A commission agreement helps clearly outline the terms under which sales representatives or agents earn commissions. Whether you're running a small business or a large organisation, establishing transparent and mutually beneficial payment terms ensures everyone stays motivated and aligned.

In this article, we explore what a commission agreement is, when and why it is used, its key benefits, and how you can easily create one with Bind, including a free sample template.

What is commission, and when is it used?

Commission is a form of payment earned by a salesperson, agent, or representative directly based on their sales performance. Instead of receiving only a fixed salary, they earn a percentage of each sale they complete. Commission incentives sales professionals to maximise sales volume or revenue, which in turn increases their earnings.

Commissions are commonly used in these instances:

• Sales representatives in retail, wholesale, or direct sales typically earn commissions on products sold.
• Estate agents usually receive commissions based on property sales or leases.
• Recruiters often earn commissions when placing candidates with clients.
• Affiliates earn commissions by driving traffic or sales through referrals or promotional activities.

What is a commission agreement?

A commission agreement is a formal written contract between a company and a sales representative or agent that clearly details how commissions are earned, calculated, and paid. It ensures transparency about how sales representatives are compensated based on their sales performance, providing clear motivation for the sales team to achieve business goals.

Benefits of having a commission agreement

Establishing a commission agreement has several important advantages:

1. Avoids confusion or disputes by outlining precisely how commissions are earned and paid.
2. Sales teams clearly understand their earning potential and are incentivised to perform at their best.
3. Clearly defined obligations for sales representatives, ensuring consistent sales efforts.
4. Reduces the risk of legal disputes regarding payments, responsibilities, or expectations.

How to create a commission agreement easily with Bind

Using Bind, creating a commission agreement is straightforward and quick:

1. Choose Commission Agreement from Bind.
2. Answer simple questions to customise the agreement to your business and sales team.
3. Automatically generate your clear, professional agreement.
4. Review and edit the document as needed, with optional AI assistance.
5. Digitally sign and share securely with your sales representative.
6. A signed copy of the document is stored in your Bind account

Create a Commission Agreement in minutes with Bind

What should a commission agreement include?

A thorough commission agreement typically covers:

• Parties involved
• Appointment of sales representative
• Commission structure
• Duration and termination
• Sales representative’s obligations
• Confidentiality
• Governing law and jurisdiction

FAQ about commission agreements

How frequently are commissions paid?
Commissions are typically paid monthly, quarterly, or annually, depending on the agreement. Monthly payments are common for sales roles that involve frequent transactions.

Can commissions vary by product or region?
Yes, many businesses structure different commission rates for different territories or product lines based on profitability or strategic importance.

Is commission taxable?
Yes, commissions are typically taxable as income and must be clearly recorded for accounting and tax purposes.

What happens if you don’t create a commission agreement?
A written commission agreement prevents ambiguity, establishes clear expectations, and protects both the company and the sales representative. Without a clear commission agreement, disputes about how commissions are calculated or paid can easily arise. This can result in demotivated sales teams, financial disagreements, and even costly legal disputes.

Commission Agreement – free template

Here’s a clearly structured template to get you started:

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This Agreement is entered into on [Date] between:

Company
Company Name ("Company")
Country of incorporation
Address

Sales Representative
Name ("Sales Representative")
Address

Appointment of Sales Representative

The Company appoints the Sales Representative to sell the Company’s [Specify Products/Services] within [Territories].

Commission Structure

1. Commission Rate: [X]% of net revenue received from sales directly attributable to the Sales Representative.
2. Territories: [List Territories]
3. Eligible Products/Services: [Specify Products or Services]
4. Calculation of Commission: Commissions calculated based on actual payments received from clients, after deducting applicable taxes, refunds, chargebacks, or discounts. 
5. Payment Frequency: Monthly, provided total commission exceeds £[amount].
6. Payment Method: Bank transfer.

Duration and Termination

This agreement commences on [Start Date] and continues indefinitely until terminated by either party with [number of days] written notice.

Sales Representative’s Obligations

The Sales Representative will report sales activities and potential leads on a [monthly/quarterly] basis.

Confidentiality

The Sales Representative agrees to maintain strict confidentiality of the Company’s business information, processes, pricing strategies, and customer data.

Governing Law and Jurisdiction

This agreement is governed by the laws of [Country/State], with exclusive jurisdiction of the courts of [City, Country/State].

Signatures
Date
Company
Sales Representative

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Create your Commission Agreement effortlessly with Bind

Bind provides an easy, efficient, and professional way to generate commission agreements and other essential business documents, keeping your business relationships clear and productive.

Create your Commission Agreement with Bind now