Understanding Sales Commission
Commission structures vary from flat-rate to tiered, graduated, or draw-against-commission plans.
Common Structures
| Type | How It Works |
|---|---|
| Flat Rate | Same % on all sales |
| Tiered | Higher rate after thresholds |
| Draw Against | Advance against future commissions |
| Residual | Ongoing from recurring revenue |
How to Use This Commission Calculator
Enter the sale amount, commission rate, and any tiered structure. The calculator shows your commission earnings and effective rate.
Formula & How It Works
Commission = Sale Amount Γ Rate. For tiered: Commission = Ξ£(Tier Amount Γ Tier Rate). Net commission = Gross β Split percentage (if applicable).
Calculation Example
A $500,000 real estate sale at 3% agent commission = $15,000 gross. After a 70/30 broker split, the agent receives $10,500.
Expert Tips
Track your average commission rate over time. For tiered structures, focus on hitting the next tier threshold. Factor in self-employment taxes (15.3%) when calculating take-home commission.
Frequently Asked Questions
What is a good commission rate?
Varies by industry. SaaS: 5-15%. Real estate: 5-6%. Retail: 1-5%. Higher-ticket items typically offer higher rates.
How are commissions taxed?
Commissions are taxed as ordinary income. Employers may withhold at the 22% supplemental rate.
What is OTE?
On-Target Earnings = base + commission at 100% quota. E.g., $60k base + $40k commission = $100k OTE.