I am looking at how I am understanding my ROI on a sales rep. I think I know the answer but am looking for some confirmation.
Here is the scenario --
I have two sales reps... they are each getting 10% on a sale of $100,000 job after certain job related costs. Let's assume the job costs are $25,000. That would mean the Gross profit after job related costs is $75,000 and they each would get 10% or $7,500 as commission on the job. So if I deduct the $15,000 in total commission plus the $25,000 job related costs from the $100K the Net profit on the job is $100K minus 40K or $60K, so 60% ROI on the job.
Now, let's assume that each rep is also paid a salary of $10,000 and for the sake of simplicity, let's assume that that is there entire salary for the year, and this one job is the entire revenue for the year.
So my question is - seeing that the return on the job is $60K and now I am having to pay an additional $20,000 in labor costs, my actual return on the business is $40K or 40%.
When I look at each individual REP, what is there ROI?
So if a REP is costing $ and the job itself, after total commissions and job costs was $60K, then did I make $50K on the rep or did I make $40K on the rep because I had to pay the other rep their salary of $10K? Now, I know the the business only made $40K or 40% net profit, but how do I spell out what is the return on the worker/rep?
The issue becomes more complicated because let's take the fact that they each sell a second job - separately -
so they each sell another $100K job with $25,000 in jobs costs BUT, they do NOT each get commission on these jobs.
So now they each get $7,500 in commission on their separate jobs, and these jobs would produce a greater return (total cost $32,500 from $100K) of $67,500 or 67.5%...
So now - let's assume that they were not paid any additional base salary...
So total costs for the rep are $10K base, plus $7500 x 2 for commission or total of $25K cost for the year...
But since the first job they split commission, do I split the attribution of revenue from the first job to each of them?
I am looking at right now like this and I think it is a mistake...
Job one revenue minus all costs (including both commissions) = $60K
Job two revenue minus all costs (only one commission) = $67,500
Total Gross profit on the two jobs equals $127,500.
Total cost of each rep $10K.
Return on REP = $127,500/10K or 12,750%..
Or again - should I NOT attribute 100% revenue that they each get commission on - should I attribute 50% of the revenue that they are splitting to what they should get credit for? Does it matter?
Obviously the business made:
$300K gross revenue, minus $75K in job costs, minus 30K in commission = $195,000 minus $20,000 in salaries or $175,000 on $300K gross revenue... or 58% return to the business.... but again what is my return on each rep?