Helping you choose what’s better for your business based on gross margin
Paying and tracking commissions by gross margin means that your sales reps are receiving a percentage of the gross profit margin earned on the sale or on the closed deal. The gross margin commission tracking method is based on the discounted sales value minus the cost of the item before taxes. But, when or why should you choose this model?
Tracking commissions based on gross margin is perfect and suitable for companies focusing mainly on profitability. Choosing this commission tracking model allows you to set up diverse commission rates to apply for different margins. It is best for you to scale the earned commissions relative to the size of the margin achieved. For example, you can go higher on the paid percentage 10% or more.
Is the gross margin commission right for me?
This type of commission tracking method is a great way to incentivize sales reps to close those deals that represent a healthy gross margin for your company. Moreover, the ability to affect price and commission earnings is the perfect motivator for salespeople.
This is the ideal commission tracking model to encourage sales people to focus on profitable customers and product lines, and your sales reps will be more likely to exercise expense control.
If you decide to model your commission tracking structure based on the % of gross margin, Blitz is the perfect commission tracking software to help you with this process.
Source
- Book: The Sales Compensation Handbook by Stockton B. Colt. Second Edition, 1998
- Book: The Complete Plan to Salesforce Incentive Compensation, by Andris A. Zoltners, Prabhakant Sinha and Sally E. Lorimer. First Edition: 2006