For: dealer principals, sales managers and finance teams
The decision: Does the compensation plan reward profitable work that the sales team can influence?
60-second answer: Define eligible revenue, attributable costs, timing and adjustments before selecting a commission rate. Test the plan against completed deals and explain how exceptions will be handled.
Quota attainment and deal contribution should be visible in the same review.
Agree what margin means
Start with net equipment and service revenue after discounts and customer credits. Identify product cost, inbound and outbound freight, installation, payment or financing fees and other attributable delivery costs. Include rebates only on a documented basis and avoid counting the same recovery or cost twice.
A deal contribution calculation is not automatically accounting gross profit or net profit. Define the boundary clearly. If commission is calculated from contribution, specify whether that contribution is measured before commission; using a cost that depends on the result can otherwise create a circular calculation.
| Design choice | Evidence to review | Rule to document |
|---|---|---|
| Eligible revenue | Invoices, credits and payment terms | Which amounts and timing count |
| Cost basis | Product, freight, installation and direct selling costs | What is included and who supplies the figures |
| Attribution | Rep responsibilities and approved exceptions | How uncontrollable costs are handled |
| Adjustments | Returns, cancellations, rebates and later credits | When and how a deal is recalculated |
| Payment and review | Completed-deal history and applicable obligations | Approval, dispute and payment process |
Test the plan before changing behavior
Recalculate a representative set of completed deals under the proposed definition. Include ordinary orders, discounted projects, installations with approved changes and returns. Look for incentives that reward selling a difficult-to-support product or transferring an unpriced promise to service staff.
Separate a manager’s pricing exception from an unexplained reduction in a salesperson’s credit. Define who can approve discounts and scope changes and how those decisions affect compensation. Give salespeople enough cost visibility to understand the calculation without exposing unnecessary confidential information.
Do not solve every margin issue with a commission penalty. Supplier cost changes, installation estimates, warranty exposure and collection policy also need management ownership. Review the plan with the appropriate payroll and legal advisers for the actual employment or representative arrangement and jurisdiction before implementing payment or recovery terms.
Use a dealer-selected rate only after the basis is clear. No universal revenue or gross-profit percentage is recommended here. The useful test is whether the written plan produces understandable results across the actual mix of work and supports customer commitments that operations can deliver.
Records to pull
Pull completed-deal revenue, discounts, credits, product and delivery costs, financing fees, rebates, commission statements and approved exceptions. Use a consistent period and identify estimates separately from final costs.
Questions to resolve
- Is the commission basis defined before or after commission?
- Which costs can the salesperson influence and how are exceptions handled?
- When do returns or later costs change the amount earned or payable under the approved plan?
What to do this week
- Agree one written deal-contribution definition with finance and sales.
- Test it against a representative set of closed deals.
- Resolve timing, adjustments and review procedures before changing compensation.
Related FEX resources
FEX editorial analysis: the operating framework above is a recommendation, not a manufacturer specification or an industry benchmark.
Editorial update, October 7, 2026: Removed an unverified quota-attainment case and replaced implied universal compensation rules with a documented design process.
