calculate commissions

A step-by-step guide to calculating commissions

While many employees are paid on an hourly or tenured basis, contract workers are often paid based on the goods and services they sell. A commission payment is common in certain positions – particularly sales – where making money is an important part of the job. In order to calculate your commission, you must understand the system used by your company and factor in additional factors that may affect your commission.

Understand your commission plan

Determine what the basis of your commission is.

Commissions are typically determined based on the price of goods or services that you sell. However, some companies use other commission models based on the net value of the goods or the cost of the goods to the company. Find out if certain products or services are excluded from your commission plan. Some companies pay a commission for the sale of certain products and services but not others.

Determine the commission rate your company pays.

For example, the commission rate could be five percent of the retail price of all products sold. Your company may set different commission rates for different products. For example, you might get a 6% commission on a harder-to-sell product and only a 4% commission on a easier-to-sell product.

Understand other tiers in your commission plan.

For example, in some commission plans, the commission changes after a certain number of sales. For example, in a tiered commission system, after selling $50,000 worth of products, your commission rate could increase to 7 percent.

Calculate your commission

Determine the commission period.

Commissions are usually paid out on a monthly or bi-weekly basis. For example, if you get paid every two weeks, a commission period might be from January 1st to January 15th. This means you only get paid for your sales between January 1st and January 15th.

Calculate your total commission base in this period.

For example, if your commission is based on the sale price of the product and you sold €30,000 worth of products from January 1st to January 15th, your total commission base would be €30,000. If you are paid in different commission rates for different products, you need to calculate the commission basis per product. For example, if you sold the same quantity of two products that have a different rate, note that you sold $15,000 worth of product A and $15,000 worth of product B. If you get different commission rates depending on your sales, you need to calculate the commission basis per tier. For example, if your commission increases after $25,000 in sales, your commission base is $25,000 for the first tier and $5,000 for the second tier.

Multiply your commission rate by your commission base in that period to calculate your commission payments.

For example, if you sold $30,000 worth of products between January 1st and January 15th at a commission rate of 5 percent, you would receive $1,500 in commission payments. If you get different rates for different products, multiply each commission basis by the appropriate rate and add the numbers. For example, if you sold $15,000 of product A at a rate of 3 percent and $15,000 of product B at a rate of 6 percent, you would earn $450 in commission for product A and $900 in commission for product B. So your total commission is €1,350. If the commission rate varies with sales volume, multiply each commission basis by the commission rate for each tier and add the numbers. For example, if you sold $30,000 worth of products and get a commission rate of 4 percent for the first $25,000 and a commission rate of 6 percent for the rest, you will get $1,200 commission for the first tier and $300 for the second tier. In total, this results in commission payments of €1,500.

Make adjustments if necessary

Calculate shared commissions.

When more than one seller is involved in a sale, there is a split commission. Alternatively, a regional sales manager can also receive a share of his salespeople’s commissions.

Evaluate additional bonuses and accompanying incentives.

In addition to a direct percentage, a commission structure can also include any number of more complicated sales incentives (additional payments) for a salesperson or other person to be paid on a commission basis.

Watch out for additional bonuses for the most successful sellers.

If your commissions are the highest in your division or team, you may be eligible for an additional bonus for your outstanding performance.

About the Author

Jordan Williams

As a contributor, Jordan Williams writes roundups of the best holiday deals as well as popular products ranging from consumer electronics and small appliances to holiday discounts. Jordan has worked for several news outlets and media organizations prior to writing for Freevoucherhub.