Sales Commission Calculator
Model a rep's earnings on a flat or tiered commission structure, with or without a base salary and a quota threshold. See total pay, effective commission rate, and what percentage of the revenue they generate goes back out as compensation.
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A commission plan that pays out more than your gross margin supports will quietly lose money on every sale. Book a free 30-minute call and we'll check yours against your actual unit economics.
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Effective commission rate is total commission divided by total sales. On a tiered plan it always sits between your two headline rates, and it is the number to use when forecasting — not the tier rates themselves. Comp as % of sales adds base salary in, and it is the figure that determines whether the plan is affordable.
The Test Most Commission Plans Fail
A commission plan is only sustainable if total compensation sits comfortably inside gross margin, not revenue. If your gross margin is 40% and your fully loaded sales comp runs at 25% of revenue, you have 15 points left to cover marketing, overhead, delivery and profit. That is tight. If margin is 25% and comp is 20%, the plan is losing money on volume and the faster the team sells, the faster you run out of cash.
Run your gross margin through our profit margin calculator and compare. If comp exceeds roughly half of gross margin, the structure needs revisiting before you hire more reps.
Thresholds, Accelerators and Draws
- A quota threshold means commission is only paid on sales above a floor. It protects margin on the revenue you would have earned anyway, but demotivates reps who fall just short.
- An accelerator is the higher rate above tier two. It is meant to reward over-performance, which only works if incremental sales genuinely carry incremental margin.
- A draw is an advance against future commission. Recoverable draws must be tracked as a receivable, not expensed, or your books will overstate compensation cost in the early months and understate it later.
Commission Is Not Always Payable When Booked
Bookings, invoicing and cash collection happen at different times. Paying commission on booking when the customer pays in 90 days — or churns in 60 — creates a cash gap and, occasionally, a clawback nobody documented. Decide explicitly which event triggers payment, write it into the plan, and make sure the accounting treatment matches. Under accrual accounting, commission is generally recognised in the period the related revenue is recognised, not the period it is paid.
Frequently Asked Questions
What is a typical sales commission rate?
It varies enormously by industry and margin structure. Businesses with high gross margins, such as software, often pay 10-20% of revenue in total sales compensation. Low-margin distribution businesses may pay 2-5%. The right rate is the one your gross margin can carry.
Should commission be paid on revenue or gross profit?
Paying on gross profit aligns the rep with the outcome you actually care about and stops discounting from being free to them. It is harder to administer because reps need visibility of cost. Many businesses compromise by paying on revenue with a floor price below which commission drops.
How do I handle a clawback if a customer cancels?
Define the clawback window in the plan document before anyone signs it, and net it against future commission rather than invoicing the rep. Book it as a reduction of commission expense in the period the cancellation occurs.
Is commission subject to the supplemental wage rate?
Yes. Commission is supplemental wages for withholding purposes, so the flat 22% federal rate applies when paid separately from regular wages. Our bonus tax calculator handles that calculation.