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Calculating Commissions When Including Free Gifts with Purchase

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A dealer asks whether salesman commissions should be calculated before or after deducting the cost of a complimentary $500 TV included with a car purchase. Josh Seifarth argues the answer depends on whether the salesman had input on the promotion and whether the TV offer actually drives increased sales volume that compensates for the reduced per-sale commission. The key insight is that the fairest approach requires analyzing actual sales data to determine if the promotion benefits the salesman overall through higher volume, rather than applying a blanket policy.

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Brandon Lewis

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#1
How would sales commissions be calculated if a dealer includes a $500 television with the purchase of a used car?

Let’s say the profit on the car is $2,000 and the salesman gets 25%. Is the salesman’s commission calculated after subtracting the $500 cost of the television? Would the commission be 25% of $1,500 instead of 25% of $2,000?
 
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#2
One of the first questions that comes to mind is: Did the salesman have any input in whether or not he/she wanted to offer the TV as part of the sale?

Then there are more that follow:
Has the offer of a TV significantly increased sales over normal (ie: the salesperson is recouping potential lost commission in volume)?

If yes, a case can be made that the promotion is making the salesperson more in overall commission and they should be pleased. If not, and they have no choice in the matter, they may view the promotion as costing them money (if the TV cost is removed before calculating commissions).

TLDR: The best answer is probably somewhere in the sales data.
 
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A dealer asks whether salesman commissions should be calculated before or after deducting the cost of a complimentary $500 TV included with a car purchase. Josh Seifarth argues the answer depends on whether the salesman had input on the promotion and whether the TV offer actually drives increased sales volume that compensates for the reduced per-sale commission. The key insight is that the fairest approach requires analyzing actual sales data to determine if the promotion benefits the salesman overall through higher volume, rather than applying a blanket policy.

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