"What's 8% of $127,000?" If your sales reps are pulling out calculators after every deal, something's wrong. Commission calculations should be clear, predictable, and - ideally - automatic.
But reality often looks different. Tiered rates, accelerators, split deals, clawbacks... Commission structures have become increasingly complex. And complexity leads to errors, disputes, and demotivated sales reps.
In this guide, you'll get the formulas, methods, and examples you need to calculate commission correctly - no matter how complex your model is.
Let's start with the foundation:
Commission = Sales Amount × Commission Rate
Simple, right? If your sales rep closes a deal for $100,000 with a 10% commission rate:
$100,000 × 10% = $10,000 in commission
The simple formula works when:
But most modern sales organizations need more nuance. Let's look at the different calculation methods.
| Commission Type | Formula | Best For |
|---|---|---|
| Flat rate | Sales × Rate | Simple, transactional sales |
| Tiered | Each tier × tier rate | Motivate higher volume |
| Accelerator | Base rate + bonus rate above quota | Reward overperformance |
| Decelerator | Reduced rate below threshold | Ensure minimum performance |
| Gross margin | Margin × Rate | Protect profitability |
Let's go through each one.
The simplest model. One rate for everything.
Formula: Commission = Sales Amount × Commission Rate
Example:
| Deal | Amount | Rate | Commission |
|---|---|---|---|
| Deal 1 | $50,000 | 10% | $5,000 |
| Deal 2 | $75,000 | 10% | $7,500 |
| Deal 3 | $120,000 | 10% | $12,000 |
| Total | $245,000 | 10% | $24,500 |
Pros: Easy to understand and calculate
Cons: No incentive to exceed expectations
Different rates for different sales volumes. Higher volume = higher rate.
Formula: Commission = Σ (Volume in each tier × Tier rate)
Example structure:
| Tier | Sales Volume | Rate |
|---|---|---|
| Tier 1 | $0 - $100,000 | 8% |
| Tier 2 | $100,001 - $250,000 | 10% |
| Tier 3 | $250,001+ | 12% |
Calculation example: A sales rep sells $320,000 in a quarter.
| Tier | Amount in Tier | Rate | Commission |
|---|---|---|---|
| Tier 1 | $100,000 | 8% | $8,000 |
| Tier 2 | $150,000 | 10% | $15,000 |
| Tier 3 | $70,000 | 12% | $8,400 |
| Total | $320,000 | - | $31,400 |
Note: The effective rate is 9.8% ($31,400 / $320,000), even though the top tier is 12%.
Learn more about tiered commission structures and how to design them.
Tired of manual commission calculations?
Prowi handles tiered calculations automatically. Your sales reps see their earnings in real-time - and you avoid errors and disputes.
Book a demo →Higher commission rate when you exceed quota. Designed to reward overperformance.
Formula: Commission = (Sales up to quota × Base rate) + (Sales above quota × Accelerated rate)
Example:
Calculation:
| Component | Amount | Rate | Commission |
|---|---|---|---|
| Up to quota | $200,000 | 10% | $20,000 |
| Above quota | $80,000 | 15% | $12,000 |
| Total | $280,000 | - | $32,000 |
Without accelerator: $280,000 × 10% = $28,000
With accelerator: $32,000 (14% more commission)
This $4,000 difference motivates the sales rep to keep selling after hitting quota rather than "sandbagging" deals for next quarter.
Read more about how accelerators work and when to use them.
Lower commission rate below a minimum threshold. Ensures sales reps don't coast on base salary.
Formula: Commission = Sales × Reduced rate (when below threshold)
Example:
Calculation:
$120,000 × 5% = $6,000
Compare to full rate: $120,000 × 10% = $12,000
The decelerator costs the underperforming sales rep $6,000 - a strong incentive to at least hit the minimum threshold.
Commission based on profit margin, not sales value. Protects company profitability.
Formula: Commission = (Sales Price - Cost) × Commission Rate
Example:
| Deal | Sales Price | Cost | Margin | Rate | Commission |
|---|---|---|---|---|---|
| Deal A | $100,000 | $60,000 | $40,000 | 20% | $8,000 |
| Deal B | $100,000 | $80,000 | $20,000 | 20% | $4,000 |
Same sales price, but Deal A earns twice the commission because of higher margin. This discourages excessive discounting.
When multiple people contribute to a sale, you need a system for splitting commission.
| Model | How It Works | Example |
|---|---|---|
| Fixed split | Predetermined percentage per role | SDR 20%, AE 80% |
| Overlay | Multiple people get full (or partial) credit | AE 100%, SE 25% |
| Territory split | Based on customer location or segment | Regional rep 60%, National rep 40% |
Deal: $100,000 ACV
Commission pool: 10% = $10,000
Split: SDR 20%, AE 80%
| Role | Split % | Commission |
|---|---|---|
| SDR (Sarah) | 20% | $2,000 |
| AE (Mike) | 80% | $8,000 |
| Total | 100% | $10,000 |
Deal: $100,000 ACV
AE commission: 10% = $10,000
SE overlay: 2.5% = $2,500
Total commission paid: $12,500 (125% of "standard" commission pool)
Overlays cost more but ensure specialists are motivated to support deals.
A clawback recovers commission when a customer churns or cancels within a specified period.
| Cancellation Period | Clawback Amount |
|---|---|
| 0-3 months | 100% of commission |
| 4-6 months | 50% of commission |
| 7-12 months | 25% of commission |
| 12+ months | No clawback |
Original deal: $60,000 ACV
Original commission: $6,000 (10%)
Customer cancels: After 5 months
Clawback rule: 50% for 4-6 months
Clawback amount: $6,000 × 50% = $3,000
The $3,000 is deducted from the sales rep's next commission payment.
Automated clawback tracking
Prowi tracks clawback periods automatically and calculates adjustments when customers churn. No spreadsheets. No surprises.
See how it works →Marginal (correct for most): Each tier has its own rate. Selling $320,000 means $100k at 8%, $150k at 10%, $70k at 12%.
Retroactive: Hitting a new tier applies that rate to ALL sales. Selling $320,000 means all $320k at 12%.
Retroactive tiers create "cliff effects" - selling $249,999 vs $250,001 could mean thousands in difference. Most organizations use marginal tiers.
Small rounding errors in individual deals add up over hundreds of transactions.
Solution: Define rounding rules (always round to 2 decimals, round at the end not each step) and apply consistently.
When is commission earned?
Different rules for different deals create confusion. Define one clear policy.
If a customer gets a $10,000 credit, should the commission on that $10,000 be reversed? Often overlooked until it's a big number.
Spreadsheets break. Formulas get overwritten. Copy-paste creates errors. The more complex your commission model, the more errors manual calculations produce.
Understanding the formulas is step one. Making them reliable and scalable is step two.
Most companies start with Excel or Google Sheets. It works until:
| Feature | Spreadsheets | Commission Software |
|---|---|---|
| Calculation accuracy | Error-prone | Automated, consistent |
| Real-time visibility | End of month/quarter | Live, after each deal |
| Audit trail | Manual version control | Complete history |
| Dispute resolution | Back-and-forth emails | Self-service breakdown |
| Time spent | Hours per pay period | Minutes |
Learn more about what commission software is and whether you need it.
Let's put it all together with a real-world example.
Sales rep: Alex
Quarterly quota: $300,000
Commission structure:
| Deal | Amount | SDR | Notes |
|---|---|---|---|
| Acme Corp | $85,000 | Sarah | New business |
| TechStart | $120,000 | Mike | New business |
| GlobalInc | $95,000 | Sarah | New business |
| FastGrow | $50,000 | - | Self-sourced |
| Total | $350,000 | - | 117% of quota |
Up to quota ($300,000): $300,000 × 8% = $24,000
Above quota ($50,000): $50,000 × 12% = $6,000
Total gross commission: $30,000
| Deal | Deal Commission | SDR Split (15%) | Alex Gets |
|---|---|---|---|
| Acme Corp | $6,800 | $1,020 (Sarah) | $5,780 |
| TechStart | $9,600 | $1,440 (Mike) | $8,160 |
| GlobalInc | $7,600 | $1,140 (Sarah) | $6,460 |
| FastGrow | $6,000 | $0 (self-sourced) | $6,000 |
Alex's Q3 commission: $26,400
Sarah's Q3 SDR commission: $2,160
Mike's Q3 SDR commission: $1,440
The best commission model is worthless if your team doesn't understand it.
Learn more about the psychology behind sales motivation.
Commission calculations don't have to be complicated. With the right formulas and - ideally - the right tools, you can:
The formulas in this guide give you the foundation. Automation makes them scale.
Ready to automate your commission calculations?
Prowi handles tiered models, accelerators, splits, and clawbacks automatically. Your sales reps see their earnings in real-time, and you get hours back every month.
Book a demo →