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Add Sales Commission Agreement Template countersignature

hey what's going on guys uh so i was working on a google sheet uh template here and i was trying to think of what to do and i thought well salesman commission plans are usually you know where do you start so i tried to build a template that showed the two primary styles of doing commission bonuses and then a bunch of sensitivity charts on how they compare um so let's get into it um it's only two tabs first tab's a model tab here and i did all of this based on gross profit so companies you know all companies do it different but uh some may say that you know if you're a salesman you sell uh two million dollars worth of product you're gonna get some percentage bonus on that and you know they're gonna do a bunch of analysis to figure out you know what percentages they're willing to give but that can be difficult because you're looking you have to look at margins and figure out well you know what what's the company going to make on a gross profit basis from that expected revenues and it could be different for all different kinds of products so to take all of that uncertainty away personally my opinion is that it's easier to do commission structured for sales people based on the gross profit they bring in that gets the focus off of top line revenue and more on margin which you know if you could make five hundred thousand dollars of gross margin only selling eight hundred thousand dollars worth of worth of stuff that's better than selling you know five million dollars worth of stuff and only making you know 200 000 in gross margin so it's better for the company and therefore um oh it's better for this the it's better for the company to be focused on making more gross profits and then you can award sales people based on that rather than top line revenue so all of this is based on gross profits so the model tab just looks at one scenario and it says you know if if this much revenue was made and this was the cost of goods sold or the cost of sales of that revenue then the company made 1.7 million in gross profit it's 85 profit margin now let's look at method one so this is just a fixed percentage and you apply it to the gross profit and that's the sales person's uh commission now you might apply it quarterly monthly usually not less than monthly and then maybe semi-annual or annual uh so if they made this much in gross profit they get this much uh this is their commission rate well they make 51 000 in commissions off of 1.7 million gross profit and then to figure out like so this is not a standard margin here but i thought it's important to say well what's the effect of after you look at cost of goods sold and commission rates what's the percentage left on revenue and then this percentage left on revenue would be what goes towards you know fixed expenses salaries etc uh but on a comparative basis i thought that was the percentage to look at not just gross margin and not just the salesman percentage of revenues i thought if you combine those that kind of gives you a number that might be the most helpful so in this scenario there's a gross profit of 1.7 million you pay 51 000 to the sales person or people and then company earns 1.6 million 1.649 off of 1.7 oh i'm sorry off of 2 million in revenue uh there's 1.649 million left to pay all the other bills and then you're at net profit after that so that's once one method a fixed percentage uh now in this method a sales person is um they know that the more that the more gross profit they they can generate by sales the more money they're gonna make but the proportion of the gross profit that they get is always three percent okay so here's a different style and i'm gonna go with uh talk about method two now and this is where you're raising the commission rate if the gross profit is higher rate so now what are you saying well you're saying to the sales people if you sell more and your gross profits are higher you're gonna get potentially more than three percent of the gross profit you could get you know in this case six nine 12 percent at these tiers now as a company you just have to go into your numbers and figure out what makes sense because obviously every every company is going to be different when you define what buckets each percentage is right here it's just saying you know from zero to a hundred thousand it's one percent from a hundred thousand to three hundred thousand is three and so on over a million is twelve um and it's in the scenario or in this model is uncapped but you could cap it at um a million and just say nothing over a million is going to to count or you could just uncap it it's up to you as a company so these buckets are really important this is like the most this is where the main sensitivity comes from of this model and like to meet the meat of it so you need to focus a lot on what commission rates you're giving to each gross profit range and you're not if if you're doing this let's say this is done on a monthly basis and on average your historical sales people their gross profit is you know five to ten thousand then it makes no sense to do this because there's no way in the world they're gonna get a million if the average over whatever time is is is you know five to ten thousand uh so you would look at historical sales to try to figure out what buckets make sense and then you'd wanna say you know the high end here is going to be overachieving so like a certain percentage above the average and then so on down maybe your average is somewhere around here these two buckets are close to the average and if people do more they get more if less then they get less of a commission rate but that's going to be dependent on your own situation of your organization now here's why this is important because you can structure on average you can still get around a three percent but you would just make the lower rates lower and the higher rates higher and the theory or idea behind that is you're pushing your sales people to do more than the average and you're giving them more a higher proportion of the gross profit as their commission if they can do that and as a company the reason why this would make sense is um well let's let's see i could probably explain this better by saying if you look at this scenario here that we set up in a fixed in method one fixed percentage of gross profit the company is earning 1.649 million and in the in the tiered or in the the scaled version the company's earning 1.496 because this person has gotten into the 12 tier so you got to pay them more and you're going to get less so if you just look at it um the same numbers the company's making less in this this scenario however it's very important the only reason why you're looking at this tier is because you think that you can't reach this level of revenue with this fixed rate so you're doing a scaled rate to get to this number and you're giving up more than if you had a fixed rate but the other side of it is if your sales people are only getting three percent are they able to get to are they motivated enough if that's hell or motivated and can that get them to two million or they only get to one million and in that case the company makes less let's say if you go to 1 million here so right now the company's making 1.496 if you go to 1 million you're making significantly less after you pay commissions and gross profit even though this if you go back to a million you were making 1.49 and 1.6 here but who is to say if you make more uh if if you give them this skill t or are they able to do the same numbers are you only able to get this number with the scaled system where you're incentivizing more gross profit and you're giving you know sales people more of that if they make more rather than just three percent so i try to make this template really easy for inputs here just these uh yellow shaded cells with blue text then all these rates over here will change based on what numbers you put in like this i can say two four six eight changes 10 and then so over here the visuals you can see obviously fixed rate has the same percentage in each gross profit range and the commission earned at each level if you just look at the the the uh start of each tier this is how much how much commission the sales person would earn at the different levels and then this is the same thing but for the scaled method and the amount that they earned on the scales you can see they're going to earn more if they sell more compared if it was fixed and this will all when i get to the sensitivity analysis you'll see why you'll see a better it'll explain everything i just went over it it'll concrete it'll make it more concrete uh then below here some more comparative charts showing uh gross profit earnings and just is essentially these two charts with a stack or a side-by-side bar and a commission rate same thing but just side by side instead of separate so that's what this tab is doing and then the margin here is going to define our sensitivity this 85 and then these gross profiteers and commission rates will define as well so now if we go over the sensitivity what i'm trying to show is how the company can perform with varying revenue levels so now at a fixed percentage of method one the proportion that the sales person is getting is three percent of gross profit and then the gross profit less commission's always gonna be the same rate because it's always um three percent eighty-five percent whatever the depend doesn't matter what the numbers are so here's what the company can get at different uh earning levels now let's go to method two and i've just done the automatic formatting here so you can see what level you're in at each uh column but now you're saying okay at this revenue level or this gross profit level you're giving one percent two four six and ten as you go up in the gross profit raises so the sales person is getting that much more than in the fixed you see that they start to um surpass the fixed in um the third bucket which is four percent uh and then here's the company earnings which you can see now look at what happens is the company is giving up margins here you're going from 84 all the way down to 76 percent however the company is saying we're willing to give up margin if the revenue and in conjunction the gross profit is higher so there the company's saying i'd i would accept 76 percent on 1.5 billion in revenue over 81 percent at 500 000 and 30 000 revenue and then they're making you know instead of 432 they're making 1.2 million so 800 000 more so they're saying i'll i'll give you i'll accept less margin if the numbers are higher and that's where you as a company you kind of run all bunch of different uh assumptions and see what kind of makes sense what percentage makes sense and that will be dependent on your other fixed costs and other uh non-uh cost of goods sold and non commission related things and here i did a couple visuals so you can see um here's the company's gross profit the scaled method here's at the fixed so you can see yes it's lower at the same revenue number but let's say with the same uh with with the fix you might only get to this tier or this one so your margins are higher but you've actually made less profit compared to let's say you get to the higher tier um in a skilled method and the the idea being that your sales people are motivated more motivated uh with a scaled method rather than a fixed commission then we go down and show that on a comparative basis so you can see here where we start to surpass the the fixed starts to go higher than the scaled as far as what you're earning after the third bucket and you can see like what the difference is here and earnings assuming you gave the same rate for the fixed and you're scaled for that one and again the reason why this is important is you can see the difference and so what you're potentially giving up assuming that your sales people can reach the same revenue number no matter what the commission structure is then you're losing this much but the idea is you don't lose that much because your sales people aren't going to perform that well with the fixed percentage and i'm not referencing any studies here i'm just it's just kind of a thought um what do they call those thought experiment to just see um kind of how you might want to structure this and then here's just a simple okay we know our gross profits are going down in the in the incremental or the the scaled version they're staying the same in the fixed version um and that is it so if you do want to purchase this template it's definitely only going to be a 45 one but i think there's a lot of value here a lot of work went into making this right and look good instructions are simply you're going to go to file make a copy if you do purchase it i'll send you this i'll send you this template and your file make a copy of your own editable version and just follow stuff one two three and four it kind of just goes over what i just said at a high level and hopefully this will help structuring your sales commission plans for your sales people alright i'll see you on the next one