How to Calculate Sales Commission: Flat and Tiered Plans
Calculate commission at a flat rate or with tiers, see why marginal and whole-tier plans pay so differently, and work out total pay with a base salary.
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Free tool: Commission CalculatorCommission plans reward sales, but two plans with the same rates can pay very differently depending on how the tiers work. This guide explains flat and tiered commission with worked examples, and the detail that matters most in a tiered plan, using the free Commission Calculator.
Flat commission
Commission = sales × rate
$85,000 of sales at 5% pays $4,250.
Tiered commission
Tiered plans pay higher rates as sales grow. Take these tiers:
| Sales | Rate |
|---|---|
| Up to $50,000 | 5% |
| $50,000 to $100,000 | 7% |
| Over $100,000 | 10% |
There are two ways the tiers can apply.
Each slice at its own rate (marginal)
Like tax brackets, each slice of sales earns its tier's rate. On $85,000:
- First $50,000 at 5%: $2,500
- Next $35,000 at 7%: $2,450
- Commission: $4,950, an effective rate of 5.82%
Whole amount at the tier reached
The rate of the highest tier reached applies to all sales. $85,000 reaches the 7% tier, so the commission is $85,000 × 7% = $5,950.
The cliff in whole-tier plans
Whole-tier plans create cliffs. At exactly $50,000 of sales, the commission is $2,500; one more dollar moves all sales into the 7% tier and pays $3,500.07. At $120,000, the gap between the methods is large: $8,000 marginal versus $12,000 whole-tier.
Cliffs give a strong push to reach the next tier, but they can also encourage timing tricks, such as holding deals for the next period. Read your plan carefully to see which method it uses.
Base pay and total compensation
Many roles combine a base salary with commission. Total pay = base + commission, so a $40,000 base with the $4,950 marginal commission pays $44,950 for that period. Also check whether commission is paid on bookings or on collected revenue, and whether there are caps or clawbacks.
To see how a pay change compares with inflation, see How to Calculate a Pay Raise.
How to use the Commission Calculator
- Open the Commission Calculator.
- Choose a flat rate or tiered rates and enter your sales amount.
- For a flat plan, enter the rate. For tiers, enter each tier's upper limit and rate, and choose whether each slice earns its own rate or the whole amount uses the tier reached.
- Add your base pay for the same period, if any.
- Read the results: the commission, the effective rate and your total pay, with a chart of commission at different sales levels and a table of commission by tier.
Frequently asked questions
How do I calculate commission?
Multiply sales by the commission rate. $85,000 at 5% is $4,250. With tiers, apply each tier's rate to its slice of sales, or the reached tier's rate to all sales, depending on the plan.
What is a tiered commission structure?
A plan where the rate rises as sales pass set thresholds, such as 5% up to $50,000, 7% to $100,000 and 10% above.
What is the difference between marginal and whole-tier commission?
Marginal plans pay each slice at its own rate; whole-tier plans pay every dollar at the highest tier reached. On $85,000 in the example, that's $4,950 versus $5,950.