Common Mistakes: Paying commission to get a job and thinking you can still make a profit
February 10, 2011
I have gotten a lot of bad feedback from the industry for being so strongly against the issue of paying commissions without our client’s knowledge.
I just wanted to explain once more how less than 10 years ago, I almost went out of business.
Mostly because of this horrible practice of giving away 10 to 20% commissions to certain planners and vendors (among other issues).
I still think this is our industry’s “dirty little secret” no one wants to address, and I for one am not going to keep quiet about it.
I’ll try to list below the many reasons I think this system should be stopped:
- I don’t care how you look at it. If your clients are not aware you are doing this, you are being very shady and borderline illegal.
- You are not being fair to your clients if you only choose vendors that agree to pay you commission. Your choice of vendors should be based on their talent and skill, not their ability to give you a quick kickback.
- This practice is giving too much power to some planners and vendors.
- If you pay this commission, as I did, in the long run you will lose lots of profit. Here’s a simple example: You charge $25 for your services and $25 for materials, so your cost is $50. In order to make a decent profit, you bill your client $100. If you Pay $15 (15% of $100) for commission, your profit that should have been $50 dollars turns out to be only $35. In other words, you just paid 30% of your profit in commission.
- The only other way you could possibly make money while paying commission, is by cutting back your product. The clients get less flowers, food, etc. in order for you to meet your margin.
I have absolutely no issues with this if your clients agree that commission is your method of payment. If not, it’s time to stop stealing. What’s your opinion?