Having a brain freeze simple transaction help needed please

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Mark Glenn

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If I have a contractor working for me on 50% commission and he does a job for $200 but with in this transaction he sells a product that I supplied for him that cost me $20
Do I deduct the $20 off the top from the $200 = $180 then give him his 50% commissions = $90 or do I give him his 50% from the whole $200 = $100 and then take the $20 back from his half leaving him with $80 ?
 
When you say 50% commission, is it 50% of the gross or 50% of the net profit?
I can see no reason to charge the entire cost to him! If he is entitled to 50% of the gross he should get 50% of $200= $100, you bearing the entire cost and getting $80. If he is entitled to 50% of the net profit he should get 50% of $180= $90. I can see NO interpretation under which he would get only $80.
 
If things like this confuse you then you do it separately, at least in your head.

He did a job for $200 and you owe him 50% of that which is $100.
Now if he charged the customer $20 for the product and received that $20 then of course he owes you that $20 or whatever he charged the customer for the product. In this case you owe him $100 - whatever he collected from the customer for the product. But in the end he gets $100. I also think that he should receive 50% commission on the profit for selling the product!
 
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HallsofIvy said:
When you say 50% commission, is it 50% of the gross or 50% of the net profit?
I can see no reason to charge the entire cost to him! If he is entitled to 50% of the gross he should get 50% of $200= $100, you bearing the entire cost and getting $80. If he is entitled to 50% of the net profit he should get 50% of $180= $90. I can see NO interpretation under which he would get only $80.
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My problem with your response is that there are other costs of running the business like the gasoline used to get the worker to the job site along with any parts needed to do the job. This product that the OP is speaking about seems to be something extra that was not needed to complete the job. For example if the job was to clean the wood floor maybe the worker did the job and then sold the customer some floor cleaner solution. In my opinion the worker should also receive 50% of the profit for selling the product!
 
Ok I'm sorry let me try and explain a little better this is making my brain hurt confusing me :)
I have a small Fire Extinguisher sales and service business my guy works on 50% commissions after any expense's or supplies
So the $20 is the cost of lets say a new fire extinguisher one way or another we or he has to buy that fire extinguisher be it from a supplier but in this case it from me I already bought it and I payed $20 for it. I need to recoup my cost then we can split the profits 50 50.

So the way I see it is if I'm not wrong is if I deduct $20 from the $200 then split the difference $180 - 50% = $90 then its like the fire extg. only cost him $10 and I'm paying for half of it out of my end and I'm not recouping the whole $20 back ?
 
Mark Glenn said:
Ok I'm sorry let me try and explain a little better this is making my brain hurt confusing me :)
I have a small Fire Extinguisher sales and service business my guy works on 50% commissions after any expense's or supplies
So the $20 is the cost of lets say a new fire extinguisher one way or another we or he has to buy that fire extinguisher be it from a supplier but in this case it from me I already bought it and I payed $20 for it. I need to recoup my cost then we can split the profits 50 50.

So the way I see it is if I'm not wrong is if I deduct $20 from the $200 then split the difference $180 - 50% = $90 then its like the fire extg. only cost him $10 and I'm paying for half of it out of my end and I'm not recouping the whole $20 back ?
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As Halls of Ivy said way back in the beginning, it depends on what your contract says (even if your contract is verbal and informal).

If your agreement (a contract) is that you and this guy split 50/50 THE TOTAL CHARGE TO THE CUSTOMER, in your example you deduct nothing. This is a bad deal. Suppose the customer is billed $200 and doing the job requires the purchase of supplies that cost $130.Then you split the $200 evenly. You get 100 and he gets 100. If you bought the supplies, you lose $30 because you paid out $130 and got only $100. If he bought the supplies, he loses $30. Someone is going to lose his shirt in this kind of deal.

What is sort of common is a different kind of agreement. You split 50/50 THE DIFFERENCE BETWEEN THE TOTAL CHARGE TO THE CUSTOMER AND THE COST OF MATERIALS USED FOR THAT JOB. I am guessing that is what you and this guy agreed. You don’t pay mileage for him to go to the customer, and he doesn’t pay part of the utility bill for your office.

So if the customer is charged $200 and the cost of the materials is $20, then what is to be split is 200 - 20 = 180 because that is the agreement. And half of $180 is $90. If he bought the matetials, he gets $110. If you bought the materials, you get $110. Whoever is out of pocket for the materials gets back every penny of what they cost.

I completely do not understand your feeling that if you supply the materials that cost you $20 and you get $90 plus $20, that somehow the other guy is getting the materials at half cost. You get your full $20 back.

What you do not get is your normal mark-up. If your normal mark-up is 80%, you would normally get $36 for selling that item. That is a gross profit of $16 that you forego in return for your $90 share of business that you otherwise might not get any piece of it all. If you are supplying most of the materials (and why. wouldn’t you be when you are supplying materials at such a good price), it might or might not be good for both of you to change the percentage split while also paying you for materials supplied to you at cost plus a reduced mark-up.

This is what contract is all about. You find something that makes you both happy and stop arguing about what is “fair“ like three year olds. And when one of you decides that you are no longer happy, you make a new agreement if you can.
 
So you sell your parts at cost? Can I get 10 fire extinguisher? I'll pay for shipping.
 
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