How to use the commission calculator
- Choose the plan type. A flat rate pays the same percentage on every dollar. A tiered plan pays a higher rate on sales above a threshold. You can also find your rate from a payout, or the sales needed for a target.
- Enter total sales for the period your plan pays on, such as a month or quarter. Use the figure your plan counts: often invoiced or collected revenue after returns.
- Enter the rate or tiers. For a tiered plan, enter the rate up to the threshold, the threshold and the rate above it.
- Optional: base pay. Add your salary or draw for the same period to see total pay.
For tiered plans, the results break the commission into bands and also show what the same sales would pay if the top rate applied to every dollar, because plans are written both ways.
Commission formulas
Commission rate = commission ÷ total sales × 100
Sales needed = target commission ÷ commission rate
Total pay = base pay + commission
Worked examples from a textbook. OpenStax’s Prealgebra 2e (section 6.3) gives a realtor a 3% commission on a $260,000 house: 0.03 × $260,000 = $7,800. Working backward, a salesperson who earns $87 for selling a $1,450 stove has a rate of $87 ÷ $1,450 = 0.06, or 6%.
Sales for a target. To earn $3,000 a month at 6%, you need $3,000 ÷ 0.06 = $50,000 in monthly sales. Over a year, that is $600,000, or about $11,500 a week.
Tiered commission: marginal or retroactive
Tiered plans reward higher sales with a higher rate, but there are two common ways to apply it, and they pay very different amounts.
Marginal (bracket) tiers pay each band of sales at its own rate, the way tax brackets work. With 5% up to $10,000 and 8% above, sales of $15,000 pay 5% × $10,000 = $500 plus 8% × $5,000 = $400, a total of $900, an effective rate of 6%.
Retroactive tiers pay the rate of the highest tier reached on all sales. The same $15,000 pays 8% × $15,000 = $1,200. Retroactive plans create a sharp jump at the threshold: $9,999 in sales pays $499.95, while $10,001 pays $800.08.
| Sales | Marginal (5% / 8% above $10k) | Retroactive |
|---|---|---|
| $8,000 | $400 | $400 |
| $12,000 | $660 | $960 |
| $15,000 | $900 | $1,200 |
| $25,000 | $1,700 | $2,000 |
Your plan document should say which method it uses. If it says the higher rate applies to “sales above” the threshold, it is marginal; if it says the rate applies to “all sales” once a threshold is reached, it is retroactive.
Base pay, draws and how commission is earned
Many sales jobs combine a base salary with commission. A $2,500 monthly base and 6% on $42,000 in sales pays $2,500 + $2,520 = $5,020 for the month. Raising sales by $5,000 adds $300, which is a useful way to see what each extra deal is worth.
A draw is an advance against future commission. With a recoverable draw, if your commission falls short of the draw, the shortfall is subtracted from later commission. A non-recoverable draw works more like a minimum. The calculator shows gross commission; subtract any draw you have already received to see what is still owed.
Your compensation plan also decides when commission is earned: when an order is booked, invoiced or paid, and whether returns and cancellations are clawed back. Two plans with the same rate can pay differently in a given month because of these rules.
Commission and overtime for hourly employees
If you are paid hourly and also earn commission, federal law counts the commission when working out your overtime rate. The regulation 29 CFR 778.117 says commissions are payments for hours worked and must be included in the regular rate, whether they are the only pay or are added to an hourly wage or salary.
In practice, the commission for a week is added to your straight-time pay, and the total is divided by the hours you worked to get the regular rate. Overtime hours then earn an extra half of that rate. When commission is paid monthly or quarterly, the federal regulations that follow 778.117 describe how it is spread back over the weeks in which it was earned. The overtime calculator on this site handles the weekly version of this math.
Comparing two commission plans
When you are choosing between job offers or a new plan, run both through the calculator at a low, typical and high sales month. Say plan A is a $3,000 base with 4% commission and plan B is a $1,500 base with 8%. At $30,000 in sales, A pays $3,000 + $1,200 = $4,200 and B pays $1,500 + $2,400 = $3,900. At $50,000, A pays $5,000 and B pays $5,500.
The two plans pay the same where the difference in base equals the difference in commission: $1,500 = 4% × sales, at $37,500 a month. If you expect to sell more than that consistently, the higher rate wins; if your sales are uncertain or seasonal, the higher base protects your income in slow months.
Also compare how each plan treats returns, splits on shared deals, quotas, and caps. A plan with a higher rate but a cap on monthly commission, or a long delay before commission is earned, can pay less than the headline rate suggests.
Commission on gross profit instead of revenue
Some businesses, such as car dealers and distributors, pay commission on gross profit rather than on the sale price, so a salesperson has no reason to win deals by cutting price. The formula is the same with a different base: commission = (price − cost) × rate. A $12,000 sale with a $9,000 cost and a 25% rate on gross profit pays $3,000 × 0.25 = $750, which is 6.25% of revenue.
To use the calculator for a profit-based plan, enter the gross profit as the sales figure. To compare it with a revenue-based offer, divide the commission by the revenue to get the effective rate on sales.
Profit-based plans pay less on discounted deals and more on full-price ones, so your effective rate on revenue will move from month to month even if the plan rate stays the same.
Sources & assumptions
How this calculator gets its numbers. Full method: our methodology.
- Flat commission = total sales × rate.
- Tiered plans pay each band of sales at its own rate. The “retroactive” figure shows what the same sales would pay if the top rate reached applied to every dollar.
- Commission rate = commission ÷ sales; sales needed = target commission ÷ rate.
- Results are gross: draws, chargebacks, returns, caps and taxes are not deducted.
Sources
- OpenStax (Rice University), Prealgebra 2e, 6.3 Solve Sales Tax, Commission, and Discount Applications. Commission = rate × total sales (3% on a $260,000 house is $7,800; $87 on a $1,450 stove is 6%), discount = rate × original price (35% off $140 is $49, a $91 sale price), and sales tax as a percent of the purchase price.
- U.S. Code of Federal Regulations (eCFR), 29 CFR 778.117, Commission payments—general. Commissions are payments for hours worked and must be included in the regular rate, whether they are the only pay or added to a salary or hourly rate.
Last reviewed . Your written compensation plan defines what counts as a sale and when commission is earned.
Frequently asked questions
How do I calculate commission?
Multiply your sales by your commission rate written as a decimal. At 7% on $18,000 in sales, commission is 0.07 × $18,000 = $1,260.
How do I find my commission rate?
Divide the commission you earned by the sales it was paid on and multiply by 100. Earning $1,800 on $45,000 in sales is a 4% rate.
What is a tiered commission?
A plan that pays a higher rate once sales pass a threshold. In a marginal plan, only the sales above the threshold earn the higher rate. In a retroactive plan, all sales earn the higher rate once you cross the threshold.
How much do I need to sell to earn $5,000 in commission?
Divide $5,000 by your rate. At 5% that is $5,000 ÷ 0.05 = $100,000 in sales; at 8% it is $62,500; at 10% it is $50,000.
Is commission calculated on gross or net sales?
It depends on the plan. Some pay on gross sales, others on sales after returns, discounts or cancellations, and some pay on gross profit instead of revenue. Your written compensation plan defines the base.
Is commission included in overtime pay?
For non-exempt employees under federal law, yes. Commission is part of the regular rate, so it raises the rate on which overtime is paid. Some sales employees are exempt from overtime, and those rules are separate.