Gross Retained v Net Retained

A comment posted on Cassini's Green All Over delves into the murky world of profit claims for services rendered, and suggests that Betfair commission should be deducted from any profits declared so people can see the true picture. Cassini quite rightly points out that different people pay commission at different rates on Betfair (some possibly even use Betdaq and pay even less!) and that showing the profitability of the trade in its original form is perfectly above board.

It's one of those questions which I suppose has no definitive answer. But I'll offer my opinion, for what it's worth.

In the motor trade, when we sell a used car we work off two basic profit calculations. The first is the profit generated by the sale of that car. This is calculated by taking the cost price from the selling price to give a gross margin. From that margin the expenses incurred in selling that car are deducted.... any paintwork, mechanical reconditioning, tyres, MOT's etc. Then the cost of any warranty and the VAT due on the margin  are also taken off to leave a GRP or Gross Retained Profit figure. The GRP is of monumental importance for two main reasons. First and foremost my commission is based on it. Secondly it is generally regarded as being the most important KPI as far as general profitability is concerned.

The second figure is the Net Retained Profit and this is rarely calculated on a per car basis although there is no reason why it couldn't be. Essentially it is obtained by deducting things like sales person's commissions, advertising costs, any administrative costs and business tax other than VAT from the GRP attained. The key point is that those costs will vary significantly business to business and even month by month - i.e. they are variable but not related to the trading of any one particular car.

To put that concept into the perspective of  a service such as Cassini's draw selections the GRP is the key driver and that is return - stakes. Simple. The net will vary person to person. I don't know what he charges (but am sure it's reasonable :-)) - but lets say he charges £20 per month. If trader A does 20 trades a month his cost of doing business is his commission and £1 to the seer per trade. Trader B trading just ten matches per month will also pay commission at whatever his rate is but his cost per advised trade is £2.

There is no fairer way than declaring the GRP of a trading service's results in my opinion. Commission and the cost of using the service are both costs of doing business and although they will influence people as to whether or no the service is worthy of their hard earned or not - the key to what the service delivers is its gross profit.

So there.