1. Revenue vs Margin Mathematical Comparison
Consider a product sold for $100,000 with a wholesale Cost of Goods Sold (COGS) of $60,000 (yielding $40,000 in gross profit).
Top-Line Revenue Model (5%)
Gross Sale Price: $100,000
Commission (5% of Sale): $5,000
Company Net Profit: $35,000
Commission (5% of Sale): $5,000
Company Net Profit: $35,000
If rep discounts price to $70k to win deal, rep still makes $3,500 while company profit crashes to $6,500.
Gross Profit Margin Model (15%)
Gross Profit ($100k - $60k): $40,000
Commission (15% of Margin): $6,000
Company Net Profit: $34,000
Commission (15% of Margin): $6,000
Company Net Profit: $34,000
If rep discounts price to $70k, profit margin drops to $10k and rep commission drops to $1,500, discouraging unapproved discounting.
2. 3 Reasons Companies Switch to Margin Commission
- Discourages Deep Discounting: Reps guard deal pricing because discounting directly reduces their personal payout.
- Protects Cash Flow: Ensures commission checks are always backed by actual gross profit margin.
- Encourages High-Margin Upsells: Reps focus on pitching premium, high-margin product features over low-margin commodity items.
3. Calculate Margin vs Revenue Payouts
Compare revenue payouts against net margin payouts using our specialized tools: