Sales Commission Structures for Contractors and Trades

Pay commission on gross profit, not revenue, and pay it when the invoice is collected, not when the quote is signed. Those two rules prevent almost every commission plan failure in the trades: a salesperson discounting to hit a revenue number, and a business paying out on money it never received. A typical plan sits at 8–12% of gross profit on sold work, or 3–5% of revenue if you must use revenue. CRMb shows the margin a job actually earned — labor from real punched hours, materials at average cost — so the number the commission is calculated from is the number the job produced.

Commission is the easiest compensation plan to write and the easiest to get wrong. A rate picked in an afternoon quietly rewires how your business sells for the next three years.

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Why revenue-based commission breaks in the trades

A percentage of revenue tells a salesperson exactly one thing: get the contract signed at any size. It says nothing about whether the job was worth doing.

Consider two jobs sold in the same week on a 4% revenue commission:

The salesperson earned more on the job that made the company less. Worse, Job A's $6,000 of gross profit had $1,600 of commission taken out of it, leaving $4,400 to cover overhead on a $40,000 contract. Repeat that pattern for a year and you have a busy, growing, unprofitable business.

The discount is where it usually happens. A salesperson on revenue loses nothing by knocking 10% off to close a hesitant client — they still get paid on what's left. A salesperson on gross profit watches their own check shrink with every dollar conceded, so they defend the price instead.

Pay on gross profit instead

Gross profit is contract price minus direct job cost: labor, burden, materials, equipment, subs. Not overhead, not your truck payment — those are yours to cover.

Commission = (contract price − direct job cost) × commission rate

Run the same two jobs at 10% of gross profit:

• Job A: $6,000 × 10% = $600
• Job B: $10,500 × 10% = $1,050

Now the incentive points the same direction as the business. The salesperson makes more by selling the profitable job, holding the price, and picking accurate costs at quote time — because a lowballed estimate that blows up on site shrinks the gross profit their own commission is drawn from.

That last point is the quiet benefit. Gross-profit commission makes your estimator care about estimate accuracy, which is not something a bonus speech will ever achieve.

Estimated vs. actual gross profit

Here is the fork in the road. Do you pay on the gross profit you quoted, or the gross profit the job earned?

Paying on estimated gross profit is simple and fast. The number is known the day the quote is signed, and the salesperson is paid on something they controlled. The risk: they are insulated from what happens on site. An optimistic estimate costs them nothing.

Paying on actual gross profit is the honest version. It requires that you can actually close a job's costs — every punched hour, every material issue, every sub invoice — within a reasonable window. It ties the person who sold the job to how the job went.

A practical middle path most small shops land on: pay on estimated gross profit at invoice collection, then true up quarterly against actuals. If the actual margin came in more than a few points under the estimate across the quarter, the difference adjusts the next payout. Salespeople get paid promptly; the business isn't paying for fantasy estimates.

Whichever you pick, actual job margin has to be something you can see without a weekend of spreadsheet work. If closing a job's true cost takes three days, you will default to estimated forever.

Picking a rate

Rates vary more by who is selling than by trade.

Work backwards from total cost, not forwards from a rate that sounds fair. Decide what the role should earn in a normal year, estimate the gross profit that person will realistically sell, and divide. If you want a salesperson at $95,000 total and they'll sell $900,000 of work at a 35% margin — $315,000 of gross profit — then a $45,000 base plus 16% of GP gets you there. Check the math at a bad year and a great year before you sign anything.

One rule worth holding: the plan must still work when the salesperson is excellent. Plans that quietly need a cap are plans you'll break a promise on.

Pay on collected, not on signed

Commission paid at signature converts a receivable into a cash expense before the cash arrives. If the client pays in 45 days and the salesperson is paid on day one, you financed their check out of working capital — and if the client never pays, you financed it permanently.

Pay when the invoice clears. On multi-month jobs with progress billing, pay commission proportionally as each progress invoice is collected. It aligns the payout with cash and it gives the salesperson a reason to care whether their client actually pays, which is a surprisingly effective collections tool.

Say it explicitly in the plan document: commission is earned when the associated invoice is paid in full. Ambiguity here becomes an argument later, usually with someone who is already on their way out.

Draws, clawbacks, and the fine print

Three clauses do most of the work in a commission agreement.

Draw against commission. An advance that the salesperson repays out of future commissions, which smooths income during a slow quarter. Make clear whether it is recoverable (repaid from later commissions) or non-recoverable (effectively a floor). Most disputes come from this one word never being written down.

Clawback. If an invoice is refunded, a job is cancelled after payout, or a client charges back, the commission comes back. Cap the window — 90 or 120 days is common — so it doesn't hang over old work forever.

Change orders. A change order is sold work and should carry commission at the same rate, on the same gross-profit basis. If it doesn't, you will watch scope quietly grow without paperwork.

Also settle: who owns a house lead versus a self-generated one (many shops pay a lower rate on company-generated leads), what happens to open commissions when someone leaves, and when the plan can change — annually, in writing, with notice, never retroactively.

Getting the numbers to calculate it from

Every plan above depends on knowing a job's true cost. That is the part small shops underestimate.

Labor is the usual failure point. A commission calculated from "about 60 hours" isn't a commission, it's a negotiation. You need the hours the crew actually worked on that specific job, including overtime and burden. Materials need to be valued at what you paid, not at list price. Sub invoices need to land against the job, not into a general expense bucket.

Put differently: a gross-profit commission plan is only as trustworthy as your job costing. Fix that first, then write the plan.

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Frequently asked questions

Should I pay commission on revenue or gross profit? Gross profit, in nearly every case. Revenue-based commission rewards discounting and rewards big low-margin jobs over smaller profitable ones. The only common exception is a technician earning a small percentage on an add-on sale, where the margin is consistent enough that revenue is a reasonable proxy.

What is a typical sales commission rate for a contractor? For a salaried salesperson, 5–10% of gross profit is common; commission-only roles run 12–20% of gross profit because there is no base. On a revenue basis, 3–5% is the usual range. Set your own rate by working backwards from target earnings and realistic sold volume rather than copying a benchmark.

When should commission be paid — at signing or at collection? At collection. Paying at signing spends cash you haven't received and leaves you exposed if the client never pays. On long jobs, pay proportionally as each progress invoice is collected.

Do I pay commission on change orders? Yes, at the same rate and on the same gross-profit basis as the original contract. Excluding change orders gives your salesperson a reason to leave scope growth undocumented, which costs far more than the commission would have.

How do clawbacks work if a customer refunds or cancels? The commission already paid is deducted from the next payout. Write in a time limit — 90 to 120 days after payment is typical — so the exposure is bounded, and state clearly which events trigger it: refunds, chargebacks, and cancellation after payout.

Should estimators get commission too? Only if they influence whether the job is sold. A pure takeoff estimator is usually better on salary plus a bonus tied to estimate accuracy, because commission would reward volume of quotes rather than quality of them. An estimator who presents and closes should be on a smaller gross-profit percentage.

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Getting started with CRMb

A gross-profit commission plan lives or dies on one question: what did this job actually cost? If that answer takes a week to assemble, you'll end up paying on revenue and living with the consequences.

CRMb is built around that number. Crew hours punched in Punch land on the job automatically, so labor cost comes from real punched hours rather than a recalled estimate. Materials issued from inventory are costed at average cost, so a price increase mid-job doesn't distort the margin. Quotes and invoices go out as public share links the client accepts and signs, and Reports shows margin per job on that real data — the figure your commission calculation should start from. Every quote moves through a pipeline you can view as a board, table, or timeline, so what each salesperson sold, won, and lost is a record rather than a memory.

Start a 14-day free trial at crmb.io. Take last quarter's finished jobs, look at the actual margin on each, and recalculate what your current plan would have paid on gross profit instead of revenue. The gap is usually the argument for changing the plan.