Contract for a clothing sales rep

It’d be great if those of you with experience and established sales reps could help out with this question from Tish. She writes:

We are a 3 year old line working with a Sales Rep who has been valuable in placing our young designer into the top boutiques and dept stores which as a result have put her in all the magazines with Paris, Jessica etc. wearing her designs. Our amazing rep has come to us now with a bullish contract. We love her and don’t want to lose her, but need to know the norm and acceptable in sales reps contracts. Terms (length of contract), show room fees, trade show fees, commission rate, length of termination notice. She wants us to guarantee percentage of order we will ship, exclusive US representation, advances on commission? I have looked everywhere on line for apparel contracts to no avail. Can anyone fill me in on the industry norms?

I wrote Tish asking for specific details of the contract. She replied:

The sales rep in return wants a 3 year USA exclusive contract. 12% commission, $950.00 in trade room fees monthly. All Trade Show fees (Pro Rata with other lines). She wants 120 days termination with 3% paid for one year following termination. She will accept quota’s tied to the contract. She would like 1,500. advance every month. She does not include in the contract what she will do for that money.

I pulled up 5 sales contracts from the internet (none from apparel were available) and put together an agreement including general duties, relationship of parties, scope and limitations of Rep’s Authority, conflict of interest, commissions including how computed and when paid and not paid, charge backs, statements, sale of product {(here she wants shipping guarantees of 85%) I gave her the ability to terminate should we not reach this number. Won’t pay her the commissions for 85% if we don’t ship.} Expense of doing business, customer service, term and termination. Here I gave her 120 days unless there is undue “mental stress” or “financial harm” during that period. Return of material, governing law and jurisdiction, limitation of liability.

What I need to know is what is reasonable to pay a rep who has taken a huge risk and put all her energy into making a designer successful. She is amazing and would be very difficult to replace as I see others have not been so lucky. We want to be fair not stupid. Can you advise?

I have a few thoughts on the matter (and eagerly awaiting input from the rest of you). The parameters of the contract appear to be within bounds and very similar to the contract you’ll find on page 92 of The Entrepreneur’s Guide. Also, I commend you for trying to be fair. Too many entrepreneurs approach their partnerships like bargain hunting forays at Wal-Mart, much to their later detriment.

Some impressions I have are that the term of the contract (three years) may not be to your advantage; one year is more typical but I can see why she’d want to tie you in for three. If she’s as good as you say -and I have no reason to believe otherwise- it makes sense she’d want a return on the investment she’s made in your line. After all, a less than ethical manufacturer could take advantage of her, using the rep to build momentum for the line to the point that it was self sustaining and then let the rep go, getting other less expensive reps to process orders. At the same time, people (not just reps) are known to slack off if the trough is well stocked. See if she’ll go for two years; that is still one year beyond the length of the typical contract.

Regarding the rate of commission, I think (under these circumstances) that 12% is high. Obviously the line has some pull and 12% is more typical of untried lines. Proven lines pay 7%-10%. Also, when you say “She does not include in the contract what she will do for that money”, that is fairly typical too. The performance and duties of the rep are usually implied rather than specifically detailed. If this bugs you, I suppose you could itemize what she is doing for you now and amend the agreement with those responsibilities.

The 120 days termination is standard. The 3% is fair, some reps will try and demand the full rate of commission (!). The shipping guarantee of 85% is also standard, nothing untoward about that. The one thing I’m not clear about is the “USA exclusive contract”. I don’t know what that means. Does this mean she gets 12% on all US sales? Also, no mention was made of house accounts; no commission should be paid on those.

What say the rest of you?

Related:
Contract for a clothing sales rep
Contract for a clothing sales rep pt.2
Contract for a clothing sales rep pt.3

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