What commissions should I pay my sales person?
Sales managers can use this tool to determine the commission rate for their sales reps.
Revenue expected from the sales person.
Total compensation amount to be paid to the sales person.
Percentage of targeted compensation that should be treated as base salary.
Commission Rate:
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Available On-Premises, Online or Hosted.
For simple commissions.
For complex commissions.
Supports Splits, Overrides, Draw, Quota, Basic tier rate commissions.
Supports sliding scale commissions, multiple payouts, delayed commission payments and several other features.
Integrates with Excel, QuickBooks® and Intuit App Center.
Integrates with Excel, QuickBooks®, QuickBooks® Online, Salesforce and so on..
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Commission Rate Calculator

This commission rate Calculator helps compensation administrators and managers determine the commission rate for sales reps.

If you are a sales person trying to calculate commissions for your sales, try commission-calculator.com

What commissions should I pay my new sales person?

Commission Rate for the sales person is the most crucial decision in designing the compensation plan. The marketplace, in other words the companies that make up your competitors, are the best determinants of the appropriate compensation to be paid to the sales person. If it is possible to get that information, that should be the comparison for the compensation plan you design. Industries tend to have similar plans but the individual firm can design their very own compensation plans.

A simple formula to determine the commission can take the following steps: One of the first questions to ask in deciding the compensation level, is to determine how much additional revenue a reasonably performing sales person is expected to bring in. This expected amount can be called Performance (P). This can be an expectation of the sales manager or from what similar sales people achieve.

The next answer that we need to know is how much a reasonably performing sales person should be expected to be paid in a year. This can be based on average compensation in the region and/or from typical industry practice. This can be called Targeted Compensation (T). The proportion of the targeted compensation that will be treated as Base Salary can be expressed as a percentage (S%). This can be zero if there is no salary component.

The Commission Rate (C%) to be used in the compensation plan can be calculated as follows:

To Quota or not to Quota

Quotas (or Goals) can be specified for the expected performance of a sales person. These can be merely stated as expectations or encouraged through means of modifying the compensation based on attainment against Quota.

In the second case the simplest way of encouraging achievement of Quota is to pay a different commission rate for any attainment above Quota. The recommendation would be to pay a significantly increased commission rate for performance above Quota, to make exceeding the quota meaningful

Example: Let us assume that the expected performance is $1,000,000. This can set as the Quota for the sales person. Then the commission rate tiers can be set as follows:

Quota: $1,000,000

Sales attainment against Quota Commission Rate
0% to 100% 6%
101% and above 2%

Underachieving sales people can be incented towards higher performance by disincenting lower level performances, such as in this example.

Example: Let us assume that the expected performance is $1,000,000. This can set as the Quota for the sales person. Then the commission rate tiers can be set as follows:

Quota: $1,000,000

Sales attainment against Quota Commission Rate
0% to 50% 2%
51% to 100% 10%
101% and above 15%

In this situation, the first 50% of performance is clearly under incented to drive people towards more optimal performance which is above the 50% threshold

When to Commission?

The frequency of how often commissions should be paid is typical of industries. Frequency of commission payments follow one of these standard intervals: weekly, biweekly, twice-monthly, monthly and even quarterly.

In addition to industry practices the guidelines for determining the frequency of payment are these:

Additional criteria for triggering commission payments would be the revenue event. The typical revenue events are bookings, billing and collections. Other events can be used to trigger payments as well.

Bookings based commissions focuses the sales rep on bringing in the business, but possibly at the expense of long term customer relationships. Collections based commissions have the benefit of making sure the sales person manages the customer relationship to some extent but on the other hand sales people may spend valuable time doing collections responsibilities. Billings tend to be a balance between these two approaches.

What to Commission?

Some general commission considerations were presented in the earlier sections. But very often companies are interested in emphasizing sales performance in certain parts of the business. Different Companies want to make sure the emphasis is on new business, profitability, certain product lines or certain customer segments. This is possible in a well-crafted commission plan.

- New Business vs. Recurring business

Companies want to make sure their sales people are focused on bringing in new business rather than working the same set of customers for additional business. There are multiple ways of doing this. Here are some ways:

- Revenue vs. Profitability

Some companies where costs are a significant concern, or where the sales people have a lot of leeway to change the price, maybe more concerned about the profitability of the deal rather than on straight revenue. Here are some ways to address that concern:

A couple of things to consider in using profitability are:- determining profitability in certain businesses will be difficult; profitability is not transparent to the sales reps and consequently could lead to some frustration for the sales reps.

- Customers

Because of differing business conditions, specific focus on customers or customer segments maybe necessary to get optimal sales performance. Here are some of the ways commission plans can be designed for that:

- Products

It is fairly common for companies to commission products or product groups differently. This differing rates maybe due to difficulty of selling products, the age of product lines or the profitability of certain product lines. Here are some ways:


A draw is fully defined as 'a draw againist future earnings'. This is when the sales person is advanced an amount against expected future earnings. This is typically used to support a new sales person while they are learning the ropes of your business. It is typically set at an amount enough to cover the basic expenses of that person but not at full expected commission. It is typically short in duration, maybe three or six months and rarely longer. During that period, if the sales person earns less in commissions than the draw amount, then the difference is given as an advance and a balance is maintained. When the sales person starts performing well enough where they start exceeding the draw, then the balance maybe settled by using the excess earnings above the draw. This is also called a 'Recoverable Draw'.

A typical draw could be: Draw of $2000 per month for the firs 3 months of employment.

Draw is typically used for employee sales people who do not have a base salary.

The variation on this is where the sales person is guaranteed a minimum amount of compensation for a set period of time. This is appropriately called a 'Guarantee'. Sometimes it is referred to as 'Non-recoverable Draw'.

Cap that well!

Some commission caps will cap the total amount of compensation that a sales person can make. This does not follow the philosophy in commissioning sales performance. The more sales a sales person brings in the better the company prospects, so the company should incent additional sales rather than penalize them.

But there maybe situations where sales people may get windfalls due to no particular effort on their own. In these cases it maybe reasonable to cap commissions related to an individual deal at a fairly high limit such that true effort is still rewarded.

Now what!

After designing an effective commission plan after due consideration, the next step is to administer the plans and communicate the commission results accurately and in timely fashion. This is not trivial. Many customers start off by using spreadsheets and soon land in a nightmare of calculation errors and upset sales people. So it is highly recommended that they search for a flexible and well-support vendor software to calculate sales commissions.

References: What commissions should I pay my new sales person? by Gopi Mattel at qcommission.com.