A sales commission based on revenue pays a salesperson in full even when the company loses money on the job. On one owner's 10-job sheet, a salesperson earned about $900 on an $8,950 job where the company lost $220.
Lyle (not his real name) owns a crawl space encapsulation company, and his last 10 jobs averaged 23% gross profit. Clear Results built him a pricing calculator and proposed tying commission to a 35% gross profit floor.
Markup is the amount added on top of cost, measured against cost, while gross margin is the profit left after cost, measured against the price, so the 2 figures differ for any markup above zero. Lyle bought a dehumidifier for $1,038 and priced it at $2,500, a 141% markup and about a 58% gross margin. The same arithmetic applies to a whole job: an owner who adds 35% to a $6,500 cost sells at $8,775 and earns only a 26% margin, whereas a true 35% margin requires charging $10,000 (a 54% markup), because the 35% comes out of the price.
A job cost sheet records the sale price, materials, labor, and commission for each finished job, so each job shows its own gross profit. Contractors can start job costing with a spreadsheet of the last 10 jobs, and that is where Lyle's pricing story began.
His company had brought in $889,000 the year before and kept about $67,000 after his own pay, with a goal of $1.25 million for the next year. In June, he took over a local operator's jobs and made that operator his main salesperson; since then, sales have grown while profit hasn't. The salesperson brought in about 80% of the jobs on a 10% commission paid when the money reached the bank; he collected no deposits, and customers paid 30 to 45 days after invoicing. Lyle's 3 crews were paid 3 different ways: by the square foot, at 25% of the sale price, and at a flat $525 a day.
Stuart Trier asked Lyle to list his last 10 jobs, using the labels his crews already used, and built the sheet on the call:
Together, the 10 jobs totaled about $78,000 in sales and about $18,000 in gross profit, a 23% margin. Lyle's own job pulled the total down the most. He sold a 3,000-square-foot house to a close friend for $10,000 (he would normally charge $12,000 to $13,000), and the crew lead asked for an extra $1,000 halfway through, so labor rose to $7,000, or 70% of the price. On that job Lyle lost $633, the first loss he saw on the sheet.
The other loss was the salesperson's. When he added gutter extensions to an $8,950 job, the crew had to dig trenches and lay pipe, so the work took longer, and after the salesperson's commission of about $900, the company lost $220 on the job.
"You cannot pay him $900 to lose $220."
— Stuart Trier
How does a company lose $220 on a job and still pay $900 in commission? The commission was figured by multiplying the sale price by 10%, and no step compared it with the cost columns. Across the rest of the sheet, the salesperson's jobs ranged from losses to a 48% margin, so he appeared to price each one by feel. For a fuller walk-through of the method, see job-level costing for contractors.
Under a commission on revenue, the company pays the salesperson for the sale, and the owner absorbs what follows, including crew overruns, extra scope, and material costs. Stuart's first reaction to Lyle's arrangement was suspicion, since the company paid out 10% of revenue whether the weather turned out rain or sun, and he expected the sheet to look much worse than it did.
Yet the sheet showed a salesperson who priced from habit, and he said so himself.
"I don't break anything out line by line in my bid, never have. I describe everything that's going to happen, and here's the total price."
— The salesperson
He charged a flat rate of about $4 per square foot for the liner, the walls, the band joist insulation, and the dehumidifier. Houses of different sizes kept getting priced at $7,850 and $7,950, and Lyle said the first was the price the salesperson was used to quoting. Lyle also noticed that homeowner jobs earned well. But nearly every job on which the company lost money came from a contractor who marked the price up before the homeowner saw it.
Roughly 85% to 90% of the salesperson's work came from contractors, and he had kept his prices low for years to protect those relationships. Still, Stuart's team heard him say he knew he had been "too cheap" and was raising prices a little at a time.
Under a gross profit floor, the company pays the full commission only when the job's gross profit percentage stays at or above a set minimum. Stuart proposed 35% for Lyle's company, below the 45% to 50% he usually wants from a crawl space business, because those benchmarks are built on 8% to 10% of revenue going to marketing and Lyle's salesperson was producing the leads himself.
If the margin on a job came in below 35%, the company would reduce the commission until the margin reached 35%. Under that rule, the company would have reduced the pay on 5 of the 8 jobs the salesperson had sold. Does that mean he earns less? On those 5 jobs, he would have earned less, but on the other 3 he would keep the full 10%, and on any job he priced higher, his 10% would grow with the price.
Here are 4 commission designs applied to the $8,950 job where the company lost $220. Before any commission, that job earned about $675 in gross profit (the $220 loss plus the $895 commission, derived from the figures above), a 7.5% margin.
| Commission design | Commission paid | Gross profit left for the company |
|---|---|---|
| 10% of revenue (the original deal) | $895 | -$220 (a loss) |
| 10% of revenue, reduced until the job's margin is 35% or the commission is $0 | $0 | $675 |
| 20% of gross profit | $135 | $540 |
| Tiered: 7.5% base, 10% at a 40% margin, 12.5% at 50% | $671 | $4 |
Stuart sketched the tiered version on the April 8 call. But under that version the company still pays out nearly all of the profit on a job this weak, so it makes sense only once the salesperson uses a calculator to avoid selling weak jobs at all. His rule of thumb behind the 20% version is that 20% of gross profit equals 10% of revenue on a job with a 50% margin.
Lyle held back the commission change on purpose because he wanted to take baby steps with the salesperson. In March, the salesperson agreed to raise his bids by 15% across the board. So Lyle left the commission itself for a later conversation. The Commission Trap playbook covers the redesign in more detail.
A pricing calculator replaces gut feel with 6 to 8 questions a salesperson can answer at the house (square footage, crawl space height, piers, vents, dehumidifiers, and outlets), each priced from the company's own costs, and it returns a total in about 2 minutes. In most home service coaching, an owner receives a pricing method and a monthly check-in, whereas Clear Results built Lyle's calculator with him over 2 calls and tested it against jobs he had already sold.
Stuart asked Lyle what he paid and what he charged for each line item, then set the price from the answers:
Lyle's own time belonged on that list too. He had been building access doors himself and driving around to hang them, and Stuart told him he couldn't value his own labor at free, because any job looks like a good one to take when the owner's time costs nothing.
A test against past jobs followed. Because an owner trusts a calculator only after it reproduces jobs that earned good margins, Stuart put 3 of Lyle's past jobs through it.
| Past job | Price sold | Calculator total | What explained the difference |
|---|---|---|---|
| About 2,570 square feet | $14,100 | $17,101 (first pass: $19,431) | The dehumidifier and the insulation removal were never charged |
| 1,780 square feet | $7,950 | $11,404 | The sold price left about 11% gross profit; the calculator's total would have left about 39% |
| Large contractor job | $14,850 | $17,302 | Most likely a second dehumidifier ($2,500) was never charged; without it the total is $14,802 |
The salesperson's own first attempt shows why the liner rate changed. He entered a 1,500-square-foot crawl space, saw about $11,000 for the liner alone, and didn't go back to the tool. He told the group he hadn't spent enough time with it, and that everything except the liner looked in line with his own prices.
But Stuart's own test of the same size at a 30-inch height returned $9,000 for the liner, still more than the salesperson had charged for the entire job.
So Stuart recommended a liner rate of $2 per square foot for contractor jobs and $3 for homeowner jobs, and at $2 the calculator matched a contractor job that had earned almost 40%.
Small jobs earn lower gross profit because the dehumidifier, the drive, and the crew's setup and teardown cost about the same on a 500-square-foot crawl space as on a 2,000-square-foot one. When Hassy Jamal sorted Lyle's sheet by price, he found that jobs of $7,000 or less earned close to 20% gross profit, while the larger jobs earned close to 35%. On a $7,950 job, the commission alone is about $800 before the dehumidifier is paid for.
As a stopgap until the calculator was in use, Hassy proposed adding 20% to bids of $7,000 or less and 10% to the rest, so a $7,500 bid would become $8,250 and a $4,000 job would rise by only $800. Tiers made sense to Hassy because margins on Lyle's sheet ranged from 23% to 54%, and adding 10% to a job that already earned 54% could cost Lyle the work. On small jobs, he saw little risk, since no competitor was likely to work them at an 11% or 20% margin either.
Break-even revenue equals monthly overhead divided by gross profit percentage, so each added point of gross profit lowers the sales a company needs before the month covers its overhead. To increase a home service business's profit margin, that division is the first calculation to check.
Lyle's books showed overhead of about $18,000 a month (December's expenses totaled $17,292). At 30% gross profit, break-even sales were $60,000 a month; at 40%, $45,000; at 45%, $40,000. His March sales were about $52,000, and at 45% gross profit that month would have produced about $23,000, compared with the roughly $18,000 he earned, about $5,000 more in his account.
An approval step works only when the salesperson sends the bid before the customer sees it, because a review after the customer says yes can only record the margin. The salesperson had agreed to send his bids to Lyle before they went out. Yet by April 8, Lyle had received none and learned about a low price only after the job was sold.
"I'm finding out about it after it's already been done."
— Lyle
On that same call, Lyle said he had quoted a customer in the customer's driveway for the first time and sent the price immediately, a result he called a win on its own.
On April 15, the salesperson joined the call by phone. In his view, the calculator looked simple, and nothing seemed off except the liner price. He added that waiting for Lyle's okay would cost him little, since crawl spaces have been in bad shape for 20 years and an encapsulation bid rarely has a deadline. He also said he had no objection to a commission that followed the final margin "as long as I know you're watching it."
Because the salesperson brought in about 80% of the jobs, Stuart cautioned against risking the relationship, so the first request stayed small. Stuart's version, from the March call, was for the salesperson to answer 6 to 8 questions on paper, photograph the sheet, and let Lyle text back the price. At the end of the April call, the plan was a 1-week trial, and the gross profit floor hadn't been raised yet.
Owners in any trade that sells a bundled price per unit bury their fixed costs inside that price, and a revenue-based commission then pays the salesperson for the bundle whether or not the job earns anything. In crawl spaces, the hidden cost was a second dehumidifier; owners in other trades hide similar costs:
Base the commission on the profit that is left after you count the costs of the job. In one version, the owner pays the salesperson a share of gross profit; in another, the owner keeps the revenue percentage and lowers it on any job whose margin falls below the floor. Either version needs final numbers, so the owner waits for actual labor and materials before paying out. Lyle's commission was paid when money reached the bank, 30 to 45 days after invoicing, so there was time to close out the cost sheet first.
Divide a past sale price by its square footage to see the rate charged, then ask a friend or neighbor to let a competitor price the same house. Labor above the 15% to 20% target is a third check, and on Lyle's friend's job, labor ran at 70% and Lyle lost $633. Winning nearly every bid is another warning sign (see close rate as a pricing signal), and Lyle recalled a close rate near 95% for his salesperson. The Pricing for Real Margin playbook covers the full method.
Add up the costs that stay the same however small the house is, then divide by 1 minus the gross profit floor. At a 45% floor, an owner must charge at least $1,887 just to cover the $1,038 dehumidifier before pricing any liner. Lyle's salesperson learned this the hard way when he priced a small crawl space on square footage alone and lost money, because he still had to buy the dehumidifier.
No. A calculator is one tool in home service coaching, and handing over a template without testing leaves an owner guessing. Clear Results builds the calculator from the owner's own supplier prices and crew rates, then tests past jobs against it. Lyle's first pass through the calculator totaled $5,331 more than he charged on a past job, which is why we test before any customer sees a price. The Job Costing for Contractors playbook covers the costing side.
Give him a one-page checklist built from the questions he already answers at the house. With it, the salesperson and the contractor have a written agreement on what the job includes, and the salesperson has to inventory every item before a price goes out. Stuart suggested photographing the sheet from about a foot above a desk and sending it to Lyle, who texts back the total.
Start with the jobs where a contractor marks up the price before it reaches the homeowner, since that markup leaves room for a higher bid. Lyle's salesperson said most of his customers never call a second company, and he didn't think a 10% increase was "a massive jump at all." The close-rate math is in How to Raise Prices Without Losing Close Rate.
Client details in this article have been changed to protect confidentiality. Any resemblance to a specific business is coincidental.
Stuart Trier is the Founder and CEO of Clear Results. Over the past 20 years, Stuart has built, bought, and sold 11 companies across the home service, healthcare, and marketing industries. He built his first company from startup to $8M in revenue in 3 years before a successful exit, then built a chain of 28 healthcare clinics and sold the business to a publicly traded company. Following that acquisition, Stuart spent 3 years working alongside the CEO, helping lead the organization through a take-private transaction before participating in a nine-figure exit to a Fortune 10 company. Today, he's the lead investor behind an electrical services platform operating across 3 U.S. states, and has worked directly with owners through 1,800+ strategic advisory sessions.
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