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COMMISSIONS AND YOUR COST OF SALES

We’ve heard all types of term to quote commission percentages to prospective customers.  We’ll name a few we’ve encountered most often:

Gross Balance = Percent remaining after the cost of sales is deducted (the pure cost of the toys).

Gross after Tax = Percent remaining after the sales tax is deducted from the plush used (many operators quote customers a percentage off the gross take yet neglect to tell them they will be deducting sales tax before the commissions are paid).

Net = Typically used to refer to the percentage remaining after the cost of sales is deducted (same as gross balance).  Not the same as net profit.

Gross = Straight percentage of the total gross without anything taken out beforehand.

                                                           

When competing for locations, the prospective customer usually only remembers the percentage they’ve been quoted and not the particulars.  It’s also very important you decide which method you are going to use in your sales effort and stick to that.  We like to quote a straight percentage off the gross; this way the customer knows exactly what percentage they’re receiving and doesn’t have to worry about the potential for adjustment by the operator down the line.  Be sure you understand the different ways operators can quote commissions so you’re playing on a level playing field.  A video game operator who brings machines into a location typically gives the location owners around 50% of the net, they just need to understand the sales cost associated with the crane machines and how the numbers work.

In general, your commission percentage to the location owner may be between 25-35% of the gross.  This percentage is typical for the West Coast but may vary across the nation.  Your cost of sales on the other hand may range between 25-35%.  If you run too tight a cost of sales you won’t have anybody winning prizes, you also won’t have any sales and may even hurt your chances of future business, as your machine(s) becomes known as poor playing.  Generally speaking, we’ve found the optimal cost of sales to be between 28-38%.  Although this number varies over 10% range, your particular circumstances may enable you to vend more products and generate much higher gross revenues.  Those higher revenues may offset the increase in your cost of sales.

The most important aspect of the skill crane business is that your players win toys.  Your business will only succeed if merchandise moves out of your machines.  Come up with your own formula using these general guidelines and you’ll do just fine.

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