# How much Sub Broker Earns?

#### More on Sub-brokership

A sub-broker earns his/her compensation through the commission for every executed transaction. Since they act as middlemen between the stockbroker firms licensed to trade in the stock exchange (NSE, BSE for instance) and the clients, a sub-broker earns more if he has a large and high-turnover based client base.

To understand how a sub-broker earns a commission, it is first necessary to understand the concept of ‘Brokerage Fees’.

For the transaction to be carried out in the share market, typically a fee is charged by the companies or individuals licensed to trade in that market, called stockbrokers. This fee is termed as the brokerage fees.

## How much Sub Broker Earns – Example

An example of a transaction would be the purchase of shares. Furthermore, this fee could be of three types:

1. Percentage based
2. Lump sum
3. A combination of the two
4. Fixed Price brokerage

Let’s understand these with examples.

Rakesh is a newbie trader and he has a demat account with ABC Brokers.

1. Suppose, a 0.5% fee is charged by the brokers on the total trade turnover. Rakesh wants to purchase 100 shares of a company – XYZ. Also, each share costs ₹1000. In this scenario, the total cost of the transaction is ₹1000 x 100 = ₹1,00,000. Hence, the brokerage fees would be 0.005 x 1,00,000 = ₹500.
2. Instead of a percentage model, the broker uses a lump sum model of compensation. In this case, the pre-decided fees of say ₹1000 would be charged regardless of the turnover value.
3. A hybrid structure would look something like this – Transactions up to ₹50,000 would be charged on a lump sum basis of ₹1000. However, all transactions above that amount will be charged as per 0.4% commission per cost of a transaction.
4. Then, there are discount brokers who charge a flat fee per transaction irrespective of the turnover value.

You can check out this reference Brokerage Calculator for your understanding.

Basically, it can be any sort of brokerage-model.

Now, that we understand what brokerage fees or ‘broker fee’ is, let’s move on to how a sub-broker earns. Generally, a stockbroker firm would charge a commission directly from the clients.

However, they can also share this with a sub-broker acting as an intermediary party. In this case, a sub-broker earns a percentage of the total brokerage fees the client owes to the broker firm.

This figure could go up to 60% to 70% maximum, for big companies and known broking firms. Why such a high figure though? Because a sub-broker is required to do all the hard work of monitoring, researching and ensure the clients’ money is in safe hands.

For example, let’s assume the brokerage fees is calculated as ₹2000 (Lump-sum) on an average for a transaction. Also, let’s assume a sub-broker earns a 70% share of the total commission or brokerage fees. This way a sub-broker earns 0.7 x 2000 = ₹1400 per transaction.

Further, let’s assume the sub-broker has a set of 30 clients. Hence, the total average earnings per transaction for a would be 1400 x 30 = ₹42,000 for all the clients. However, here we are assuming it is a fixed fee or lump sum model, sub-broker earns more in a percentage-based model.

On top of the above-mentioned earnings, the sub-brokers are also required by the Government to invoice the brokers and charge GST. An important thing to note here is that the sub-broker cannot charge the client or the investor directly and can only charge a commission to the broker.

### How much Sub Broker Earns – Considerations

Having discussed the earning model for a sub-broker, here are some of the things to keep in mind when calculating expected income in future:

• Since the sub-broker earns a share of revenue of the broker, it is very important to partner with the right broker.
• The revenue should also be compared to how much work is required to be put in and what is the opportunity cost.
• Some of the expenses they need to be wary about are – an initial deposit with the main broker, initial registration expenses, computer an internet connection, rent & electricity (if office space is required), employee salaries.
• The key to earning more is to get more clients who invest regularly, for which a large natural database of people you know already is required who you can approach for the start.
• Further to build on it, you need to constantly educate and encourage them to invest. Also, providing them with tips from time to time can help them invest regularly too

As we have seen above, the startup capital for being a sub-broker can be moderate and with the right clientele and partnership with the broker firm a sub-broker earns a high commission on the trade.

In case you are looking to be a sub-broker or a stockbroking franchise yourself, let us assist you in taking the next steps forward: