190 THE DISTRIBUTOR’S LINK COMMISSION DRIVEN PRICING - AN IDEA THAT WORKS continued from page 56 Commission Based On Selling Price The salesperson’s commission is usually based on the selling price. It is not related directly to the cost or gross margin. That keeps the system simple. The salesperson knows that selling something a price level A will always be at a commission of 25% of the sales price, B will always be at 20%, etc. The actual commissions and multipliers may vary from these examples, but the principle will remain the same. The price schedule might look something like the illustration below: FACT 2: Each Class of Products can have a different set of Markup Factors and Letter Codes. FACT 3: Each Customer has a different Detail Line Price Level (or A-Z Code) for each line item of a single Order. FACT 4: If a Discount from List is shown on the Order Line, it is a Discount from that Customer’s “List”, i.e. their A though Z Price level. FACT 5: The Commission is based on a % of the Selling Price, but it varies depending upon the Price Code that was used to price this particular line of this particular Order. FACT 6: The Price is selected by Letter or Number Code (The Detail Line Price Level) rather than entering the actual Dollar Amount. METHOD 2: The Salespeople Become Involved In The Collection Process Their commissions are paid after the customer pays the bill. This encourages the salespeople to sell to creditworthy customers. It offers the further advantage of improving the company’s cash flow. Additionally, the salespeople can be enlisted to help collect the bill if necessary. Salespeople Are Running A Business Effectively, each salesperson is running their own little “business” with all the capital provided by the company. The inventory, billing, management, handling, shipping, etc. are all the province of the company, while the salesperson has a clear business system with outcomes that he or she can completely control. A side benefit of all this is that there is never a need to take commissions away from the salesperson. Anyone who has ever had that experience would surely want to avoid having it again. The A-Z Pricing Method Explained FACT 1: The Price is based on Cost Plus rather than Discount from List. It is a Markup Factor over Standard Cost. FACT 7: Price Table Inquiries show all the Cost Plus Tables for that Product. FACT 8: Price Books can be printed and all the information entered can be easily exported to Excel for this purpose as well. FACT 9: The System also has the option of filling in the Last Price if you would like it to. When using the Last Price Pricing, it brings up the following: • Last Price Level Code • Last Price • Last Sale Date • Quantity Sold Unique To The Fastener Industry I know of no other industry that has pricing quite lik the Commission Driven Pricing that is found among some fastener distributors. It can make perfect sense, particularly for MRO distributors, who have many small orders that are very labor intensive to handle. A Complete Solution Fortunately, The BUSINESS EDGE 2.0 can accommodate this unique pricing structure right “out of the box”. It is not easy to find software that can.
THE DISTRIBUTOR’S LINK 191 MFDA 18th ANNUAL GOLF OUTING WILD TURKEY GOLF CLUB - SEPTEMBER 22, 2013 more photos on page 194
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