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In order to increase your gross profit margins, sort all of your sales by representative and compare their overall weighted gross profit margins. Their numbers and percentages will not be the same because each’s mix of customers buys different products. Do not expect these numbers to be the same. All you are interested in doing is making more money for the company. You will do this if you get your salespeople to buy in to your approach.
Measure your sales peoples’ GP%s. Whatever your beginning numbers, offer your sales personnel a program that rewards them strictly for increasing their overall gross profit percentage. Start with their current weighted GP% and give them incentives to raise it. The current average is a function of orders coming from a number of customers, each with different GP%s. Each salesperson has different markets and customers, so measure each alone. Paying them more will cause them to rethink their current performers and seek new higher margin work. It may also cause them to put pressure on the pricing on new jobs being bid out. Reward performance from today’s base measurement.
Earn more when you get more. One kicker you may want to try is to incrementally increase the bonus as they improve. For example, if they are currently at an overall weighted 20% gross profit margin and they raise that percentage to 21%, give them 1% of the dollar increase. If they raise that percentage to 23%, give them 205% of the increase. If they hit 25%, give them 4.0% of the incremental dollar increase. If you do not like this or feel the need to adjust it, do so. Derive your own program but understand that you need to sell it to your sales organization.
Do not drop a good program if it is working. Do not stop what works for you now. You might want to add this program as an extra method to make more money on top of the other defined programs you have in place.
