Should You Pay Commission on Revenue or Gross Profit?
The math on both, the formula for converting between them without cutting anyone pay, and the three questions that tell you which one your business can actually run.
Two reps close a $12,000 roof in the same week.
One of them sold a straightforward tear-off on a walkable pitch. It cost you $7,200. The other one talked the customer into a color upgrade, then discounted to hold the deal, then the crew found rotten decking. That job cost you $9,600.
The first job made you $4,800. The second made you $2,400.
If you pay 10% of revenue, both reps just earned $1,200.
That's the whole argument, and every trades owner runs into it eventually.
What's the actual difference?
Revenue commission pays a percentage of what the customer paid you. Gross profit commission pays a percentage of what's left after the job's cost.
Same $12,000 job. Watch what changes.
At 10% of revenue, the rep earns $1,200. Doesn't matter what the job cost. Doesn't matter if it cost more than you quoted.
At 25% of gross profit, the rep earns 25% of whatever's left. On the good job that's 25% of $4,800, which is $1,200 — exactly the same. On the bad job it's 25% of $2,400, which is $600.
Now flip it the other way. A $12,000 job that only cost you $4,800 leaves $7,200 of profit. Revenue-based still pays $1,200. Profit-based pays $1,800.
Same rep, same rate card, three jobs. Revenue pays $1,200 every time. Gross profit pays $600, $1,200, or $1,800 depending on what the job actually did for you.
That's not a pay cut. It's a re-aim.
How do you convert without cutting anyone's pay?
Divide your revenue rate by your average gross margin.
If you pay 10% of revenue and your average job runs a 40% margin, the equivalent gross profit rate is 25%. Ten divided by forty.
Run that and your average rep on an average month earns the same money they earned before. What changes is the spread. Good jobs pay more. Bad jobs pay less. Your total commission spend stays roughly where it was, but it's now pointed at the jobs that fund the business.
That formula is the single most useful thing in this post. It's also the thing most owners get wrong — they announce a switch to gross profit at some rate they picked out of the air, everybody's check drops, and the two best reps start interviewing.
Do the division. Then tell your reps what number you used and why.
Why does this matter more in roofing and HVAC than anywhere else?
Because your cost swings and theirs doesn't.
A software rep sells the same product at the same cost every time, so revenue and profit move together and it barely matters which one you pay on. A roof is different every time. Pitch, layers, decking, access, crew, whether the supplier raised prices between the quote and the order.
Two jobs at the same price can be 20 points of margin apart. When that's true, revenue commission is paying your reps on a number that has almost nothing to do with what you made.
There's a second reason, and it's the one owners feel first. Revenue commission quietly pays reps to discount. Cutting $1,000 off a $12,000 job costs the rep $100 and costs you $1,000. They're spending your margin at ten cents on the dollar. Gross profit fixes that in one move — that same discount now costs them $250 and you $750, and suddenly they want to hold price.
So why doesn't everybody pay on gross profit?
Because you have to actually know what the job cost, on the day you pay.
That sounds obvious and it's where most gross profit plans fall apart. Here's a normal roofing timeline.
The deal signs in June. Materials get ordered in June, so you know that half. The crew installs in July. The final labor number lands after the job. The supplier invoice with the change order shows up in August.
Your pay period closed on July 31st. What number did you pay on?
If you estimated it, you'll be restating that commission later — which means going back into a closed month, which is exactly the mess that makes reps stop trusting their statements. If you waited for the real number, you delayed a rep's pay by a month.
That's the real cost of gross profit commission. Not the math. The operations.
What if you don't know the cost yet?
You have three honest options and one dishonest one.
Hold the sale until the cost is final. The commission pays in the period the job's cost got captured, not the period it sold. Clean, defensible, and reps hate it until they understand it.
Pay a partial now and correct forward. Pay something on signing, then true up in the next open period once the real cost lands. Never edit the closed month — put the correction in the next one with a reason attached.
Pay on revenue for now and fix your cost capture first. There's no shame in this. If you can't reliably produce a job's true cost within thirty days of completion, a gross profit plan will generate more arguments than margin.
The dishonest option is treating a blank cost as zero. A job with no cost entered isn't a 100% margin job. It's a job you haven't costed. Any system that reads an empty field as $0.00 will hand a rep a commission on phantom profit, and you will not catch it.
Is there a middle option?
Two, and most companies should look at these before jumping to full gross profit.
Pay on revenue, but penalize discounting. Full rate at list price, a lower rate if the rep discounts past a threshold. Say 10% on anything up to 10% off, 6% past that. This catches the biggest margin leak in most trades businesses without needing to know job cost at all — you know the discount at signing. If your margin problem is reps cutting price rather than jobs running over, this solves it on Monday.
Set the rate by the job's margin. Under 30% margin pays 6%, 30–40% pays 9%, over 40% pays 12% — applied to revenue. Reps still see a percentage of the sale, which they understand, but the percentage itself rewards profitable work.
One warning on margin bands, because it's easy to build wrong. If your lowest band starts at 30% and a job comes in at 24%, that job pays nothing. Same if you leave a gap — bands of "0–29" and "30–40" leave 29.5% uncovered, and a job landing there pays zero. Build your bands from zero up, with no gaps, and check them before you activate anything.
Which one should you pick?
Three questions. Answer them honestly.
One. Do two similar-priced jobs routinely land more than ten points of margin apart? If no, revenue commission is fine and gross profit is complexity you don't need.
Two. Can you produce a job's true cost — materials and labor — within thirty days of completion, every time? If no, fix that before you change the plan. A gross profit plan on unreliable cost data pays the wrong number and then argues about it.
Three. Can your reps see the cost they're being paid on? If no, gross profit will feel like a black box. A rep who can't check the number will build their own spreadsheet to check it for them, and now you've got two sets of books.
Three yeses and gross profit will make you money. Any no and you have a project to do first.
How does KickSplit handle this?
Both, plus the two middle options, and you switch between them without an engineer.
A plan pays on revenue, on gross profit, on a rate set by the job's margin, on a flat amount per sale, or on a trailing schedule. The discount penalty is there, and so are rate ladders, deposit kickers, product-specific rates, caps, floors, draws and clawbacks. You build it, you activate it, and once it's live the arithmetic is frozen — so a statement from March still means what it meant in March.
On the cost problem specifically: if a job's cost hasn't been captured, we don't guess it. The sale gets flagged, and the period won't close while a profit-based plan has an uncosted job sitting in it. That refusal is the feature. It stops you paying on a profit figure that's missing its labor.
And when the real cost lands after you've already paid, the correction goes into the next open period once — never off an estimate, never by editing a month you already closed.
What we don't do is move the money. We do the math and hand your payroll company a file.
The bottom line
Revenue commission pays your reps for selling. Gross profit commission pays them for selling well.
The second one is better, and it's only better if you can tell them what the job cost. Get that right first, then divide your revenue rate by your average margin and go.
KickSplit is a CRM and commission platform for commission-driven sales teams — lead to sale to a payroll-ready export, in one place. See how it works.