Because we created the Quote Magician for Promotional Products Distributors the logic behind having profit applied to the decorating tables as well as the blank garment cost was obvious - the sales rep had to make profit on ALL his costs. OK. That makes sense. But why would a decorator who is selling to the end user need decorating tables which will then have a profit percentage applied?
Many decorators create tables with the idea that, at a certain quantity with a certain number of imprint colors or stitches, if they can make $2.00 per item, and if they can produce 100 items an hour, their income is $200.00 per hour. This philosophy also takes into account that they aren’t busy every hour of every day so they don’t actually MAKE $200.00 an hour. But the pricing is based on that level of gross income.
OK. But that still doesn’t explain why you should apply profit to the decorating table. The answer is the same as for the Promotional Products company - salespeople. If you pay a salesperson a percentage of every sale then there has to be profit applied to all cost elements. If you pay a salesperson 10% of the total sale, and you make 40% on the garment and 40% on the decorating, the salesperson gets 10% of the 40% profit that is available and the company makes the other 30%. Other companies have a shared philosophy. If the profit percentage is 40%, the company gets half and the rep gets half. If they have to drop the price to win an order - say down to 30% - each still gets half. And the pain of dropping the price is shared.
There are way too many ways to compensate salespeople for us to dive too deeply into that subject. Suffice it to say, applying profit to all components of the items being sold in order to have money available to compensate a salesperson is easy to understand for the rep and easy to track for the company. The alternative is to give the rep a percentage of your $200.00 per hour. If you give him 10% he makes $20.00 per hour for every hour YOU work. That’s not actually factual, but it feels that way.
Developing decorating tables and then applying profit makes good business sense. Even if you don’t yet employ a sales rep, when the time comes you will have a system in place that will allow you to share with that rep the facts of the sale and track your increased profitability from their efforts.