Cutting Commission Percentages

[ButlersVending]

Now is possibly the best time to reduce the percentage of commissions paid to locations. Although locations may be asking for more, the operator can and must make a living, too. The economy is slowing down, and with the new administration starting in January ... with all of it's promisses to give money away to everybody, our Dollars will become worth considerably less. To pay for all of their plans, they're going to tax the rich more ... but anyone with a job will be considered rich; so, we're ultimately going to have less money coming in and the money which we will have will be worth less, so to compensate we'll have to reduce commissions.

As all merchants experience the coming crush, they will understand. Plus, there's even more opportunity for us vendors to develop new locations of those merchants who heretofore did not have vending machines, as they'll become more receptive to additional ways of making extra money.

Of our about 250 locations, only one has 30%. It's a busy truck stop. And, about 3 years ago, they told me that the 25% which we were paying wasn't enough and that if we wanted to stay, we had to pay 35%. I tried it and determined that I was working too hard and too long for such little return on our investment. So, I attached the trailer to take the rack with me during what I thought would be our last servicing of the machines.

When I got there, I talked to management, explaining that we just couldn't pay 35% anymore. Further, I told them that my competitor would put their rack in my place, if they wanted. But, I also explained the major differences between us and them. They liked us, our policy of giving more / better, and the way that we always announced that we were there to service the machines before touching them, and the fact that we always counted the coins in front of their clerk. ..... Upon seeing that we were serious, and still willing to help them, they suggested that we go to 30%; which we did, and have been at since.

25% is what we pay, and many of our locations have other operators nipping at our heels, offering this, that, and so forth. Nevertheless, our locations stay with us and are pleased to do so.

A recent example, two months ago, a competitor was asked why that they had more machines than us in a particular restaurant lobby, and why that they never paid as much as us, but that were promising 35% and we promised just 25%. The guy told them that his machines just didn't have as much money in them. The restaurateur volunteered that it may have had something to do with his taking the big box of coins to his truck to count. Anyway, we're still there, and still paying 25%. Of course, we eat there occasionally, too ... something else that the competitor didn't do.

25% is fair for us. And, although we're not getting rich, so far we've been making a living. Hopefully, those operators who currently have much higher percentage payments, can lower some of them, as it's money that should stay in your own pockets.

Bob

[that1dude]

Well said Bob! I think that we can all take this example to heart.

[shvend]

25% is fair for us. And, although we're not getting rich, so far we've been making a living. Hopefully, those operators who currently have much higher percentage payments, can lower some of them, as it's money that should stay in your own pockets.

Bob

Bob,

I really wish I could follow this point advice but unfortunaly it is very difficult to lower your precentage you pay when you have been paying a location 30 to 40% commission.  They get use to the money and most of them do not like giving up 10 to 15 percent of there money.  Another problem with that is, and I am sure you run into this also another vendor offering to pay up to 50% commission.  So that makes it awful tough to go down on commssions in locations.  That is just my personnal experience.  And unlike you I am unable to pick up a location just because they want me to go up in commsission, unless it gets above 40%. 

[BluePlate]

For the locations I pay commision to, we pay 50% of Net.  So the cost of good comes out before paying me or the location.  Everyone undertands COGs are going up.  So instead of reducing the percentage we raise out % of cost of goods as they increase.  Each location has a different COG percentage based on their blend. 

We take as accurate COG % blend as possible.  If the COG goes up, I feel confident I can look the owner in the eye and feel I can be honest. 

As Bob mentioned counting the money in front of the owner is important, it is also important you are wasting their time.  We weigh our coins, it's fast and accurate.

[caserri]

For the locations I pay commision to, we pay 50% of Net.  So the cost of good comes out before paying me or the location.  Everyone undertands COGs are going up.  So instead of reducing the percentage we raise out % of cost of goods as they increase.  Each location has a different COG percentage based on their blend. 

We take as accurate COG % blend as possible.  If the COG goes up, I feel confident I can look the owner in the eye and feel I can be honest. 

As Bob mentioned counting the money in front of the owner is important, it is also important you are wasting their time.  We weigh our coins, it's fast and accurate.

There must be something in the Western Mass water that we are both drinking BluePlate. That's is exactly how I pay my commissions. 50% of net. COGs is ALWAYS taken off the top. I'm just not going to pay a percentage of my cost to any location. The locations cut will be between 25-35% of gross depending on my current COGs.

Steve

[shvend]

Steve what is your average COG of goods 25 to 30%?

[ButlersVending]

It is very difficult to lower your percentage you pay when you have been paying a location 30 to 40% commission. 

Agreed, it'll be difficult. Perhaps doing as Steve Caserri is doing is an alternative. A lead in conversation may be presented as this:

"Due to the current economic downturn we're having to change the format of our commission payment to be in sync with our product costs. You'll continue to receive 40%, {or as applicable} , however it'll be base upon our actual costs, and will be determined by subtracting the actual cost from the gross, then calculating the payment." Of course, put it into your own words, but in the final analysis, the merchant will hear that he's still getting 40%.

The location knows that they use your payments for whatever, and as times are, they'll want to keep your service ... plus, if you're friendly, and if you patronize them every so often, that'll be taken into consideration, too. And just as important, they know that you've got to live, too.

Bob  

[Jax Snacks]

Bob,

Great idea with the percent-of-net approach!

However, all my locations are percent-of-gross and converting them to percent-of-net may be a bit tricky and invite some unwanted consequences.

My biggest problem in trying to lower the commission are due to the video game and amusement vendors. They traditionally give 50% (or so they say) and once the location owner/GM gets that much from anyone, he wants it from all vending machines! Now some owners can be reasoned with by explaining the COGS, but many here simply don't care.

My second biggest problem in trying to lower the commission are due to the "50% bulk vendors". Once again, when the owner has 50% burned into his mind, it is very very difficult to lower it. There is always another vendor willing to take my place that will claim to give 50% of something.

I focus on keeping my COGS at 20% by watering down the premium products with either low cost close out items or novelty items from places like RI Novelty. Or by simply selling low cost home grown treasure chest mixes (BTW, thanks for that tip on BVU, Bob).

Jax

[shvend]

And just as important, they know that you've got to live, too.

Bob  

Agreed

 

[BluePlate]

Steve,

I'm not sure about the pizza places you have, but some that I have  - I would lose a finger if I shorted them a quarter!  They like the sound of 50%......

 

Todd

[caserri]

Blue,

I don't pay commission to any of my pizza places. My Chinese food places are another story!  I walk in and I get "YOU PAY NOW!"

Steve

[caserri]

Let me also say that my pizza places were all secured by a locator over 5 years ago as charity singles. When I changed my model to commission racks, I simply asked them if I could upgrade the single to a rack because I'm no longer involved with the charity. When I made the change, no commission was ever discussed.

Steve