Commissions Based on gross versus net amount of sales

[cnavendingofnepa]

I am new to this forum. I would like to know if anyone pays commissions based on gross sales rather than the net and what that percentage might be. Also, if you are paying on the gross, has anyone thought of adding some type of surcharge to cover the high product costs and freight costs that have been occuring over recent years?

[G-man422]

    First of all welcome to Vendiscuss CNA, please introduce yourself here:  http://www.vendiscuss.com/forums/view_forum.php?id=2  

      I would think adding a surcharge would just complicate the whole thing and make it more of a hassle.  Why not just keep it at a single % of gross or net?  I don't think bulk vending needs to be that complicated (full line you may want to consider a surcharge).  I use a charity an go off of net. 

[Jax Snacks]

For honest bulk vendors, percent of gross is fine. The problem that I have run into are the dishonest bulk vendors AND the (truly honest) video vendors.

The video, pool table, juke box vendors usually give 50% to the location. Since they have no product cost, they can honestly say they are giving 50% of gross. The problem is that the location will then expect 50% for ALL machines - including bulk. Most of my bars expect 50% since "that is what everyone else pays".

The dishonest bulk vendor will pitch the 50% to get into the door, keep his competitors out and compete with the video vendors. The location believes they are getting 50%, but they really are getting 50% (maybe) after cost, but the bulk vendor conveniently forgets to mention that or they simply say they will give 50% of the profits (gross, less cost which is true). So in the minds of every one involved, the deal is 50% (one side believes gross and the other side makes it net). Let's face it, most owners don't watch the vendor count the money and even if they do, they rarely look at the coin counter/scale readout to verify the final gross amount.

I don't want to play this game, so I simply give both numbers and tell them that 30% of gross is "almost" 50% of net after product cost and gas. Most owners will be reasonable and accept that (since they are business owners themselves and understand the concept of overhead). Just be prepared to deal with the "50% guys" when you do a commission account.

The bottom line is that I struggle with this situation. I really want to be honest, but I also have to deal with the video and dishonest bulk vendors as well. So I will continue to pitch both numbers so that everyone one is on the same page AND explain the overhead costs to the owner AND hope that the owner is reasonable and will accept 50% of net.

For those attending, I believe this is a topic at BOSS next month.

Jax

[T BIRD]

Are you goint to Boss Jax?

[caserri]

The dishonest bulk vendor will pitch the 50% to get into the door, keep his competitors out and compete with the video vendors. The location believes they are getting 50%, but they really are getting 50% (maybe) after cost

Wow, I guess I'm a "dishonest bulk vendor." Jax, what you described is exactly how I approach paying commissions. The exception is that I inject a degree of honesty by utilizing the "commission payout worksheet" that is posted in the tools section. Both the location and myself keep a signed copy of this worksheet each time a commission is paid. It clearly states that they will receive 50% of NET.

Why do I do this? Because I consider the  location my partner. We BOTH profit from the sales so we BOTH bear the burden of cost of goods. I keep my COGs at 30%. 15% is paid from the locations commissions and 15% is paid by me. If I can't afford to replace the goods that are sold then neither of us are going to make any money.

So why do I even bother with offering 50% net when I can just offer 30% gross and be 100% up front? Well that just comes down to being able to secure, and keep a decent location. When dealing with racks, there is usually only enough room for 1 vendor. That makes the environment extremely cut-throat. I need locations in order to be profitable and will have a difficult time acquiring them without a little "creative explanation" of the commission payouts. I feel that as long as I am up front about how much they are actually getting, and it is in writing, then I'm being honest enough for my own conscience.

Steve 

[Jax Snacks]

Steve,

Allow me to clarify.  The dishonest vendor will pitch 50% and trick the location into believing that the commission is based on gross.  Since you are clearly telling the location in writing that they are getting 50% of net, I don't consider that to be dishonest at all.  As I said before, I always disclose both the gross AND net commission percentages so that both parties understand the arrangement.  I am running into many prospective accounts that believe they are getting 50% of gross from the current bulk vendor.  It is almost impossible to talk your way into those accounts since the owner really believes that the vendor simply "eats the cost of the product since it is made for pennies in China".  I even ask some of the prospects if they are getting 50% of gross or of the net and many times they say "We am not really sure, we just know it's 50%"! 

I see nothing wrong with pitching 50% (or any other number for that matter) as long as BOTH parties are fully aware of the terms (which is not always the case with the dishonest vendor).  I guess my initial quote should have said "50% of gross" and not just "50%" (which was implied to be of gross).  As I move forward and think more about this, it appears that the percent of net approach is probably the best way to go so that the location has the 50% number planted in their heads.

Jax

[caserri]

Jax,

Thanks for clarifying. I did not mean to sound like I was attacking you or anything. It was more of a defense. I have explained and promoted my commission payout policy many times on this board and have also offered up my CPW for others to use. I just wanted to explain it once more in this thread so other members who were aware of my commission policy would not believe me to be dishonest.

Like I said above, doing it this way does give you a distinct advantage when securing and keeping locations. I do agree with you that it must be done properly by disclosing everything.

Steve

[Jax Snacks]

Steve,

Thanks for thanking me for clarifying! I know you are not the attack-minded type and I did not take it that way. After re-reading my initial post, I now see how I may have implied that all percent-of-net agreements are dishonest - which was not the intent.

This exercise has helped me solidify my approach in the future. The FULLY DISCLOSED percent-of-net is probably the way to go in this extremely competitive rack vending environment. It also could be a nice way to include a fuel surcharge into the equation as well since now we have aggreed to subtract something from the gross per the agreement.  I will chew on this some more.

Hey Smiley, are you sill around? What do you think about this? Also, how do the full line vendors handle this?

Jax

[pdavid]

By my math, 50% of net is still more than 30% of gross, right? Or am I missing something?

[caserri]

By my math, 50% of net is still more than 30% of gross, right? Or am I missing something?

You are correct. It is in fact 35% of gross assuming 30% COGs.

Steve