Commission Calculator
Work out commission on a flat rate, a threshold scheme or a tiered one, with the band breakdown shown.
Updated
Commission is paid on sales ABOVE this figure, not on all of them.
Commission earned
3,000.00commission
an effective 3.75% of 80,000 in sales
- 0 to 50,000 at 0.0%
- 0.00
- Above 50,000 at 10.0%
- 3,000.00
- Total commission
- 3,000.00
- Effective rate
- 3.75%
The effective rate is 3.75 percent, below the headline figure, because the rate applies to part of the sales rather than all of them. That gap is the thing worth checking against an offer.
Estimates for general information, not financial advice.
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In short
How do you calculate commission?
Multiply the qualifying sales by the rate. The trap is which sales qualify: a scheme paying 10 percent above a 50,000 target pays on the excess, so 80,000 of sales earns 3,000 rather than 8,000 — an effective rate of 3.75 percent, not 10.
Gross commission before tax. Draws, clawbacks and payment timing are separate questions.
How to use the commission calculator
Enter the sales, pick the structure, read the bands. The arithmetic is a multiplication; what makes commission worth calculating rather than estimating is that almost no scheme is a flat percentage, and the ones that are not pay far less than their headline rate suggests.
The word doing the damage is "above". A plan offering ten percent above fifty thousand almost always means ten percent of whatever exceeds fifty thousand. It very rarely means ten percent of everything once you cross the line, and reading it the second way roughly doubles what you expect to be paid.
3,000
On 80,000 at 10% above 50,000
paid on the 30,000 excess
8,000
What the misreading suggests
10 percent of everything
3.75%
The effective rate
not the 10 on the plan
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The effective rate is the figure to carry into any conversation about pay. It is total commission divided by total sales, and on a threshold scheme it climbs as you sell more: 1.67 percent at sixty thousand, 3.75 at eighty, five at a hundred. The headline ten percent is a rate you approach and never reach.
Tiered schemes are the third shape and the fairest of the three. Each band pays its own rate on the part of the sales that falls inside it, exactly like an income tax band, so crossing a boundary never reduces anyone’s pay and the effective rate rises smoothly rather than in steps.
- 40,000 sales
- flat 2,000 · threshold 0 · tiered 800
- 60,000 sales
- flat 3,000 · threshold 1,000 · tiered 1,500
- 80,000 sales
- flat 4,000 · threshold 3,000 · tiered 2,500
- 100,000 sales
- flat 5,000 · threshold 5,000 · tiered 3,500
- 120,000 sales
- flat 6,000 · threshold 7,000 · tiered 5,100
Flat is five percent, threshold is ten percent above fifty thousand, tiered is two percent to fifty thousand then five then eight. Notice the crossover: the threshold scheme pays worst below a hundred thousand and best above it, which is exactly what it is designed to do.
What the whole package is worth per hour
Once you have a commission figure, the salary to hourly page divides the total by the hours it actually takes, which is the comparison a commission role is usually being weighed on.
Open salary to hourly →Commission on the same sales under three structures, with the effective rate each produces, showing where the threshold scheme overtakes the flat one.
| Sales | Flat 5% | Threshold | Tiered | Effective, threshold |
|---|---|---|---|---|
| 40,000 | 2,000 | 0 | 800 | 0.00% |
| 50,000 | 2,500 | 0 | 1,000 | 0.00% |
| 60,000 | 3,000 | 1,000 | 1,500 | 1.67% |
| 80,000 | 4,000 | 3,000 | 2,500 | 3.75% |
| 100,000 | 5,000 | 5,000 | 3,500 | 5.00% |
| 120,000 | 6,000 | 7,000 | 5,100 | 5.83% |
Reading a comp plan before signing it
A plan is defined by four things, and only one of them is usually quoted. The rate is the headline. What it applies to, where it starts, and what happens at the boundaries are where the money actually is, and all three are routinely left to a sentence.
- The rate
- usually stated
- Applied to what
- revenue, margin or units
- From where
- the first sale or above a target
- On the excess or the total
- the expensive ambiguity
- Paid when
- on order, invoice or payment
- The answer that moves the money
- the fourth one
The second question matters more than it looks: a rate on margin rather than on revenue can be a very different figure on the same deal, and it changes what discounting costs you personally.
Payment timing is the other one worth pinning down. Commission paid on invoice rather than on cash received leaves you exposed to a customer who never pays, and plans differ on whether that is clawed back later.
Why tiers are fairer than thresholds
A tiered scheme behaves like an income tax band: each slice of sales is paid at its own rate, so an extra sale is always worth something and crossing a boundary never costs you. A threshold scheme pays nothing at all below its target, which concentrates all the risk in the first part of the year.
Do
- Work out the effective rate rather than trusting the headline
- Ask whether a rate applies to the excess or to the total
- Check what the rate is applied to, not just its size
- Model the figure you realistically expect, not the target
Don't
- Read "10 percent above 50,000" as 10 percent of everything
- Compare two schemes by their headline rates alone
- Assume commission is paid when the order is signed
- Ignore what a discount does to a margin-based rate
The practical consequence is that two schemes with the same headline rate can be worth very different amounts to the same person. Model your own realistic number under each, not the target the plan was designed around, because the target is where the scheme looks best by construction.
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The formula, worked line by line
One multiplication per band, then a sum. Setting it out per band is the point: a single formula hides which sales the rate applied to, and that is the only thing anybody gets wrong.
“The rate is the number on the plan. The effective rate is the number in your bank account, and on any scheme with a target they are not the same.”
On a flat scheme the two coincide, which is the only reason flat schemes feel generous when they are usually not.
flat: commission = sales x rate
threshold: commission = (sales - target) x rate, never below zero
tiered: sum over bands of (sales in band) x (band rate)
effective rate = commission / sales
(80,000 - 50,000) x 10% = 3,000, so 3.75% effective- First 50,000 at 2 percent
- 1,000
- Next 50,000 at 5 percent
- 2,500
- Final 20,000 at 8 percent
- 1,600
- Total commission
- 5,100
- Effective rate
- 4.25 percent
- Against a headline of
- 8 percent
The eight percent applies to a sixth of the sales, so the effective rate is barely half of it. That is not a criticism of the scheme, which is a perfectly reasonable one — it is a warning against reading the top band as though it applied throughout.
Where the crossover sits
A threshold scheme and a flat one cross at the point where the excess times the higher rate equals the total times the lower one. For ten percent above fifty thousand against a flat five percent, that is exactly a hundred thousand of sales — below it the flat scheme pays more, above it the threshold one does.
What a scheme can be measured on
- Revenue
- simplest, and discount-blind
- Gross margin
- discounting comes out of your pay
- Units sold
- price-blind, common in volume sales
- New business only
- renewals excluded
- Collected cash
- you carry the payment risk
The margin row is the one that changes behaviour most. On a revenue-based scheme a discount costs you a little; on a margin-based one it can cost you several times as much, because the discount comes straight off the number your rate multiplies.
The habit worth building: before agreeing to any scheme, put your realistic sales figure through it and read the effective rate. That single number makes two plans comparable in a way their headlines never will.
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Questions people ask
How do I calculate commission on sales?
Multiply the qualifying sales by the rate. On a flat scheme that is all the sales, so five percent of 80,000 is 4,000. On a threshold scheme it is only the amount above the target, so ten percent above 50,000 on the same sales pays 3,000, not 8,000.
Does "10 percent above 50,000" mean 10 percent of everything?
Almost never. It nearly always means ten percent of the amount exceeding 50,000. If it meant the total, then selling 49,999 would earn nothing while selling 50,001 earned over 5,000, which would make the sales just before the line worth more than any after it.
What is an effective commission rate?
Total commission divided by total sales. On a flat scheme it equals the headline rate. On a threshold or tiered scheme it is always lower, because the rate applies to only part of the sales — 3.75 percent on 80,000 under a plan whose headline says ten.
Which is better, a threshold or a tiered scheme?
Tiered is generally fairer, because every sale earns something and crossing a band boundary never reduces your pay. A threshold scheme pays nothing below its target, concentrating the risk early, but pays better than a comparable flat scheme once you are well past the line.
Should commission be based on revenue or margin?
It changes your incentives rather than just your pay. On revenue, a discount barely touches your commission. On margin, the discount comes straight off the figure your rate multiplies, so it can cost you several times as much — which is precisely why employers use margin-based schemes.
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