more-arw search

Q&A Forum

Sales commission plan where if project overruns cost, commission is reduced?

Have any of you heard of a sales commission plan where the final payout of the commission is based on the overall cost of the project? Meaning: if the project comes in under budget, the commission would be higher and if the project overruns the planned budget, the commission is reduced.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Wouldn't that be a bonus based on gross profits?

That's a normal plan, it is not the only commission scheme I've used or seen, but there is nothing inherently wrong with it, if it is constructed fairly.

Usually, the salesperson would make a bit more with this scheme than a percentage of the sales price or unit as the employer would still need to protect themselves on the downside. Commission on profit would have the downside built into the calculation from the get-go.

Anonymous
(North American Marketing/New Business Development Manager) |

Wayne,
It's considered a commission, based on the value of the sale. The commission is broken out into percentages, based on completion of the project. The last portion of the commission is given if the project completes on budget, or a portion of that is taken away if the project overruns.
I'm trying to determine if this is a common thing. If the project comes in under budget, the salesperson would get more that that last commission portion. If the project comes in over budget, the company takes away some of that last portion.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I haven't heard of this type of commission, but as long as both parties agree, and there aren't any shenanigans going on, it would be "fair".

If I were asked whether I would agree to an arrange such as this, my only issue would be what control I would have to make the project come in on or below budget.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

The question I have is....

Why would I (as a Salesperson) agree to a commission structure where certain portion or portions of the commission computation is NOT under my control? I can control the sales....but not the cost! What assurance do I have that those "accounting guys" (lol) are charging the right costs or sandbagging costs to my project?

In a circular logic (and weird) way, by reducing my commission early on, it reduces the overall cost of the project and get more commission at the end?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Emerson,

I'm sure they have excluded or back-loaded all commissions to completion phase - at least I would hope the creator of the plan, from the companies standpoint ran scenario's and concurred with your logic.

Wayne

931 views
Products and Companies

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.