Guide

How to calculate commission

Commission is simple only on the surface. The basic formula is easy, but real plans layer in tiers, caps, clawbacks, payout timing, and different definitions of what actually counts as commissionable revenue.

Basic formula Worked examples Tiers and accelerators Common errors FAQ

Basic commission formula

Commission = commissionable amount × commission rate

If a rep closes a $50,000 deal and the plan pays 5% commission on that amount, commission is $2,500. That is the cleanest case.

Many plans do not pay on the total contract value. They may pay on collected revenue, gross margin, monthly recurring revenue, units, or net value after discounts.

Worked examples

Simple commission: $80,000 sale × 4% = $3,200 commission.

Tiered commission: 5% on the first $100,000 and 7% on the next $50,000. At $150,000, commission is $8,500.

Cap applied: If the plan caps payout at $8,000, the rep would not receive the full $8,500.

Tiers, accelerators and caps

Feature	What it does	Why it changes behavior
Tier	Raises the rate after a threshold.	Encourages reps to push harder after early milestones.
Accelerator	Steepens payout above target.	Can make the upside very attractive for top performers.
Cap	Stops or limits payout growth.	Can reduce motivation if upside is limited.
Clawback	Reduces payout after the fact.	Protects the company but increases income uncertainty.

Common errors

Applying the highest rate to the full amount.

Tiered plans often apply the higher rate only to revenue above the threshold.

Ignoring exclusions.

Discounted deals, renewals, or unpaid invoices may not count the same way.

Forgetting timing.

Closing a deal and getting paid for it are not always the same event.

FAQ

Is commission calculated before tax?

Usually yes. Tax withholding is separate from the plan formula itself.

What is the difference between commission and bonus?

Commission is often tied to a rate on sales or production, while bonus frequently depends on target attainment or broader scorecard logic.

Can a commission plan be uncapped?

Yes. Some companies use uncapped plans to maximize upside, while others use caps to control payout cost.

Reviewed: 2026-03-13

Final payout rules come from the employer’s plan documents and payroll process.

Try the commission calculator

A better way to sanity-check a commission plan

After you understand the formula, ask three harder questions: what amount is actually commissionable, when does payout become earned, and what can reverse it later. Those questions usually matter more than the headline rate.

What to confirm in writing

Whether the plan pays on bookings, billings, collections, margin, or units
Whether team splits or overlays reduce the amount you keep
Whether cancellations or churn trigger clawbacks

Why reps get surprised

The rate looked strong, but the commissionable base was narrow
The payout timing was later than expected
The plan used caps or holdbacks that were easy to miss