I occasionally get requests to decipher comp plans from readers. My first thought when I get them is that if you can't decipher them, either the plan is bad or your math skills aren't good enough to be a recruiter.
But that's unfair. Comp plans are designed to be difficult. They vary by company, and there are a lot of factors that determine their profitability. I myself, a decade ago, flubbed an interview because my understanding of gross margin was different than the company I was interviewing with.
So here's a guide.
Simply stated: Gross Margin = Bill Rate - (Pay Rate X Burden). Gross margin is sometimes referred to as net, net margin, gross net margin, and profit. Don't assume your company's description is an accurate one.
There are lots of ways to pay on gross margin
Company A: Recruiter/Salesperson team generates $1,000,000 in gross margin. Each gets $500,000 credit. You pay 25% commission. They each are paid $125,000.
Company B: Recruiter/Salesperson generates $1,000,000 in gross margin. They each get credited $1,000,000. You pay only 15% commission, but they each walk away with $150,000.
Company C: Recruiter/Recruiter/Salesperson team (3 people) generates $1,000,000 in gross margin. You pay 20% commission to the Salesperson for 50% of the credit, paying them $100,000. The Recruiters pool their half of the credit, and are each paid 30%! They each go home with $75,000.
See what happened there? If you don't understand, you should have been more alert in math class. There are other ways to do this as well.
Let's take a look at pay based on revenue, with a minimum gross profit percentage.
Company D pays draw of $32,000, with commissions paid as 3% of revenue if gross margin percentage is 20% and 5% of revenue if gross margin percentage is 25% or above.
How much do you revenue do you need to make $100,000 if your gross margin percentage is 22%?
If you average 2000 hours per candidate (no overtime), and you have 30 contractors, what is your average gross margin?
If your burden is 21%, what is your average pay rate?
Answer below the fold:
Average gross margin: $10 (rounded)
That's roughly 30 people at a $56 bill rate, with a gross margin of $10, to make $100,000
If you understand that, and got it right, congratulations. You can be a recruiter.