# How To Calculate Commission

Most California real estate agents work on commission. If they do not sell, they do not eat. An agents commission is based on the gross sales price of a piece of property, so she has an incentive to sell a property at the highest possible price. This usually works in your favor when you are selling. Still, it is to your advantage to understand how a commission is computed and to negotiate the lowest possible commission early in the agent selection process.

Robert C. Young began writing professionally in 1989 as a copywriter for an advertising specialty company. From 2000 to 2007 he operated a real-estate development and construction company. His work has been published online at SFGate and various other websites. He graduated with a Bachelor of Business Administration in economics from Georgia State University.

Just take sale price, multiply it by the commission percentage, divide it by 100. An example calculation: a blue widget is sold for \$70 . The sales person works on a commission – he/she gets 14% out of every transaction, which amounts to \$9.80 .

## What to know before you calculate commission

To accurately calculate your commission, you need to know the particulars of your agreement with your employer. You should consider the below factors before you make your calculation, as they influence commission payments:

## What is commission?

Commission is a form of payment to employees that is based on the number and value of the product or service they sell. Employers can offer commission as an additional reward or a commission-based salary only. Commissions are an excellent tool to motivate employees to work harder and meet performance objectives in terms of sales and profit growth.

For a small business, commission-based salaries offer flexibility because they vary with the number of sales, so the expense employers pay for wages is proportional to the results of their employees.

## How to calculate commission

You can use these steps to calculate your commission:

### 1. Determine the commission period

Commissions can be paid on a weekly, biweekly or monthly basis. The commission will be paid at the end of the period but can be delayed if employers need to receive payments from clients before paying you.

Example: If the commission period is a month, you need to consider all sales concluded during each month to calculate your commission, and you will receive a monthly payment.

### 2. Identify the commission base

The commission base is usually the purchase price of products sold. Determine the total dollar amount of sales concluded during your commission period.

Example: If during February you sold products for a value of \$10,000, your commission base is \$10,000.

### 3. Multiply the commission base by the commission rate

Example: If the commission rate is 5% and your commission base is \$10,000, then multiply \$10,000 by 5%: \$10,000 x 5% (or 0.05) = \$500

### 4. Consider the various commission rate

In some cases, the employer can apply a different rate according to the product. To calculate with various rates, identify the various commission bases and multiply each one by the correct rate.

Example: Product A has a 5% commission rate, and product B has an 8% commission rate. You sold \$10,000 of product A and \$5,000 of product B.

(\$10,000 x 0.05) + (\$5,000 x 0.08) = \$500 + \$400 = \$900
Your total commission payment is \$900.

### 5. Apply the tier if necessary

If the commission rate varies with the dollar amount of sales for the same product, this is a tier system, and you need to calculate the commission for each tier using the appropriate rate.

Example: You sold product C for a total of \$40,000, and tier commission rate applies as follows: product C has a 5% commission rate for the first \$25,000 sales and 3% above \$25,000. Here is how to calculate:

(\$25,000 x 0.05) + (\$15,000 x 0.03) = 1,250 + 450 = \$1,700
Your total commission payment is \$1,700.

### 6. Calculate override, if it applies

In some cases, management can decide that if you sell for more than a specific amount, your commission base will change. This is called override, and it applies to the total base amount.

Example: Product A has a rate of 5%, but if your sales exceed \$20,000, the commission rate becomes 6%.

In February, you sold \$10,000 and received \$500 commission (Base x Rate = \$10,000 x 0.05). In March, you sell \$30,000, so your rate changes and the calculation is \$30,000 x 0.06 = \$1,800.

### 7. Deduct returns, if necessary

If the policy mentions that you must deduct returned products, subtract their value from the sales dollar amount.

Example: The commission rate is 5%. Your sales amount to \$10,000, but clients returned products for a value of \$200.

Calculate your corrected base first: \$10,000 – \$200 = \$9,800.
Then calculate your commission payment: \$9,800 x 0.05 = \$490.

### 8. Split the commission, if necessary

According to your agreement with your employers, the commission might be split between the different people involved in the sale.

Example: You and two other people are involved in the March sales resulting in a \$30,000 base, and the rate is 6%. Commission is \$30,000 x 0.06 = \$1,800. This total must be divided equally among the three of you: \$1,800 / 3 = \$600. Your commission payment is \$600.

### 9. Calculate the managers portion, if it applies

If the area manager takes a percentage of your commission, you can deduct it to obtain your payment.

Example: If your commission is \$600 and the area manager gets 2%, calculate the managers portion (\$600 x 0.02 = \$12) and deduct it from your commission: \$600 – \$12 = \$588.

## Types of commission

There are various types of commissions, including:

### Straight commission

A straight commission or placement fee is a fixed amount paid per unit sold. For example, a salesperson can receive a \$200 payment for each car sold instead of a percentage of the sales dollar amount.

Based on revenue or performance gates, graduated commissions can be the most lucrative for salespersons who achieve high results. The more they sell, the more they earn. This pay structure is also known as a revenue gate.

Example: RevenueCommission rate\$0-\$50002%\$5000-\$10,0005%\$10,000-\$15,0008%### Revenue commission

Revenue commission is a fixed percentage of the revenue sold. For example, if the commission rate is 6% and a sales professional sells products for a value of \$5,000, then the commission paid is \$300 (\$5,000 x 0.06 = \$300).

### Gross profit commission

With this type of commission, a sales professional earns a percentage of the profit realized on the product they sold. For example, if the manufacturing cost of a product is \$5, and the selling price is \$10, the profit is the difference between the \$10 paid by the buyer and the \$5 manufacturing cost. If the commission rate is 5%, the commission amount is \$0.25 per product sold (\$5 x 0.05 = \$0.25).

## FAQ

What is the formula for commission?

Commission is earnings from a sale. Typically, companies pay out a percentage based on total sales revenue. Commission can be calculated with this formula: commission = total sales revenue * commission rate.

How is a sales commission calculated?

To calculate the payable commission, multiply the sales revenue by the sales commission rate. A 10 percent commission rate on a \$10,000 product deal would pay \$1,000 in commission. Once you have the payable commission, you can apply commission variables for which a salesperson is eligible.

What is a 5% commission?

Multiply the commission base by the commission rate

To calculate the amount of commission you will receive, multiply your rate by your commission base. Example: If the commission rate is 5% and your commission base is \$10,000, then multiply \$10,000 by 5%: \$10,000 x 5% (or 0.05) = \$500.

What is the commission of 4%?

If an employee brings in \$50,000 of business in a month and their commission rate is 4%, they would be paid \$2000, plus their salary, minus all applicable taxes. This type of commission is most common within retail industries.