Sales Commission Calculator

How Sales Commission Works

Sales commission is compensation paid to salespeople based on their sales performance. It aligns incentives between the company and the salesperson: the more they sell, the more they earn. Commission structures vary widely and can significantly impact both earning potential and sales behavior.

Flat Rate Commission

The simplest structure: a fixed percentage of every sale. If your rate is 10% and you sell $50,000, you earn $5,000. It's easy to understand and calculate, making it popular for straightforward sales roles. However, it doesn't incentivize exceeding targets.

Tiered Commission

Tiered structures reward higher performance with higher rates. For example: 5% on the first $10,000, 8% on $10,001–$50,000, and 12% above $50,000. This motivates salespeople to push beyond each threshold, creating natural momentum toward higher performance.

OTE Explained

On-Target Earnings (OTE) is the total expected compensation when a salesperson meets 100% of their quota. Typically structured as base salary plus expected commission. A role with $50,000 base and $100,000 OTE means $50,000 in expected commission at target.

Commission Clawbacks

Some commission plans include clawback clauses that require salespeople to return commission if a customer cancels within a specified period. This protects the company from paying commission on deals that don't stick, but can create cash flow uncertainty for sales reps.

Tax on Commission

Commission income is generally taxed as regular employment income. In Nigeria, it's included in gross emoluments for PAYE purposes. In the UK, it's subject to Income Tax and NI. Because commission payments can be irregular, tax withholding may differ from regular salary payments.