make your client more comfortable with a commission based on gross revenue, you can stipulate that the company must actually receive the revenue before your commission accrues. That way the company won't be in the position of having to pay you a commission without having received payment from its customer or client -- truly, a monkey in the middle situation most companies want to avoid at all costs.

Basing your commission on gross revenue will also eliminate the need for the company to use "its sole discretion" in determining whether or not you get paid.


Cliff Ennico

Cliff Ennico's "Succeeding in Your Business" column offers straightforward small business advice and tips

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