Sales Commission and Tiered Payout Calculator

Commission plans look simple until the first month in which sales cross a threshold. Then the same sales can pay very different amounts depending on how the tiers are applied, and a salesperson and a manager can both be right according to their own reading of the plan. This page works out the commission under a flat rate and under two common kinds of tiers so that you can see exactly what each one pays.

Three ways to pay

A flat plan pays one percentage on all sales. A band plan, also called marginal, pays each slice of sales at the rate of the tier it lies in, exactly like income-tax bands. A whole-amount plan, sometimes called retroactive or cliff, pays the rate of the highest tier reached on every sale in the period. The selector at the top of the page chooses between them, and a box for the tiers or the flat rate appears to match.

Entering the tiers

Each tier is one line: the sales amount at which it starts, a pipe and the percentage, such as 0 | 3. The page sorts them, rejects two tiers that start at the same amount, and reports a line it cannot read with an example. There is no limit on the number of tiers. If the first tier starts above zero, sales below it earn nothing and a note says so. Optionally enter a base salary or draw, and the page adds it to the commission.

A worked example

The default is 180,000 of sales with tiers of 3% from 0, 5% from 50,000, 7% from 100,000 and 10% from 150,000, paid by band. The first 50,000 earns 1,500, the next 50,000 earns 2,500, the next 50,000 earns 3,500 and the last 30,000 earns 3,000. The commission is 10,500, an effective rate of 5.83%. Switch to the whole-amount method and the 10% tier applies to everything: 18,000, an effective 10.00%, and the table shows all 180,000 in the top row. The third sample is a flat 5% on 60,000 of sales with a base of 2,500: the commission is 3,000 and the total pay 5,500.

Why the effective rate matters

The headline rate of the top tier is rarely what you earn. In the band example the top tier is 10%, but the effective rate is 5.83%. When you negotiate or compare plans, compare effective rates at the sales levels you expect to reach, not the highest percentage in the table. The page makes that easy by showing it as a separate line.

Edge cases

A sales figure of zero gives zero commission. A rate of 0% in a tier is allowed, which is useful for a quota below which nothing is paid. Percentages must be from 0 to 100 and starting amounts cannot be negative. Spaces and commas in numbers such as 50,000 are accepted, and a percent sign after the rate is ignored.

Limits

Real plans often have quotas, caps on total pay, split credit between people, different rates by product, and clawbacks if a customer cancels or does not pay. None of these is modelled. Commission may also be paid on revenue, margin or profit, and the page applies the rate to whatever number you enter as sales. Check the plan document, and ask in writing how a sale that straddles two periods is counted.

Related tools

• Affiliate Commission and Payout Calculator applies the same tier methods to referred sales after refunds.
• Percentage Calculator handles a one-off percentage of any figure.
• Salary Calculator puts base pay and commission on a yearly footing.
• Profit Margin Calculator shows whether the company can afford a rate.