Business & pricing
Commission: Definition, Formula and Example
A commission is compensation calculated from an agreed measure of sales or transactions under a stated payment rule.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Sales commission; Tiered commission.
How it works
A flat percentage applies one rate to eligible sales. A marginal tier applies each rate only within its band; a retroactive tier can instead change the rate on a larger amount. Returns, exclusions, thresholds and base salary depend on the agreement.
Flat commission = eligible sales × commission rate
Use a decimal rate and state whether the sales base includes tax, refunds or discounts. Distinguish commission from total compensation.
$20,000 eligible sales at 4%
Assume one flat rate and no excluded transactions.
- Commission: $20,000 × 0.04 = $800.
- If there is a separate $2,000 base salary, total gross compensation is $2,800.
The commission is $800; base salary is a separate component.
No tiers, refunds, caps, taxes or benefit deductions.
Try these example inputsA tier may not apply its top rate to every sale
For a marginal schedule, earlier bands keep their own rates. Confirm whether a target triggers an incremental band, a bonus or a retroactive rate before using a tiered calculator.
Explore with a calculator
- Commission Calculator
Solve a flat-rate unknown or calculate explicitly entered marginal commission tiers.
- Salary Calculator
Convert total pay across frequencies without assuming commission guarantees.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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