How to Calculate Sales Commission: Flat, Tiered and Base-Plus

Flat percentage commission

The flat model applies one rate to every sale. If your rate is 5% and you sell $50,000 in a month, your commission is 0.05 × 50,000 = $2,500. It is easy to understand and predict, which is why it is common in retail and simple sales roles.

The one thing to nail down is the base. A 5% commission on revenue is very different from 5% on gross profit — if a $50,000 sale carries $30,000 in cost, the profit is only $20,000 and 5% of that is $1,000, not $2,500. Always ask which figure your rate multiplies.

Tiered commission, bracket by bracket

Tiered plans reward higher sales with higher rates. Suppose 5% applies up to $40,000 and 8% on anything above. Sell $50,000 and the first $40,000 earns 0.05 × 40,000 = $2,000, while the next $10,000 earns 0.08 × 10,000 = $800, for $2,800 total.

The classic mistake is applying the top rate to the whole amount. If you wrongly took 8% of the full $50,000 you would get $4,000 — far too much. Marginal tiers work like income tax brackets: each rate only touches the slice of sales inside its band.

Base salary plus commission

This hybrid pays a guaranteed salary plus a commission on sales, balancing security with incentive. With a $2,000 monthly base and 3% on sales, selling $50,000 adds 0.03 × 50,000 = $1,500, so total pay is $2,000 + $1,500 = $3,500. The base cushions slow months; the commission rewards strong ones.

Some plans set a threshold before commission starts, or a draw — an advance recovered from later commissions. Read the plan for these details, because they change your real earnings well beyond the headline percentage.

Frequently asked questions

Is commission calculated on revenue or profit?

It depends on the plan. Revenue-based commission uses the full sale price; profit-based uses the margin after cost. The same rate yields very different pay, so confirm the base before you sign or calculate.

How do tiered commissions differ from a flat rate?

A flat rate pays the same percentage on every sale. Tiers raise the rate as you cross sales thresholds, and each rate applies only to the sales inside its band — like marginal tax brackets, not the whole amount.

What is a commission draw?

A draw is an advance against future commissions, giving a steady income in slow months. It is recovered from later commissions, so a run of weak months can leave you owing the balance back. Check whether a draw is recoverable.

Do I pay tax on commission income?

Yes. Commission is taxable earned income like salary. It may be withheld at a different rate on your payslip, but at year end it is taxed together with the rest of your income under the normal rules.