Should Your Marketing Commission Be a Percentage of Revenue or Gross Profit?

Two commission bases, one decision. Where 6% of revenue and 10% of gross profit cross over, what each one asks you to disclose, and which suits the jobs you actually run.

Which basis costs you less comes down to one number: the gross margin on the job. Given a choice between 6% of revenue and 10% of gross profit, the two land in exactly the same place at a 60% gross margin. Below that line the gross profit basis costs less. Above it the revenue basis does. If your jobs carry material and subcontractor costs of any size you are probably under that line, but check your own completed jobs rather than assume it. The cheaper basis is not automatically the right one, because the two ask you for different information.

Which basis costs less on a real job?

Run the same invoice through both calculations and the answer stops being abstract. Here are four illustrations using round hypothetical numbers, not results from any partnership, at one invoice size with the direct job cost changing.

The revenue column never moves, because revenue does not care what the job cost you. The gross profit column tracks how the job actually went. On the thin job the difference is $420 on a single invoice, which is the whole argument in one line.

Why does gross margin decide it and nothing else?

Because the two percentages are being applied to two different numbers, and the only thing that separates those numbers is your cost of goods sold. Six percent of revenue equals ten percent of gross profit exactly when gross profit is 60% of revenue. That is arithmetic, not a market rate, and it holds at any invoice size.

Which means the comparison does not depend on how big your jobs are. A $3,000 service call and a $90,000 remodel behave the same way. What matters is the share of the invoice you keep after materials, subcontractors and direct labour. Work that out from your own last twenty completed jobs and the choice usually makes itself.

What does each basis ask you to show?

The revenue basis asks for one number per job: what you invoiced. The gross profit basis asks for two, and the second one opens your cost side to the person you are paying.

That is the trade most contractors have not thought about before the conversation starts. A revenue commission can be calculated from the invoice alone. A gross profit commission requires an agreed definition of cost of goods sold, because moving a single line in or out of that definition moves the fee. Materials and subcontractor invoices are rarely disputed. The ones worth settling in writing before the first job are direct labour and its burden, permits and inspection fees, dump and disposal, equipment rental, travel on distant work, warranty callbacks and any sales commission you pay your own estimator.

None of those has a universally correct answer. What matters is that both sides use the same list every month, and that the list was written down before anyone had a reason to argue about it.

What happens on a job where materials take most of the money?

The revenue basis charges you the same fee whether that job made money or barely broke even, and the gross profit basis follows the job down. This is the case where the two bases feel most different to the owner writing the check.

Material-heavy work is also the work where the margin is least stable. A roof replacement, a job with a large fixture or equipment package, anything you buy and pass through at a modest markup: a supplier price increase between the quote and the order eats your margin, and a revenue commission does not notice. If a meaningful share of your invoice is money passing through you on its way to a supplier, the gross profit basis is the one that behaves fairly when a job goes sideways.

What happens on a high-margin job?

The revenue basis becomes the cheaper of the two, and the gap widens as the margin rises. On the 75% margin row above, the revenue basis saves $180 on a $12,000 job.

Labour-heavy service work, diagnostic and repair calls, and anything where your own crew’s time is most of the cost can sit above that 60% line. If that describes most of what you sell, the simpler calculation is also the less expensive one, which is a rare combination worth taking.

When should you pick the revenue basis even if it costs more?

When your books cannot produce a reliable gross profit per job today. A commission on a number you cannot substantiate is an argument waiting to happen, and you will be the one supplying the evidence.

Plenty of contractors run profitably without costing each job individually. If that is you, agreeing to a gross profit commission commits you to building job costing under time pressure, in the same months you are trying to handle new work. The honest sequence is to take the revenue basis, get job costing working because it is worth having for your own reasons, and revisit the basis later. Our guide to cost per booked job covers the minimum record that makes this possible without turning the office into an analytics department.

When is the gross profit basis clearly the better deal?

When your margins are thin, when material prices move under you, or when you already cost every job. Those three conditions turn the disclosure requirement into something you were doing anyway.

There is a second reason to prefer it that has nothing to do with the fee. A partner paid on gross profit has a direct interest in which work you take, not just how much of it. That changes the conversation about which services to promote, and it is the conversation most worth having.

What happens to the fee on change orders, cancellations and refunds?

Nothing, unless the agreement says so, which is why it should. A job that grows by a change order, a job that cancels after deposit, a customer who disputes the final invoice: each one needs a stated rule before it happens.

The workable version is short. Commission follows collected revenue, so a job that is never paid never earns one. A change order is treated as part of the same job and recalculated at completion. A refund reverses the commission that was charged on the refunded amount. Whatever you agree, agree it once, in writing, rather than case by case after the first awkward one.

When does the commission actually get calculated?

That depends on the basis, and the difference catches people out. Revenue is known when you invoice. Gross profit is not known until the job is costed, which is usually after the last supplier bill lands.

So a gross profit commission naturally invoices later than a revenue commission, and the agreement should name the point at which the job is considered closed for fee purposes. A month-end reconciliation where you confirm which jobs completed, what they invoiced and what they cost is enough. Anything more elaborate will not survive a busy season.

Does the basis change how the marketing gets run?

It should. A partner paid on revenue is rewarded for big invoices. A partner paid on gross profit is rewarded for profitable ones. Those two incentives point at different services on your price list.

This is worth saying out loud during the fit conversation rather than discovering it in month four. Tell your partner which work you actually want more of and what it is worth to you after direct costs. A basis that lines up with that answer keeps everyone pointed the same way, and it removes the quiet pressure to chase volume that does not help you.

How Fruitful Local handles it

Both bases are on the table and the choice is made by agreement. Fruitful Local is commission only, on work we generate. Upfront setup depends on what you need. Gross profit means revenue minus the cost of goods sold. Advertising is paid separately by the contractor.

Nathan does the marketing and is your direct point of contact, which is also why the fee basis is a conversation rather than a policy. Our pricing page states the condition that sits underneath all of this: a commission arrangement needs a trustworthy way to connect marketing activity to revenue, and where that does not exist yet, a monthly engagement is the cleaner starting point. The broader case for the arrangement is in why a commission-based marketing partner makes sense in 2026, and the comparison against a traditional monthly fee is in performance-based marketing versus agency retainers.

Bring your own numbers to that conversation. Pull your last ten completed jobs, work out the gross margin on each, and see which side of the 60% line you live on. Then talk to Fruitful Local about a performance-based partnership with an answer already in hand.