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account, at 40 percent they would be paying $2,000 per month in commis- sion. Now by automatically reducing the numbers to show $3,000 in sales or a reduction of 40 percent, they would pay the account 40 percent of $3,000, which comes out to $1,200, or 24 percent of the real sales, with a saving of $800 a month in commis- sion and another $120 in sales tax. If this was done in the computer soft- ware then no one would know but the owner, certainly not the account and not the sales tax offce. Now the account seemed safe, as no competi- tor was going to offer more commis- sion because he would be paying a higher amount on true sales, which would be fnancially impossible. This is now the position we have put ourselves in and until everyone plays by the same rules, commis- sions will continue to increase. The customers who are infatuated with percentages would never think to compare dollar amounts on commis- sions paid even when you tell them that your 25 percent will be greater than the other company's 40 percent. Commissions the right way Since we will always have a "R" fac- tor being used by someone, we need to move on and talk about some dif- ferent ways that honest commissions could be paid. Most government agen- cies that put out a request for proposal (RFP) for their accounts seem to always specify that commission must be paid on gross revenue without any deductions, so we can skip over these accounts. For normal private sector accounts, the way you present how you will pay commission can vary and save you some money. The frst one is the easiest way. You tell them that you want to subtract the sales tax from the revenue before comput- ing their commission and most busi- nesses will understand. Another way would be to tell them that you would like to subtract the cost of goods as well, explaining that you would then share with them what you're actu- ally making. Commissions would be paid on the Gross Proft. Let me see if I can give you a visual, taking an account with sales of $5,000 per month through snacks and sodas, using 45 percent as product cost, 6 percent as the sales tax and 20 per- cent as the commission rate. With the $5,000 account and a commission of 20 percent of gross sales, you would pay $1,000. If you subtract the sales tax you would pay $940. If the prod- uct cost is also subtracted, then the commission paid on the gross proft of $2,450, would be $490. Selling a zero percent commission Now let's look at another scenario, using the same $5,000 account, but let's assume that all the pricing is at $1. You go to the account and offer to lower everything by 5 cents and in exchange you will not pay them any commission. This is how the num- bers would work. Sales would now be $4,750, less sales tax of $285 and product cost of $2,250 leaving you with a gross proft of $2,215. Now wait a minute, you say, that's $235 less in gross proft than the previous scenario. Yes, that's true, but you paid $490 in commission on that amount and now you are not paying anything. This leaves you with an extra $255 per month in gross proft and $3,060 for the year on this one account. There is one fnal way to show you, and we will assume the same sales, but this time we will divide them equally between snacks and sodas so that each is bringing $2,500 in revenue per month. We use the same cost and sales tax which brings us to a gross proft of $1,225 for each at 20 percent commission you are paying $490. You go and talk to the account and say, I would like to lower the commission on the snacks to 10 percent because of the short life of most of the products and the throw- aways that I have to absorb but I will keep the sodas at 20 percent. Now you're paying the account $367.50 per month, certainly a far cry from the $1,000 that we started with. Consider each account individually In closing, you really need to look at each account and if you have to pay commissions, try and determine the best way. You need to talk to the contact as a business partner and explain what you would like to do and why and show him that this will make sense for both parties. Most of them will understand that just like their business you need to try and save where you can without giving up the standard of service that you have been providing. But whatever formula you agree on, make sure you put it in writing with signatures from both parties so that in the future when a new manager takes over the account he won't be as quick to change to that so called better deal that may be offered. Commission on gross sales $1,000 Commission on gross sales minus 6% sales tax $940 Commission on gross sales minus 6% sales tax and 45% product cost $490 Figure 1: Different ways commissions can be paid Based on sales of $5,000 a month 20% Commission rate April 2014 VendingMarketWatch.com Automatic Merchandiser 25 S M A L L O P About the Author Dominic Finelli is a 43-year veteran vending operator in the Washington, D.C. market. Finelli can be reached at dom@ askfnelli.com. autm_24-25_0414SmallOp_F.indd 25 3/26/14 9:52 AM