Commission on true gross profit

What "true gross profit" means

For a single job, true gross profit is the money the job brought in, less what it actually cost to do:

Two words matter. Actually used means the materials that came off the truck or out of the stores for this job, not the materials on the estimate. Helper labor means the hours the helpers logged on this job, at their cost. Some companies also subtract other direct costs, such as equipment rental or permit fees. Whatever you include, decide it once and apply it to every job.

Why revenue-based commission misprices jobs

Take two jobs with the same invoice total. The first is mostly labor and skill. The second needed expensive equipment and a helper for a full day. Paid at 8% of revenue, both technicians earn the same. Paid at 12% of true gross profit, the commission follows what each job actually made.

On revenue, Job B pays the same commission as Job A while making less than half the profit. On true gross profit, the technician on Job A earns more for the more profitable job, and the business doesn't pay a premium on a thin one.

Why "used", not "estimated"

If commission is worked out from the estimate, nothing changes when the job uses more than planned. The technician has no reason to care, and the extra parts often don't reach the invoice either. When commission comes from materials actually used, the technician sees the cost of an extra trip to the supply house, and the office sees any part used but not billed before the job closes.

Hold commission until the customer pays

Commission on an unpaid invoice is paid out of money you haven't received. Holding it until payment is confirmed lines the technician's interest up with collecting on site, and avoids clawing back commission on jobs that are later written off.

Decide the edge cases up front

Most disputes about commission come from cases nobody decided in advance. Write these down before you switch.

• Callbacks. Does a callback on a job still under warranty reduce the original technician's commission, or is it absorbed by the company? Either can work; the rule must be known.
• Warranty work. A covered repair has no revenue. Decide whether it pays a flat amount, an hourly rate or nothing.
• Discounts. A discount reduces revenue and therefore gross profit. Decide who can give one, and whether it comes out of commission.
• Two technicians on one job. Agree the split on the job itself, before it closes, not in an argument at the end of the month.
• Partial invoices. On long jobs, decide whether commission is worked out at each partial invoice or once at the end.

How to roll it out

1. Pick the formula and the rate. Work out what your current plan paid on last quarter's jobs, and choose a gross profit rate that pays a good technician about the same on a typical job.
2. Run a shadow month. Keep paying the old way, and show each technician what they would have earned on the new formula, job by job.
3. Publish the rules. The formula, what counts as materials and labor, and the edge cases above, in one page every technician has.
4. Show the numbers on every job. Technicians trust a formula they can check. Show revenue, materials used, helper labor and commission on each job.
5. Switch at a pay-period boundary, and review after one quarter.

How FieldCX does it

In FieldCX, materials planned and used are tracked on each work order, and helpers check in and out per activity. When dispatch reviews a submitted job, closeout works out revenue, materials used, helper labor, gross profit and commission, and holds the commission until payment is confirmed. Two technicians can agree a commission split in the app. Every figure is on the job, so a technician can see how their commission was reached.

Figures on this page are examples. This guide isn't legal or tax advice; check your commission plan against the employment rules where you operate.