Before you can make this decision you must get some information on the average amount of commission normally paid in your chosen area of operation. Commissions vary enormously but do tend towards the general rule that if there is much easy and quick repeat business to be had then the commission rate is lower than, at the other end of the scale, where the sale is a one off and may take many months, even years to bear fruit.
The commission rates also vary widely within any particular industry. However, in general they will tend average out at around 10%. If you have been working as a salesman in the industry where you intend to become a sales agent, as a quick calculation, take an estimated possible yearly turnover and 10% of that, your commission will be your theoretical nett income less, of course, your expenses which are dealt with later.
The income tax benefit.
A major advantage of being self-employed is in the system of taxation. Generally speaking the allowance for expenses are far more generous than with an employed person.
The tax benefits include
- only being taxed on the actual profits made
- wholly business expenses are tax deductible
- pension payments are tax deductible
- losses can be carried forward to a new tax year
- assets such as cars have a depreciation allowance
Nevertheless estimating your income in the early days is extremely difficult and not an exact art. It is easier to estimate your running expenses on a monthly basis, then add your estimate how much you need to live on as a minimum. This figure represents your needed income derived from sales at, say, 10% commission.
Do not forget that your first months income from sales will probably be nil and should increase from that point. You must set yourself some targets for sales, especially in the early months, as they are pointers towards your ultimate goal of paying your expenses, taking a wage and making a profit on top. Do not expect to make a profit in the first few months.
Excerpted from the book: ‘How To Be A Freelance Sales Agent’. by Terry James. Additional content and editing by Paul Brown, MD of AgentBase.