Commission Calculator

The same $25,000 deal under three commission plans

Commission arguments almost never come down to whether 5% is generous. They come down to what the percentage is applied to and where the rate changes. Take one deal — a $25,000 order — and run it through the three structures most sales plans in the US and UK actually use.

Flat rate: 5% of everything

The simplest plan pays one percentage on every dollar sold. At 5%, the $25,000 deal pays ,250 and the effective rate is exactly 5%, because a flat plan's effective rate never moves. Reps like it because it is predictable and can be worked out in their head at the customer's table; finance likes it because the cost of sales is a straight line. The weakness is that it pays the same for the easy first deal as for the hard tenth one.

Tiered: 3% up to 0,000, then 6%

The tiered plan splits the deal into bands. The first 0,000 earns 3% = $300. The remaining 5,000 earns 6% = $900. Total commission is ,200, and the effective rate is ,200 / $25,000 = 4.8% — slightly below the flat plan, even though the headline top rate is higher. That surprise is the whole point of the effective rate row: a plan advertised as "up to 6%" pays less here than a plain 5%.

Crossover is easy to find. The tiered plan overtakes the 5% flat plan when the extra 1% earned above the threshold covers the 2% given up below it: 0.02 x 0,000 = $200 of lost commission, recovered at $0.01 per dollar above 0,000, so $20,000 of band-two volume is needed. That is a $30,000 deal. Below $30,000 the flat plan wins; above it the tiered plan wins, and the gap grows.

Base + rate: $500 plus 5%

Adding a fixed component changes the risk profile rather than the ceiling. The $25,000 deal pays $500 + ,250 = ,750, an effective rate of 7%. On a $5,000 deal the same plan pays $500 + $250 = $750, an effective rate of 15%. The base guarantees the rep a floor and disproportionately rewards small deals, which is why it is common for new hires, long sales cycles, and territories that are being built from nothing.

How the three compare across deal sizes

Read the table as a set of incentives rather than a set of numbers. The tiered column punishes small deals and pays best on the largest ones — it tells a rep to chase enterprise volume. The base column does the opposite. If the plan and the strategy disagree, the plan wins, because that is what gets paid.

Quota attainment and accelerators

Most real plans are tiered against a quota rather than against a single deal. A rep with a $200,000 quarterly quota might earn 4% on everything up to quota and 8% on everything past it. Sell 80,000 and commission is $7,200 at an effective 4%. Sell $220,000 and it is $8,000 + ,600 = $9,600, an effective 4.36%. Sell $260,000 and it is $8,000 + $4,800 = 2,800, an effective 4.92%. The effective rate creeps toward the accelerator without ever reaching it, which is exactly how the company keeps its total cost of sales inside budget while still making the overachiever's marginal hour twice as valuable.

To model quota attainment with this calculator, enter cumulative period revenue as the sale amount and the quota as the tier-1 threshold. The band breakdown then shows base-plan earnings and accelerator earnings as separate lines.

What reps should check before signing

Ask four questions about any written plan. First, what is the base: list price, net of discounts, or gross margin? A margin-based plan can halve the number without changing the percentage. Second, when does commission become payable — at order, at invoice, or at cash collection? Cash-collection plans transfer the customer's payment risk onto the rep. Third, is there a clawback if the customer cancels or refunds inside a set window, and how long is that window? Fourth, is any draw recoverable, and does the balance reset each year or roll forward indefinitely?

Caps deserve their own question. A plan with an accelerator and a cap is a plan that stops paying at exactly the moment the rep is most productive, and it is the single most common cause of deals slipping intentionally into the next quarter.

Limitations of this calculator

The maths here is deliberately transparent: flat is sale x rate, tiered is band one x rate one plus band two x rate two, base plus is a fixed amount added to the flat result. It does not model income tax, national insurance or self-employment tax, and it does not handle splits between multiple reps, three or more bands, per-product rate tables, or SPIFF bonuses. It also assumes one currency and takes the sale amount exactly as entered, so if your plan pays on margin, enter the margin. For a two-band plan, an accelerator against quota, or a simple base-plus-percentage offer, the numbers it produces are the same ones payroll will produce — and the effective-rate line is usually the number worth arguing about.