Two ways commission is structured
Commission is pay calculated as a percentage of the sales you make, and it is usually structured in one of two ways. A flat rate applies one percentage to every dollar of sales: simple, predictable, and easy to check against a payslip. Graduated tiers apply different percentages to different slices of sales — a lower rate on the first band of sales, a higher rate on the next band, higher still above that — so the plan rewards strong periods with a better rate on the top slice. This calculator handles both: enter your sales and a flat rate for the simple plan, or switch to tiers and set each band's limit and rate. The result always shows your total commission and your effective rate — the single percentage your commission works out to across all your sales — which is the only fair number for comparing two different plans. Commission sits alongside the salary it supplements, which the Salary Calculator breaks down by period.
The commission formulas
Tiered: Commission = (sales in tier 1 × rate 1) + (sales in tier 2 × rate 2) + (sales above tier 2 × rate 3)
In a tiered plan each rate applies only to the sales inside its own band — the graduated structure works like income tax bands, not like a volume discount that re-prices everything. The effective rate is total commission ÷ total sales × 100, and in a tiered plan it always lands somewhere between the lowest and highest tier rates.
Worked example — flat rate
Sell $50,000 at a flat 8% and the commission is $50,000 × 8% = $4,000, with an effective rate of exactly 8% — flat plans are the one case where the headline rate and the effective rate are the same number. The simplicity is the point: a salesperson on a flat plan can estimate earnings mid-sale, and an employer can forecast commission cost as a fixed slice of revenue. What a flat plan does not do is reward a standout month any differently from an ordinary one — every dollar earns the same, whether it was the first dollar of the month or the dollar that doubled the target.
Worked example — graduated tiers
Now run the same $50,000 of sales through the default tiers: 5% on the first $20,000, 8% on sales from $20,000 to $50,000, and 10% above $50,000. Tier one pays $20,000 × 5% = $1,000. Tier two covers the next $30,000 and pays $30,000 × 8% = $2,400. Nothing reaches tier three, so the total commission is $1,000 + $2,400 = $3,400, an effective rate of 6.8%. Two lessons live in that result. First, the tiered plan pays less than the 8% flat plan at this sales level, even though it contains an 8% and a 10% rate — because the first $20,000 only ever earns 5%. Second, the plan's generosity grows with sales: at $80,000 the top $30,000 earns 10%, the effective rate climbs toward 8%, and past some point the tiered plan overtakes the flat one. The crossover point, not the top rate, is what decides which plan pays a given salesperson more.
Reading a commission plan before you sign it
Beyond the rates, real plans differ in details this calculator deliberately leaves out because they are contract terms, not arithmetic: whether commission is paid on bookings, invoices or cash actually collected; how returns, cancellations and discounts reduce the sales figure; whether there is a draw against commission to recover; and any cap, threshold or accelerator tied to a target. Two habits protect you in any plan. Keep your own record of sales and expected commission each period, and reconcile it against every payment — errors are common and almost never in the salesperson's favour by default. And when comparing job offers, run your realistic sales figure — not the recruiter's best case — through both plans and compare the effective rates at that level.
Worked example
At a flat 8%, sales of $50,000 earn $4,000 exactly. Through the default graduated tiers — 5% to $20,000, 8% to $50,000, 10% above — the same $50,000 earns $1,000 + $2,400 = $3,400, an effective rate of 6.8%: the tiers only pull ahead at higher sales.
How to use this calculator
- Choose the structure: flat rate for a single percentage on all sales, or graduated tiers for banded rates.
- Enter your total sales for the period — the same figure your plan defines, whether that is bookings, invoiced or collected sales.
- For a flat plan, enter the rate. For tiers, enter each band's upper limit and its rate, plus the rate above the second limit.
- Read the commission, then the effective rate — and find which tier your next sale would land in, because that tier's rate is what the next dollar earns.
- When comparing two plans, run the same realistic sales figure through each and compare effective rates, not headline top rates.
Commission, salary and the full pay picture
Commission rarely stands alone: most plans combine a base salary with commission, sometimes with bonuses for hitting a target on top. Judging an offer on the commission plan alone can mislead in both directions — a rich tier structure on a small territory may pay less than a modest flat rate where sales are larger and steadier. The fair comparison is total expected pay at a realistic sales level: base, plus the commission this calculator gives at that level, plus any regular bonuses. It is also worth asking how variable the result is month to month, because a plan whose pay swings widely needs a household budget — and an emergency fund — built for the quiet months, not the average one.
For employers: what tiers are designed to do
Graduated tiers exist to shape effort, not just to share revenue. The low first band is cheap for the business because it covers the sales a competent salesperson would make anyway; the richer upper bands concentrate the reward exactly where extra effort changes the outcome, near and above target. A well-set plan makes the marginal rate — what the next sale earns — highest precisely when the business most wants one more sale. When a tier plan disappoints, the cause is usually a band set so high that most of the team never reaches it: a reward nobody attains motivates nobody, and the effective rate quietly becomes the first band's rate with extra paperwork.