While many employees are paid on an hourly or salaried basis, commissioned employees are paid based on the value of goods and services that they sell. Commission-based payment is common in certain positions – sales in particular-- where bringing in money is an important part of the job. To calculate commission, you need to understand what system your business uses and any additional factors that may affect your total commission earnings.
Steps
Understanding Your Commission Plan
- Determine what your commission is based on. Typically, commissions are paid based on the purchase price of goods and services that you sold. However, some companies use different commission bases, like the item’s net profit or the item’s cost to the company.[1]
- Ask if there are any products or services excluded from the commission plan. A company may pay you a commission for selling certain products and services but not others.
- Determine the commission rate that your company pays. The commission payment rate could be, for example, 5 percent of the selling price of all goods sold.
- The company may set different commission rates for different types of products. For example, it may pay 6 percent commission on a product that’s hard to sell and only 4 percent commission on a product that’s easy to sell.
- Understand any other nuances in your commission plan. For example, in some plans, your commission rate changes after you sell a certain amount of product.
- In a tier-based commission system, for example, your commission rate might increase to 7 percent after you sell $50,000 worth of product. [2]
Calculating the Commission
- Determine the commission period. Commission payments are usually made on a monthly or biweekly basis. For example, if you’re paid every two weeks, your commission period might be January 1 to January 15. That means that you’re only paid for sales made during January 1 to January 15.
- Calculate your total commission base you made during the period. For example, if you’re paid based on the purchase price of products sold and you sold $30,000 from January 1 to January 15, your total commission base is $30,000.
- If you’re paid a different commission rate for different products, calculate total commission base by product. For example, if sold an equal amount of two products but they have different commission rates, note that you sold $15,000 of Product A and $15,000 of Product B.
- If you’re paid a different commission rate after you sell a certain amount of product, calculate your commission base by tier. For example, if your commission rate increases after $25,000 of sales, your commission base is $25,000 for the first tier and $5,000 for the second tier.
- Multiply your commission rate by your commission base for the period to calculate your commission payment. For example, if you made $30,000 worth of sales from January 1 to January 15 and your commission rate is 5 percent, your commission payment is $1,500.[3]
- If you’re paid different rates for different products, multiply each commission base by the corresponding commission rate and add the resulting figures. For example, say you sold $15,000 of Product A at a 3 percent commission rate and $15,000 of Product B at a 6 percent commission rate. Your commission payment for Product A is $450, your commission payment for Product B is $900, and your total commission payment is $1,350.
- If commission rates vary based on amount of product sold, multiply each commission base by the commission rate for that tier and add the resulting figures. For example, say you sold $30,000 and you’re paid a rate of 4 percent on the first $25,000 and 6 percent on the remainder. Your commission payment is $1,200 for the first tier, $300 for the second tier, and your total commission payment is $1,500.
Making Adjustments as Necessary
- Take split commissions into account. Split commissions are when more than one salesperson is involved in a sale and they share the commission. Alternatively, a regional sales manager may receive part of the commission of the salespeople in their region.[4]
- Assess any additional bonus structures or related incentives. In addition to a straight percentage, a commission structure also can include any number of more complicated incentives for a sales person or other commission-earning individual.[5]
- Look for "top of the pack" bonuses. If you know that your commissions were the top-scoring numbers for a department or team, you may be able to calculate in eligibility for top-performance bonuses.
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