Sales Commission Calculator
The threshold is the difference between a headline rate and what actually gets paid. Always ask what the rate applies to, not what the rate is.
Total pay
$7,800.00
- Commission
- $4,800.00
- Base pay
- $3,000.00
- Total
- $7,800.00
- Commissionable
- $60,000.00
- Effective rate on all sales
- 4.80%
- The threshold means only $60,000.00 of the $100,000.00 is commissionable, so the headline 8% rate works out at 4.80% across everything sold.
- A threshold — sometimes called a quota or a draw — is the single biggest difference between a headline rate and what actually gets paid. Always ask what the rate applies to rather than what the rate is.
- Check whether commission is paid on revenue or on gross profit. On a low-margin product the two are very different numbers.
About sales commission
A commission plan has three parts and only one of them gets advertised. The rate is the number on the offer letter; the base is what you earn regardless; the threshold is the sales figure you have to clear before the rate starts applying at all.
On $100,000 of sales at 8% with a $40,000 threshold, only $60,000 is commissionable. That pays $4,800, and with a $3,000 base the total is $7,800. The 8% headline works out at 4.8% across everything sold — a little over half of what the number suggests.
Thresholds go by several names — quota, draw, floor — and they behave differently. A quota is usually a threshold like this one. A draw is an advance against future commission, which means a bad month can leave you owing rather than simply earning less. That difference is worth understanding before signing anything.
The other question worth asking is what the rate applies to. Commission on revenue and commission on gross profit are very different on a low-margin product, and plans that pay on revenue can reward discounting heavily — the salesperson keeps their percentage while the business loses its margin.
Tiered plans, where the rate rises above certain volumes, are common and are not modelled here. Work each tier out separately and add them.
What it works out
- Commission on sales above a threshold
- Total pay with a base salary
- The effective rate across all sales
The formula
Commission = (Sales − Threshold) × Rate Total = Base + Commission
$100,000 less the $40,000 threshold leaves $60,000 commissionable. At 8% that is $4,800, and adding the $3,000 base gives $7,800.
The figure worth watching is the effective rate: $4,800 against $100,000 of sales is 4.8%, not 8%. That gap is entirely the threshold, and it shrinks as sales grow — at $200,000 the effective rate would be 6.4%, and it approaches 8% but never reaches it.
Which means the plan is worth very different amounts at different volumes, and comparing two offers on their headline rates is not a comparison. A 6% plan with no threshold beats this one until sales reach $160,000.
Sales below the threshold pay nothing at all in commission, which is the case worth checking before accepting a plan — particularly in a first quarter, or in a seasonal business where some months will always fall short.
- Sales
- For the period. Check whether the plan pays on revenue or on gross profit.
- Rate
- The headline percentage.
- Threshold
- Sales that earn nothing. Also called a quota or a floor.
- Base
- Paid regardless of sales, for the same period.
A worked example
$100,000 of sales at 8% commission over a $40,000 threshold, on a $3,000 base.
That works out to $7,800.00 .
- Commission
- $4,800.00
- Base pay
- $3,000.00
- Total
- $7,800.00
- Commissionable
- $60,000.00
- Effective rate on all sales
- 4.80%
Questions
How is sales commission calculated?
The rate applied to sales above any threshold, plus base pay. $100,000 of sales at 8% over a $40,000 threshold pays $4,800, plus the base.
What is a commission threshold?
A level of sales you have to reach before commission starts. It means an 8% plan can pay an effective 4.8% — always ask what the rate applies to, not just what it is.
What is the difference between a quota and a draw?
A quota is a threshold: sales below it simply earn no commission. A draw is an advance against future commission, so a bad month can leave you owing money rather than just earning less. The second is considerably riskier.
Should commission be on revenue or profit?
Profit aligns the incentives better. Paying on revenue rewards discounting — the salesperson keeps their percentage of a lower price while the business loses most of its margin.
How do I compare two commission plans?
On the effective rate at the sales volume you actually expect, not on the headline rate. A 6% plan with no threshold beats an 8% plan with a $40,000 threshold until sales reach $160,000.
What is a tiered commission?
A plan where the rate rises above certain volumes — 5% to $50,000, then 8% above it. Work each tier out separately and add them; this calculator handles one rate at a time.
When is commission usually paid?
Commonly when the invoice is paid rather than when the sale closes, and often a month or two in arrears. Clawback clauses for cancellations and refunds are also normal, and worth reading before signing.