Commission Calculator
Compute sales commissions based on revenue, commission rate, and tiered structures to forecast earnings and plan compensation
Formula
Commission = Sales × Rate
Simple commission multiplies sales by rate. Tiered structures apply different rates to different sales levels.
Worked Examples
Example 1: Simple Commission
Problem:Sell $75,000, earn 6% commission.
Solution:Commission = $75,000 × 0.06 Commission = $4,500 With $3,000 base salary: Total = $3,000 + $4,500 = $7,500
Result:$4,500 commission, $7,500 total
Example 2: Tiered Commission
Problem:$80,000 sales with 3%/5%/7% tiers at $25K/$50K.
Solution:First $25K at 3%: $750 $25K-$50K at 5%: $1,250 $50K-$80K at 7%: $2,100 Total: $4,100 Effective rate: 5.125%
Result:$4,100 (5.125% effective)
Example 3: Real Estate Split
Problem:Sell $500,000 home, 3% commission, 70/30 split with broker.
Solution:Total commission: $15,000 Agent share (70%): $10,500 Broker share (30%): $4,500 Agent takes home $10,500.
Result:Agent earns $10,500
Frequently Asked Questions
How is sales commission calculated?
A flat commission multiplies the sale amount by the commission rate, so a $50,000 sale at 5% pays $50,000 x 0.05 = $2,500. The detail that matters is the base the rate applies to. Some plans pay on gross revenue, others on gross profit after cost of goods, and others on collected cash only. A 5% rate on gross profit is a very different cheque from 5% on invoice value.
What is a tiered commission structure?
A tiered plan raises the rate as cumulative sales cross thresholds, and each rate applies only to the portion of revenue inside its band. With 3% on the first $25,000, 5% from $25,000 to $50,000 and 7% above that, a $60,000 month pays $750 + $1,250 + $700 = $2,700. Because the marginal rate climbs, the plan pays most for the revenue that comes after quota is already covered.
How much commission do sales roles typically pay?
Rates vary widely by industry and by what the rate is applied to. Percentages are lowest where deal sizes are large and the product largely sells itself, and highest where the cycle is long, the seller does substantial technical work, or the rep carries their own costs. Rather than benchmark the percentage alone, compare on-target earnings against quota, since a low rate on a large quota can out-earn a high rate on a small one.
What is a draw against commission?
A draw is an advance the employer pays before commissions are earned, giving the rep predictable income during a ramp or a long sales cycle. A recoverable draw is a loan: draw $3,000, earn $2,000, and the $1,000 shortfall carries forward against future commissions. A non-recoverable draw acts as a guaranteed floor and is not repaid. Check which type your plan uses, because the difference is significant during a slow quarter.
How do commission caps work?
A cap sets a ceiling on commission, either per deal or per period, so earnings stop growing once the limit is reached. Caps control compensation costs but remove the incentive precisely when a rep is most productive, which is why many companies prefer decelerators, where the rate steps down above a threshold rather than stopping. Some plans instead cap only outsized single deals while leaving total annual earnings uncapped.
Base plus commission or straight commission?
Base plus commission pays a guaranteed salary alongside a lower commission rate, trading upside for stability, and it usually comes with employee status, benefits and payroll tax withholding. Straight commission pays nothing until a sale closes but attaches a much higher rate to each one. The right structure depends on cycle length: long, complex cycles generally need a base to keep sellers solvent between closings.
How are real estate commissions split?
The seller traditionally paid a total commission that the listing brokerage shared with the buyer's brokerage, and each agent then split their side with their own broker under a schedule that often ranges from 50/50 to 70/30 in the agent's favour. Following the National Association of Realtors settlement that took effect in August 2024, offers of buyer-agent compensation are no longer published on the MLS and buyer representation is negotiated separately.
Are commissions taxed differently from salary?
Commissions are ordinary income and are taxed at the same rates as salary, but withholding can differ. When an employer pays commission as supplemental wages separately from regular pay, it may withhold at the flat federal supplemental rate of 22% for amounts up to $1 million in a year. That is only withholding, not the final tax, and any difference is settled when you file. Self-employed agents also owe self-employment tax.
What does OTE (on-target earnings) mean?
On-target earnings is the total a rep earns when they hit quota exactly, combining base salary and the commission the plan pays at 100% attainment. A role advertised as $120,000 OTE with a 50/50 split means $60,000 base plus $60,000 of variable pay at quota. It is a projection, not a guarantee, so the useful questions are what quota is required and what share of the team actually reaches it.
How do commission clawbacks work?
A clawback lets the employer recover commission already paid when the underlying revenue disappears, typically because the customer cancels, refunds, or never pays the invoice. They are most common in subscription software and insurance, where the sale is only worth what the customer eventually pays. Plans usually limit clawbacks to a defined window after the sale, so read the term and how the deduction is taken from future payouts.
Background & Theory
Commission is performance-based compensation, typically a percentage of sales or profit generated.
Common Structures:
Simple/Flat Rate:
Commission = Sales × Rate
Tiered/Graduated:
Different rates at different sales levels.
Incentivizes higher performance.
Multiplier:
Base rate × performance multiplier.
Rewards exceeding quota.
Profit-Based:
Commission on profit margin, not revenue.
Aligns with company profitability.
Typical Rates by Industry:
| Industry | Rate Range |
|---|---|
| Real Estate | 2.5-6% |
| Insurance | 5-20% |
| SaaS/Tech | 8-15% |
| Retail | 1-10% |
| Financial | 0.5-5% |
Compensation Mix:
- High base, low commission: Stable roles
- Low base, high commission: Sales-driven
- 100% commission: Experienced salespeople
Key Terms:
- OTE: On-Target Earnings
- Quota: Sales target
- Accelerator: Higher rate above quota
- Clawback: Commission recovery