How
to Add Commission
Q.
You have a base price for your product or service.
You wish to pay commission to an agent for selling
the item. This is a percentage off
a marked up retail price which, when deducted,
leaves you with your original base price.
The WRONG
way is add the commission percentage on to your base price and
then take it off again. ie. £100 + 15% = £115. 15%
off £115 = £97.75
You LOOSE 2.25%!
A.
This is the calculation you need to use when:
you know a price before
commission (the Base price)
but want to find out the
price including commission (the Retail
price).
|
If
we assume that commission is at a rate of 15%...
|
|
Base
price
|
divided
by
|
0.85
|
=
Retail price
|
|
eg.
150.00
|
divided
by
|
0.85
|
=
176.47
|
|
|
Proof:-
|
|
Retail
price
|
=
|
176.47
|
|
|
Less
15% commission
|
=
|
26.47
|
(
176.47 x 0.15 )
|
|
Base
price
|
= |
150.00
|
|
|
In the equation
above, 0.85 is the divisor.
To get the divisor, we need to split the retail price which is
made up of 15% commission
rate which leaves 85% for
the base price. This base % is converted into a fraction by dividing
it by 100 = 0.85. ( % or percent means 'per hundred' and 'per'
in maths means 'divide by' )
Another
example:
If we wish to offer a 30% discount
off an unknown retail price we will need to divide our base price
by the remaining 70% , which expressed as a fraction
= 70/100 = 0.7.
Thus the divisor is 0.7
Let us assume
that our base price is say 2,850.00
What is the Retail price ?
|
Base
price
|
divided
by
|
0.7
|
=
Retail price
|
|
eg.
2,850.00
|
divided
by
|
0.7
|
=
4,071.43
|
|
|
Proof:-
|
|
Retail
price
|
=
|
4,071.43
|
|
|
Less
30% discount
|
=
|
1,221.43
|
(
4,071.43 x 0.3 )
|
|
Base
price
|
= |
2,850.00
|
|
|
For
a compound commission or discount structure ...
Build up the retail price in stages taking the current retail
price as the next base price and so on. That way you can offer a
commission structure of say 10% of all sales for the Sales Manager;
Sales Reps get 25% of sales and can give discounts of Less 30% for
Trade Less 2.5% to settle in 30 days; Your favourite charity gets
1% of sales; and so on.
For
more information on taxes and Value Added Tax
( vat )
|
