Commission formulas
Flat: Commission = Sales × Rate
Tiered: Commission = Quota × Rate₁ + (Sales − Quota) × Rate₂
Total pay = Base pay + Commission
Tiered: Commission = Quota × Rate₁ + (Sales − Quota) × Rate₂
Total pay = Base pay + Commission
Example: You sell $50,000 at a 5% commission and earn $2,500. With a $3,000 base, total pay is $5,500, and commission makes up 45% of it. On a tiered plan paying 8% above a $30,000 quota, the same sales earn $3,100.
Understanding your plan
- Check whether commission is paid on revenue, gross profit or collected cash.
- Look for caps, clawbacks on refunds and draw against commission.
- Ask how quotas are set and changed during the year.
Pricing your products? Use the markup calculator.
Frequently asked questions
How do I calculate commission?
Commission = sales × commission rate. $50,000 of sales at 5% pays $2,500. Add your base pay for the period to get total earnings.
How does tiered commission work?
Sales up to the quota earn the base rate, and only the sales above it earn the higher rate. With a $30,000 quota, 5% below and 8% above, $50,000 of sales pays $1,500 + $1,600 = $3,100.
What is a typical commission rate?
Retail 1–5%, SaaS and B2B sales often 8–12% of first-year contract value, real estate agents 2.5–3% per side, car sales around 20–25% of the dealer’s gross profit.
Is commission taxed differently?
In the U.S., commission is ordinary income. When paid separately it may be withheld at the 22% federal supplemental rate, but your final tax is settled on your annual return.