VOLUME VOLUME INCENTIVES / COMMISSION LEVELS

 

Many vendors / suppliers will offer you volume incentives if you hit specific targets.  The structures of these incentives and the criteria to achieve them vary widely.  If you are close to a target at the end of a rebate period you can utilize trade to quickly move a few extra units and earn the rebate or a larger rebate.  The same theory holds true if you have other bonuses or a stepped commission based on quantity sold.

 

EXAMPLE #1: Volume Discount Rate

 

A clothing store is working towards earning a discount rate from one of their main suppliers.  They have done $180,000 of purchases going into the last quarter of the year, and would expect to purchase $80,000 for the last quarter based on cash sales.

The Discount Rate structure is as follows:

$200,000 of purchases in prior year = 5% discount of all purchases in next year

$300,000 of purchases in prior year = 10% discount of all purchases in next year

Based on their projections they will have purchased $260,000 and earned a 5% discount for the coming year.  If they made it to the 10% discount level they would save between $13,000 and $15,000 in the following year.   The store informs their broker where they are at, and after a discussion with the broker decide to bring in an additional $50,000 worth of merchandise from the vendor and hold a 2 day Tradebank sale in mid-October before the Christmas rush.   They manage to sell T$100,000 in clothing (representing the additional $50,000 in cost that was purchased), and by the end of the year they earn the 10% discount for the following year.  With the T$100,000, they supplemented their advertising budget, brought in a new line of jewellery, held a customer appreciation function at a local banquet hall, and took the staff out to a fantastic post-Christmas party.

 

EXAMPLE #2: Fixed $ Rebate for Quantity Sold

 

An electronics store has an agreement with a supplier of TVs that if they sell 25 of a certain TV they will get a $2,000 rebate.  If near the end of the rebate period they need to sell 3 more TVs to earn the rebate, they may take one of two steps to “ensure” they earn it.  First, they may discount the TV in the cash market place.  Second, they sell the TVs at the retail value on trade. 

The advantages of selling on trade over discounting to reach the rebate level are:

1)      Tradebank brokers act as an additional sales team, thereby increasing the number of people working to sell the TV.

2)      The electronics store is not costing themselves the profit of potentially selling another TV at full price to the cash customer (and enticing regular customers to start waiting on sales to make purchases).

3)      They are selling to a fellow business owner – which tends to lead to more referred business than other customers.

The rebate can then be factored into the Tradebank “math” as it increases the “savings” that you are getting through trade.

 

“Math” Example

For example lets say the 3 TVs sold for $3,500 each, and each TV had a cost of $3,000. 

 

Normal (No Rebate)

Value of Product / Service Acquired with Trade $

$10,500

Less: Cost of Goods Sold

$( 9,000)

Less: Cash Fees (12.95% of $10,500)

$( 1,360)

Net Savings

$      140

 

The electronics store still might do this transaction without the rebate in order to increase market share, however the direct savings from selling on trade are not as clear.

 

With Rebate

Value of Product / Service Acquired with Trade $

$10,500

Rebate Earned

$  2,000

Less: Cost of Goods Sold

$( 9,000)

Less: Cash Fees (12.95% of $10,500)

$( 1,360)

Net Savings

$  2,140

When factoring in the ability to earn a rebate that otherwise would have been lost the direct advantage from utilizing trade is clear.  

 

EXAMPLE #3: STEP UP COMMISSION STRUCTURE

 

A realtor joined a local agency, and their commission structure was set so that as they became more experienced (and theoretically relied less on senior agents coaching them) they would earn more of the commission from their deals.

First 10 deals40% of commission

Next 10 deals50% of commission

Next 10 deals65% of commission

After that 75% of commission (indefinitely)

 

Utilizing Tradebank, the realtor directly received 5 TRADEdollar deals through Tradebank members and 10 CDN dollar deals through referrals from those happy Tradebank connections.   These deals helped the realtor quickly get through the step up structure and maximize their commission.

 

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