Pay & Salary

How To Find Commission Rate in 5 Steps (Plus Definition and Types of Commission Rates)

February 22, 2021

Salespeople often work on a commission-only basis in which their employer pays them a certain percentage or fixed rate when they make a sale. If you work in sales, knowing how to calculate your commission rate will tell you how much you will make per sale and how many sales you'll need to make to meet your financial goals. In this article, we discuss what a commission rate is, the different types of commission and how to find your commission rate in five easy steps.

What is commission rate?

Commission rate is the payment associated with either a fixed payment or percentage of a sale. Professions that work on commission, such as insurance brokers, real estate agents and car salespeople, receive payments when they produce a sale. When your income is based partially or entirely on the number of sales, calculating the commission rate becomes critical to the job.

Types of commission rate models

Since there are multiple commission rate models, it is important to understand how each model might affect your income. Here are the three main types of model:

Straight commission

The straight commission model makes your income reliant upon your sales. Here is how to calculate a straight commission:

Sales x Commission rate = Income

Base plus commission

The base plus commission model allows you to make sales commissions in addition to a base salary. This can be an attractive model for employees, but continual employment could rely on sales quotas. Here is how to calculate a base plus commission:

Base salary + (Sales x Commission rate) = Income

Draw against commission

In this model, you receive an advance payment from your employer that acts as a loan that you need to pay back or it will be subtracted from your income once you make sales. Here is how to calculate a draw against commission:

(Sales x Commission rate) - Advance pay = Income

How to find the commission rate

You can find most commission rates by combining the three models above to create one formula. Use this master formula in a wide variety of situations to find almost any position's commission rate and income potential.

  1. Create the master formula.
  2. Determine your base salary.
  3. Determine your advance pay.
  4. Understand your commission rate.
  5. Input your figures to calculate your potential income.

1. Create the master formula

Using the three most widely used commission models, you can create one formula that can be used in any circumstance.

Master formula: (Base salary) + (Sales x Commission rate) - (Advance pay) = Income

2. Determine your base salary

Companies that use the base plus commission model pay their salespeople a base salary, in which you insert your weekly, monthly or yearly salary in the "base salary" area of the master formula. Salespeople who work for companies that use the straight commission or draw against commission models enter "0" as their base salary.

3. Determine your advance pay

Companies that use the draw against commission model lend their salespeople money for possible expenses that are collected or drawn against their income as they make sales. Salespeople that are a part of this model enter their first advance payment in the "advance pay" area of the master formula. Those who are a part of the straight commission or base plus commission models enter "0" as their advance pay.

4. Understand your commission rate

Your commission rate is paid in one of two ways: percentage of sales or dollar amount per sale. Each of the two types of commission payments changes the master formula slightly. Those who earn a percentage multiply their total sales revenue by their commission percentage rate, while those who earn a dollar amount multiply their number of sales by their predetermined dollar amount.

Percentage model: (Base salary) + (Sales revenue x Commission rate percentage) - (Advance pay) = Income

Dollar amount model: (Base salary) + (Number of sales x Dollar amount) - (Advance pay) = Income

5. Input your figures to calculate potential income

Once you understand your commission model and have your figures, input them into your adjusted formula to calculate your potential income. Start by inserting an average sales revenue into the percentage model or "1" into "number of sales" to find out how much income you can make from one sale. You can then raise the figure to find out how much money you can make from any number of sales. If you want to find out how many sales it will take to reach your desired income, divide your desired income by the income you can make from one sale.

Desired income formula: (Desired income) / (Income from one sale) = Number of sales needed

Commission rate examples

Use the following situational examples to understand how to use the three main commission rate formulas to determine your income per sale and desired income:

Straight commission with dollar amount model

You work as a phone salesperson who sells one vacation product, and you rely solely upon commission to generate an income. Your commission rate is $125 per product sale. Your desired monthly income is $10,000.

*Dollar amount model: (Base salary) + (Number of sales x Dollar amount) - (Advance pay) = Income*

  1. You make $0 in base salary, so input "0" into "Base salary."
    (0) + (Number of sales x Dollar amount) - (Advance pay) = Income

  2. You are lent $0 from your employer, so input "0" into "Advance pay."
    (0) + (Number of sales x Dollar amount) - (0) = Income

  3. Your commission rate is $125 per sale, so input "125" into "Dollar amount."
    (0) + (Number of sales x 125) - (0) = Income

  4. Insert "1" into "Number of sales" and use this formula to calculate your income after one vacation product sale.
    (0) + (1 x 125) - (0) = $125 per product sale

  5. You have a desired monthly income of $10,000, so divide 10,000 by 125 to find out how many sales you need to make each month.
    10,000 / 125 = 80 vacation package sales per month for desired income

Base plus commission with percentage model

You work as a car salesperson at a dealership and rely on a base salary plus commission to generate an income. Your commission rate is 25% of the gross profit of each car sold. The average gross profit from a car is $1,500. Your base salary is $2,800 per month. Your desired monthly income is $10,000.

*Percentage model: (Base salary) + (Sales revenue x Commission rate percentage) - (Advance pay) = Income*

  1. You make $2,800 in base salary, so input "2,800" into "Base salary."
    (2,800) + (Sales revenue x Commission rate percentage) - (Advance pay) = Income

  2. You are lent $0 from your employer, so input "0" into "Advance pay."
    (2,800) + (Sales revenue x Commission rate percentage) - (0) = Income

  3. Your commission rate is 25%, so input "0.25" into "Commission rate percentage."
    (2,800) + (Sales revenue x 0.25) - (0) = Income

  4. The average gross profit from a car at your dealership is $1,500, so input "1,500" into "Sales revenue."
    (2,800) + (1,500 x 0.25) - (0) = Income

  5. Use this formula to calculate your income after one car sale.
    (2,800) + (1,500 x 0.25) - (0) = $3,175 income from one car sale plus one month salary

  6. Subtract your base salary from the above figure to calculate your commission per car sale.
    3,175 - 2,800 = $375 commission per car sale

  7. You have a desired monthly income of $10,000 and make a base salary of $2,800, so start by subtracting 2,800 from 10,000.
    10,000 - 2,800 = 7,200

  8. Now divide 7,200 by 375 to find out how many car sales you need to make each month for your desired income of $10,000.
    7,200 / 375 = 19.2 car sales per month for desired income

Draw against commission with percentage model

You work as a real estate agent and rely solely upon the commission to generate an income. Your commission rate is 3% of the total price of a sold home. The average selling price of a home in your area is $250,000. You receive an advance payment of $2,500 from your employer to cover expenses like advertising and travel costs, and you will receive this advance payment monthly. Your desired monthly income is $10,000.

Percentage model: (Base salary) + (Sales revenue x Commission rate percentage) - (Advance pay) = Income

  1. You make $0 in base salary, so input "0" into "Base salary."
    (0) + (Sales revenue x Commission rate percentage) - (Advance pay) = Income

  2. You are lent $2,500 from your employer, so input "2,500" into "Advance pay."
    (0) + (Sales revenue x Commission rate percentage) - (2,500) = Income

  3. Your commission rate is 3%, so input "0.03" into "Commission rate percentage."
    (0) + (Sales revenue x 0.03) - (2,500) = Income

  4. The average selling price of a home in your area is $250,000, so input "250,000" into "Sales revenue."
    (0) + (250,000 x 0.03) - (2,500) = Income

  5. Use this formula to calculate your income after one home sale.
    (0) + (250,000 x 0.03) - (2,500) = $5,000 income from one sale

  6. You have a desired monthly income of $10,000, so divide 10,000 by 5,000 to find out how many sales you need to make each month.
    10,000 / 5,000 = 2 home sales per month for desired income

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