# Commission Calculator

The Commission Calculator can compute any one of the following, given inputs for the remaining two: sales price, commission rate, or commission for a simple percentage commission structure.

## Tiered Commission Calculator

This calculator can calculate more complex commission structures, including tiered commissions and commissions that include a base amount.

### What is a commission?

In sales, a commission is a form of payment that salespeople earn that is tied to how much of a service or a product they sell. Commissions are a method used to motivate salespeople, since the amount they sell directly impacts the amount that they can earn.

A commission, in its simplest form, is some percentage of revenue. For example, a salesperson may earn 3% of whatever they sell. If a product is sold for $100, the salesperson would earn $3 from that sale. This is not the only model however. Others include paying commissions based on profit earned or commissions paid in the form of bonuses. In some cases, salespeople may be paid entirely based on commission, or their earnings could be a combination of hourly pay or a base salary plus commissions.

### Different commission structures

There are many different types of commission structures. In some cases, commissions may be reduced when discounts are granted, making salespeople less likely to provide discounts to make a sale. In others, salespeople might gain commissions based on repeat customers, motivating them to retain customers. Whatever the case, different commission structures provide different motivations to salespeople, and the appropriate commission structure for a given business can help both the business and its salespeople thrive.

This calculator can compute commissions for three different types of commission structures: commission only, base salary plus commission, and tiered commission.

#### Commission only:

In a commission only structure, a salesperson's compensation is based entirely on their sales. In this type of structure, a salesperson will receive some percentage of the revenue. For example, a real estate agent may receive 3% of the house's price. In this case, if the house was sold for $500,000, the agent receive 3% of that sale, or:

500000 × 0.05 = $15000

In this type of structure, the salesperson will be highly motivated to make sales because their compensation is entirely dependent on it. If they cannot make a sale, they earn nothing. The formula for calculating compensation based on this commission structure is:

sale price × commission percentage = compensation

#### Base salary plus commission:

In this type of commission structure, a salesperson earns some base salary. In addition, they may earn a commission based on sales made. For example, a salesperson may have a base salary of $500/month with a commission percentage of 1.5%. In this commission structure, a salesperson who sells a $25,000 car will earn:

500 + 0.015(25000) = $875

If they sell 2 cars at the same price, they will earn:

500 + 0.015(25000)(2) = $1,250

If they sell 1 car for $25,000 and 2 cars for $33,000, they will earn:

500 + 0.015(25000 + 2(33000)) = $1,865

In this type of structure, the salesperson is still motivated to sell more cars, since more cars sold results in a higher compensation. However, this type of structure also ensures some degree of security in that even if no sales are made, the salesperson will still make some base salary. This base salary is typically an amount that is reduced relative to other purely salary-based employment opportunities, so selling product is still a necessary part of this pay structure. The formula for calculating compensation based on this commission structure is:

base salary + commission percentage(n_{1}(sales price) + n_{2}(sales price_{2}) + ...)

where n_{1}, n_{2}, n_{3} and so on indicate the number of items sold for a given sales price. This assumes that more than one type of product is sold. If only one product is sold, then the formula is:

base salary + commission percentage(n × sales price)

The "Sales Price" input of this calculator is the total accumulated sales amount.

#### Tiered commission calculator:

In a tiered commission structure, commission changes based on the total amount of sales made. For example, a salesperson may earn a 3% commission on sales between $0-20,000. For sales between $20,000-25,000, they may earn a 5% commission, and for sales between $25,000-30,000, they may earn a 10% commission, and so on. Note that this does not mean that a salesperson who sells $27,000 worth of product would earn 10% of $27,000. They only earn 10% on the amount above $25,000, so a salesperson who sells $27,000 worth of product would receive a total commission of:

0.03(20000) + 0.05(5000) + 0.1(2000) = $1,050

In this type of commission structure, salespeople are motivated to sell more because their commission rate increases the more they sell. The formula for determining commission earned based on this commission structure is:

c_{1}(t_{1}) + c_{2}(t_{2} - t_{1}) + ... + c_{n}(sales price - t_{(n-1)}) + ...

where c_{1}, c_{2}, c_{n} are the commission percentages for each respective tier and t_{1}, t_{2}, t_{n} are the maximum values in each given tier, where n in both cases is the highest tier reached. In the example above, the highest tier reached is the third commission tier, t_{3}, so c_{n} is c_{3} and t_{(n-1)} is t_{2}. Working the above problem out using the formula:

0.03(20000) + 0.05(25000 - 20000) + 0.1(27000 - 25000) = $1,050