SALEMAN COMMISSION

Thanks Ed, man you have brought of a ton of things that I haven't even thought about!!!! Do you pay your salesman as a sub-contractor? Or do you pay there taxes and WC/Gen. Liab.? Do you deduct draws and bennies from his 3rd of the profit? What is a fair weekly draw? Thanks so much for you wise advise, suggestions, and input. I knew that I would get some honest, intelligent direction from RCS. Thanks>>>

33% of NET Profit is fair, NOT GROSS Profit, because it is based on the job being profitable. Now, you and he must agree on what the overhead figures are that are true and correct. Gross profit does not reflect the additional hidden costs of running a business that are not direct job related costs.

You need clean books and job costing to actually determine what the true current overhead, materials and labor is though, so for every job he sells, you need a job costing final total done.

Do you carry any old debt on the books, that may or may not be collectible?

If you do, the old debt can be looked at in an Accrual method of accounting as monies actually received, but in a Cash Basis of accounting, it only reflects as income when actually received.

Also, what will responsibilities be for the material ordering and job scheduling and actual production performance of the job?

If he has no accountability for the production, then the job costs go up for someone else to supervise and answer crew related questions or conversing with the home owner. But, conversely, if he has to put in time on the job, would he consider that to be a part of his necessary hours due as part of the sales commission?

One thing that comes out of keeping in contact with each customer, is a greater chance for referrals, so if he gets a referral from that customer, have either of you considered if that would be considered a Self Generated Lead, which may have an additional bonus commission figure attached to gaining that referral job?

Will you require him to generate leads on his own? Will the marketing costs come out of his or your pocket?

Flexibility and profitability will be necessary to meet each others goals, but remember one thing, you still are the owner and are capable of establishing the rules.

Also, consider the possibility of future warranty expenditures for the jobs that he sells. Do you create an additional percentage hold back to cover warranty repair expenses for materials and labor? Or, do you decide that any warranty issues are your burden and should not come up?

What happens when a job costing shows a job to wind up being unprofitable?

Do you deduct from his wages? Will he take the point of view that production is not his responsibility? Thats why I feel it is important for the direct salesman in charge to be responsible for material ordering and stop by project check ups, so that he does have that accountability.

Same thing goes for measuring shortages. An independent salesman will want the bid to be put forth at the tightest numbers possible, while the owner may prefer to pad the square footages to account for additional waste calculations.

Will you be reviewing his job diagram measurements and comparing actual field measurements with a second person, or from the foreman of the crew when the job starts? Boom, more time paid for and cost accounted out to that job, but he may think it is not his burden to bare. What would you think and expect?

How will you monitor his trustworthiness for bids that the customer think is too high? If he has any connections, he probably has a crew of subcontractors that can go in and do the job cheaper and he will make money off of your paid for lead.

Everything that you and he can think of in advance must be agreed to, one way or another, because it inevitably WILL come up someday.

One more thing. You do not think it is fair for him to make the same as you on a job, but if you have 3, 4 or 5 salesmen, then each individual is only making the same as you for that ONE individual job, yet you are making a profit on each one of all of the Salesmens profits earned, so Don't Get Too Greedy. A good salesman who can be trusted is GOLD and worth keeping and paying properly, even if it means a financial sacrifice on your part, but not to the extent that you are not making any profit either.

Ed>

Hi Vaa, thanks for the reply and yes it would be after labor and material costs and not total contract price. I believe thats how my husband figures his jobs, 1/3 materials, 1/3 labor and 1/3 overhead and profit so where does the commission money come from? Do we need to add something to the contract price? Then will we be able to compete? You lost me when you went even further with the 1/3, 1/6 and 1/6. Thanks Terry>>>