{"id":702,"date":"2007-02-27T17:16:14","date_gmt":"2007-02-27T23:16:14","guid":{"rendered":"http:\/\/selectmetrix.com\/blogs\/2007\/02\/gross-margin-compensation\/"},"modified":"2007-02-27T17:18:37","modified_gmt":"2007-02-27T23:18:37","slug":"gross-margin-compensation","status":"publish","type":"post","link":"http:\/\/selectmetrix.com\/blogs\/2007\/02\/gross-margin-compensation\/","title":{"rendered":"Gross Margin Compensation"},"content":{"rendered":"<p>From MarketingProfs.com&#8217;s <a target=\"_blank\" href=\"http:\/\/www.marketingprofs.com\/7\/sales-compensation-gross-margin-vs-volume-stroll.asp?part=2\">Marketing Challenge: Gross Sales vs. Gross Profit<\/a>:<\/p>\n<blockquote><p><em>Our star salesman is the best closer I&#8217;ve ever seen. He sells products and services. He&#8217;s paid a salary plus commission on gross sales. He does have some pricing latitude. I&#8217;ve noticed a fairly stable gross profit percentage on products, but it&#8217;s much different on service sales. <\/em><\/p>\n<p><em>It looks like he&#8217;s &#8220;giving away&#8221; services to get more product sales. Service costs are somewhat vague and hard to accurately measure, but I need to grow the service side of our business profitably. <\/em><\/p>\n<p><em>Should I switch his commission structure to a gross profit percentage on services? <\/em><\/p><\/blockquote>\n<p>In a word, yes.  Gross profit is the most effective structure for sales commission plans.  The hiccup is determining costs and their is a pitfall to avoid.  If you have variable costs based on production or service delivery, it is best to establish an estimated cost for each sale.<\/p>\n<p>Here is the issue &#8211; I worked for a LAN cabling company where I was paid on the gross margin of my deals.  I designed the solutions, quoted the project and closed the deal.  The problem was that some of the installers were quite liberal with their material usage.  That is putting it nicely &#8211; one guy was assigning material costs to my job while moonlighting installations using that material.  I didn&#8217;t know this at the time, I simply knew that the installation I had designed had plenty of extra material built into it.<\/p>\n<p>My commission was crushed on a handful of big deals and slowly dissolved on smaller deals.  The President finally stepped in after I toured a few job sites with the lead engineer and measured the amount of cable installed (well under the amount listed on the job completion sheet).  Needless to say, I have never forgotten this issue.<\/p>\n<p>This suggestion sums it up (emphasis mine):<\/p>\n<blockquote><p><em>Gross margin is the way to go. <strong>The trick is to define the cost of goods<\/strong> to drive the correct behavior that yields profit on the bottom line. The calculation to get this right requires a clear understanding of the end-to-end process that delivers the &#8220;product,&#8221; whether it is goods or services. <\/em><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>From MarketingProfs.com&#8217;s Marketing Challenge: Gross Sales vs. Gross Profit: Our star salesman is the best closer I&#8217;ve ever seen. He sells products and services. He&#8217;s paid a salary plus commission on gross sales. He does have some pricing latitude. I&#8217;ve noticed a fairly stable gross profit percentage on products, but it&#8217;s much different on service sales. It looks like he&#8217;s &#8220;giving away&#8221; services to get more product sales. Service costs are somewhat vague and hard to accurately measure, but I need to grow the service side of our business profitably. Should I switch his commission structure to a gross profit percentage on services? In a word, yes. Gross profit is&hellip; <a class=\"read-more\" href=\"http:\/\/selectmetrix.com\/blogs\/2007\/02\/gross-margin-compensation\/\">Read More<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"bgseo_title":"","bgseo_description":"","bgseo_robots_index":"","bgseo_robots_follow":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[20,4],"tags":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p5Oho-bk","jetpack-related-posts":[],"_links":{"self":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/posts\/702"}],"collection":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/comments?post=702"}],"version-history":[{"count":0,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/posts\/702\/revisions"}],"wp:attachment":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/media?parent=702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/categories?post=702"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/tags?post=702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<!-- WP Super Cache is installed but broken. 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