How commission is calculated
A flat plan multiplies sales by one rate. A base salary, if you have one, is added on top.
Commission = sales × rate ÷ 100. Total pay = base salary + commission
Example: flat rate with a base salary
$84,000.00 in sales at 6%, with a $2,500.00 base salary.
- Commission: $84,000.00 × 6% = $5,040.00
- Total pay: $2,500.00 + $5,040.00 = $7,540.00
Tiered commission: two different definitions
A tiered plan has thresholds with higher rates as sales grow. There are two common ways to read one, and they pay differently.
- Whole amount at the tier reached: find the highest tier your sales reach, then pay all of your sales at that tier’s rate.
- Each portion at its own rate: pay the sales between the thresholds of each tier at that tier’s rate and add the pieces up.
Tiers for the examples: $0.00 to $50,000.00 at 3%, $50,000.00 to $100,000.00 at 5%, $100,000.00 and up at 7%. A tier is reached when sales equal or pass its start.
Example: sales of $120,000, both ways
- Whole amount: tier 3 is reached, so $120,000.00 × 7% = $8,400.00
- Each portion: $50,000.00 × 3% + $50,000.00 × 5% + $20,000.00 × 7% = $1,500.00 + $2,500.00 + $1,400.00 = $5,400.00
- The whole-amount method pays $3,000.00 more on the same sales.
Example: sales of exactly $100,000
- Whole amount: $100,000 reaches tier 3: $100,000.00 × 7% = $7,000.00
- Each portion: $50,000 × 3% + $50,000 × 5% + $0 × 7% = $4,000.00
Questions
Which tiered method does my plan use?
Your commission plan document says. “Whole amount” (sometimes called retroactive) pays every dollar of sales at the rate of the tier you reached; “each portion” (marginal) pays each slice at its own tier’s rate. The same sales give very different totals, so check before you rely on a number.
When is a tier reached?
When sales are equal to or above the tier’s starting amount. With a tier starting at $100,000, sales of exactly $100,000 reach it; $99,999.99 does not. Under “each portion”, exactly $100,000 puts nothing in that tier yet.
Does base salary count towards the tiers?
Here, no: tiers are based on sales only. Base salary is added to the commission for total pay.
Is commission worked out on sales or on profit?
On the amount you enter. If your plan pays on profit or margin, enter that figure as the sales amount.
What about draws, clawbacks, quotas or caps?
Not modelled. Adjust the result yourself using your plan’s terms.
Is the result before tax?
Yes, commission and total pay are gross. The pay raise calculator shows what a pay change adds per paycheck.