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Marketing Challenge: Gross Sales vs. Gross Profit

by Hank Stroll  |  
February 27, 2007
  |  22,050 views

"We make it on volume" is not the way to go: Growth in sales is important, but profit needs to result. The compensation of the sales team must be based on volume and your profit margin—our readers all say that loud and clear.

The compensation issue has certainly touched a hot button. So many MarketingProfs readers responded to the following dilemma (and in such great detail), that we can't include all their comments in this issue. We will cover this topic in more depth in future issues. Thanks again for sharing your advice and strategies.

Current Marketing Challenge

Do I pay commissions on gross sales or gross profit for services?

Our star salesman is the best closer I've ever seen. He sells products and services. He's paid a salary plus commission on gross sales. He does have some pricing latitude. I've noticed a fairly stable gross profit percentage on products, but it's much different on service sales.


It looks like he's "giving away" 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?

—Julian B., Sales Director (company name withheld)

Besides sharing their own experience (and chanting "gross profit, gross profit"), readers suggest the following:

  • Develop a standard costing guideline and service revenue targets.
  • Start a deal-review process.
  • Adjust compensation for unmet profit margins.
  • Stick with the current game plan.
  • Reduce pricing latitude.


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Hank Stroll (Hank@InternetVIZ.com) is publisher at InternetVIZ, a custom publisher of 24 B2B e-newsletters reaching 490,000 business executives.

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Comments

  • by Dru Wed May 27, 2009 via web

    This article was great, would have appreciated the average % on sales for the salesmen on gross sales however.

  • by Ruric Brandt Tue Oct 13, 2009 via web

    This article was helpful. What percentage of Gross Profit would you suggest based on an average mark-up of 30%?

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