A consultant wrote, “a client advise implemented a meaningful Commission bump for selling over the target price.” At first brush, that sounds like an obvious plan, but it causes us to think more carefully as it implies that the dollars over the target price are more valuable than the dollars at the target price or below it.
For example, if the target price is $1,000, we may be able to get the order for $1,100 but perhaps only $900. So what’s the real difference? If we’re a normal commercial printer we’re going to spend about $600 to produce the job (paper, buyouts, production wages, commission) thus the difference is in contribution to overhead, $400 at $1,000, $300.00 at $1,100 or $200.00 at $900.
Given this, is it logical to assign a meaningful commission bump to the $100 additional contribution at $1100 as the reality that it is just $100 more than the sale at $1,000 or 200 more than the sale at $900. Even worse, the meaningful bump may cause the reps to ignore the $900 opportunities. If this happens the $300 contribution is being passed up for the chance to get another $100.
The central point is that profit comes from contribution to overhead not cost sheet margin. High profit printers are almost always characterized by full utilization of plant and equipment which produces maximum contribution of dollars to overhead and profit. The goal should be “get as much as you can get but get the order.”
The Management Guys
Bob Lindgren, (818) 219-3855
Gerry Michael, (206) 310-1119
themanagementguys.com