How to calculate commission
The basic formula is commission = sale amount × commission rate. A $20,000 sale at an 8% rate pays $20,000 × 0.08 = $1,600. If your plan pays on gross profit rather than revenue, use the gross profit in place of the sale amount: on a sale with $6,000 of gross profit, a 40% rate pays $2,400.
How to calculate tiered commission
Tiered plans raise the rate as a rep sells more. The same tiers can pay very differently depending on one detail in the plan: whether the tiers are marginal or retroactive. Take $120,000 of sales with tiers of 5% up to $50,000, 7% from $50,000 to $100,000, and 10% above $100,000.
- Marginal tiers: $50,000 × 5% = $2,500, plus $50,000 × 7% = $3,500, plus $20,000 × 10% = $2,000. Total: $8,000.
- Retroactive tiers: the rep reached the 10% tier, so all $120,000 is paid at 10%. Total: $12,000.
A $4,000 difference from the same sales is why the plan document should say which model applies, and why reps should be able to see the math.
How to calculate a commission split
When two people share a deal, such as a setter and a closer, calculate the total commission first, then apply each person's share. A $3,000 commission split 60/40 pays $1,800 to one rep and $1,200 to the other. Some plans split the deal amount instead and pay each rep at their own rate; the plan should say which.
Other things that change the number
- Draws against commission, which advance pay and are subtracted from commission later.
- Overrides, where a manager earns a share of their team's sales.
- Clawbacks, where commission is recovered if a sale cancels. See how clawbacks work.
- Industry structures, such as roofing's 10/50/50 split or loan officer basis points.
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Frequently asked questions
How do you calculate commission?
Multiply the sale amount by the commission rate. For example, a $20,000 sale at an 8% commission rate pays $20,000 x 0.08 = $1,600. If the plan pays on gross profit instead of revenue, multiply the gross profit by the rate.
How do you calculate tiered commission?
It depends on whether the tiers are marginal or retroactive. With marginal tiers, each portion of sales is paid at the rate for its band. With retroactive tiers, once a rep reaches a tier, all sales in the period are paid at that tier's rate. On $120,000 of sales with tiers of 5% up to $50,000, 7% up to $100,000 and 10% above, marginal tiers pay $8,000 and retroactive tiers pay $12,000.
What is a good commission rate?
There is no single standard. Rates depend on the industry, deal size, whether commission is paid on revenue or gross profit, and whether the rep also earns a base salary. Commission-only roles usually pay a higher rate than roles with a base salary.
How do you calculate a commission split?
Calculate the total commission on the deal, then multiply it by each person's share. A $3,000 commission split 60/40 between a closer and a setter pays $1,800 and $1,200.
Is commission calculated before or after taxes?
Commission is calculated on the sale (or gross profit) before any taxes are withheld from the rep's pay. For W-2 employees, the IRS treats commissions as supplemental wages for withholding. 1099 contractors receive the full commission and handle their own taxes.