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Commission confusion.

Thatg9659

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So fella sells a doo dad for $100.oo doo dad has a cost of $40 leaving $60 profit. why is the commission based percentage wise on the gross sale price? I'm not complaining just confused.
 
It depends on your specific commission plan. I do outside sales on commission and I’ve had plans based on gross sales and off net profit.
 
Yup, depends on agreement. We pay off sale price, if rep discounts it hurts their commission (price x rate)

If they give deep discount based on a chart we have, then their commission rate also goes down (lower price x lower rate)
 
My commission is based off gross.

too many games can be played to get to net (overhead, burden, material cost, etc.) plus what if the owner decides to take a job at cost? I don’t want the headaches.
 
If you sell the doo dad for $100 and the cost is $40 you have $60 of gross profit not profit.

The commission you are paid is 100% based on the contract between you and the employer.
 
As the sales guy, your cost isn't my problem and neither is our agreement that you put on paper. I sold it, pay me.
 
My commission is based off gross.

too many games can be played to get to net (overhead, burden, material cost, etc.) plus what if the owner decides to take a job at cost? I don’t want the headaches.

yeah gross sales is way easier for everybody involved on most things in the doo-dad market. easier to track, easier to forcast, all that jazz. annual bonus is an easy way to account for overperforming or high margin sales without putting too much risk on low margin items
 
I worked on commission and if the profit margin was above a certain % than you get the % commission on the total sale. No if you sold something profit margin below the % you didn't make commission on that order just your base salary. I also worked on comission off your gross margin. It was a much higher % since the amount of profit was much lower than the amount of total sale. Worked out where you would make roughly the same since most items you sold you made decent margin on. The company makes a set % and you make a set % of the profit. Easy to figure out when selling an item you know the profit margin on.
 
Dodad selling price is 100 bucks. I pay you 7% commission of the 100 bucks. I you sell the dodad for less than 100 bucks the you eat the shortage. My profit off the dodad is not your business. You deal with the selling price.
 
Commission is entirely what you agree on. But unless you are selling something with a very fixed cost number I wouldn't agree to get it based of GP.

Eg - I'm in the construction world. Sales guy sells a project for $50k at 20% expected margin ($10k). You could give him 3% of rev $1500 or 15% of the GP and he gets the same either way. But what happens if the costs are wrong and the margin changes - say the sales engineer forgot a scope and the company ended up writing a check to do the job. Or the PM is a useless twat and runs up costs. Should the sales guy take a hit on something he couldn't change - no.

We do it based on rev, but the commish percent changes based on expected margin - if you sell something at full expected margin you get x%. If you sell something at low end of allowed margin you only get half that percent (I don't have the actual numbers).

Now if you are selling a widget that costs $200 to sell to the customer, with no real exceptions or changes then commission based on GP is fine
 
Read your contract. If contract language is unclear, it is interpreted to the benefit of the party that did not write the contract. That is usually the employee. If you dont have a contract, the guy with the checkbook can screw with your pay as much as he wants.
 
In our company, it depends on where you are in the sales team. Sales Reps (not direct employees, contractors essentially) are paid X% of Gross sales in their territory with territory splits based on ship to and design locations. Direct sales people (regional manager etc.) are paid a negotiated percentage of the company gross profit from sales.

All commission structure is supposed to do is incentivize the salesperson. Different sales people are motivated differently and have to deal with different circumstances.

Are you a rep, or a direct employee? Reps usually get commission on gross sales because that way the company doesn't have to reveal profit margins and the rep has no real control over the profit margins anyway. A direct employee can influence the profit margins in some cases, so the net profit may be a better place to calculate commissions.

No broad brushes with commission structures.
 
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Wait no Jimmy Numbers to tell use hourly is the only fair way? And that most shitty salesmen don't give the client the full description so the could be costing the company useless sales. . There fo they don’t deserve as much money because fairness:flipoff2:
 
So fella sells a doo dad for $100.oo doo dad has a cost of $40 leaving $60 profit. why is the commission based percentage wise on the gross sale price? I'm not complaining just confused.

it depends on the business, standard margins, etc.

We commission some on gross profit and some on top line. depends on what is sold and how direct the GP calculation can be.
 
Buddy sells upfitted RR trucks and his is based off of net profit, which is a constant fight. Reason being, he is spec'ing a truck and with 40 different component packages going into one unit, he has to configure and price each thing accordingly within their structure to make sure there is a profit, and if done correctly, there is. Then you get paid, handsomely. Reward for good work.
I will say, going from gross, to GP, to NP, if you drop the price to get the sale and you're a total gross percentage commission, it affects you much less than if you drop the price on a profit structure.
 
Commission structure is just a contract between the employee and business, and it can be structured however the two entities agree on. If that means the sales rep gets paid $10 for every time the buyer farts during the transaction, so be it. Or a flat $XYZ per sale. Or XYZ% of any combination of, net, gross, sales, profit, etc. Every industry and business has their own unique quirks that can warrant a different commission structure.
 
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