Commission Calculator

Understanding Commission

Commission is a type of earnings directly linked to a salesperson’s success in selling products or services. It’s a common strategy used by companies to encourage higher sales, as the more a salesperson sells, the more they earn.

At its core, a commission is usually a percentage of the total sale amount. For example, if a salesperson earns a 3% commission and sells an item for $100, they would receive $3. However, commission plans can vary. Some businesses pay commissions based on profits, while others offer bonuses instead. In some cases, salespeople might be fully commission-based, while others may have a mix of base pay and commissions.

Types of Commission Structures

There are several ways companies design commission plans. Sometimes, if a salesperson offers a discount to close a sale, their commission might be reduced. Other plans reward loyalty by offering commissions for repeat customers. Choosing the right commission structure can help motivate the sales team and boost overall business performance.

This Commission Calculator supports three main types of commission models:

• Commission Only

• Base Salary Plus Commission

• Tiered Commission

Commission Only

In a commission-only setup, a salesperson’s entire income is based on the sales they make. For instance, if a real estate agent earns a 3% commission on a $500,000 home, their earnings would be:

500,000 × 3% = $15,000

Since there’s no guaranteed salary, the motivation to sell is very high. The basic formula for commission-only earnings is:

Sales Amount × Commission Rate = Earnings

Base Salary Plus Commission

In this model, salespeople earn a fixed base salary along with additional commission from their sales. For example, a salesperson might receive a $500 monthly salary plus a 1.5% commission on each sale. If they sell a $25,000 car, their total pay would be:

500 + (25,000 × 1.5%) = $875

If they sell two cars at the same price:

500 + (2 × 25,000 × 1.5%) = $1,250

And if they sell one $25,000 car and two $33,000 cars:

500 + (25,000 + 2 × 33,000) × 1.5% = $1,865

This system balances security and motivation. Even with no sales, the salesperson still earns a basic salary, but the larger part of their income depends on their performance. The general formula is:

Base Salary + (Total Sales × Commission Rate)

If multiple products are sold at different prices, the formula expands to:

Base Salary + (n1 × price1 + n2 × price2 + …) × Commission Rate

Tiered Commission Structure

A tiered commission model increases the commission percentage as the salesperson achieves higher sales targets. For example:

• 3% commission for the first $0–$20,000

• 5% for $20,001–$25,000

• 10% for $25,001–$30,000

If a salesperson sells $27,000 worth of goods, their commission would be calculated like this:

(20,000 × 3%) + (5,000 × 5%) + (2,000 × 10%) = $1,050

In this structure, higher sales volumes unlock higher commission rates, offering strong motivation to keep selling more. The formula for calculating tiered commissions is:

(Tier 1 Sales × Rate 1) + (Tier 2 Sales × Rate 2) + … + (Sales Above Last Tier × Last Rate)

Using the earlier example:

(20,000 × 3%) + (5,000 × 5%) + (2,000 × 10%) = $1,050