Sales Commission: Types, Formulas & How to Calculate

Whether you’re a sales rep evaluating a job offer or a business owner designing compensation plans, understanding how commission structures work helps you calculate earnings accurately and choose the right model. Here’s how each type works with real calculation examples.

Types of Commission Structures

Flat-rate commission pays a fixed dollar amount per sale regardless of the sale price:

Earnings = Number of Sales × Flat Rate

Example: A car salesperson earning $500 per vehicle who sells 8 cars/month = $4,000 in commission.

Percentage-based commission pays a percentage of the revenue generated:

Earnings = Total Sales × Commission Rate

Example: A real estate agent at 3% commission on a $400,000 home = $12,000.

Tiered (graduated) commission increases the rate as you hit higher sales thresholds:

Sales Volume	Commission Rate
$0–$50,000	5%
$50,001–$100,000	8%
$100,001+	12%

Example: A rep sells $125,000 in a month:

• First $50,000 × 5% = $2,500
• Next $50,000 × 8% = $4,000
• Final $25,000 × 12% = $3,000
• Total commission: $9,500

Common Commission Models by Industry

Industry	Typical Structure	Standard Rate
Real Estate	% of sale price	2.5–3% (per agent)
Software/SaaS	% of ACV + accelerators	8–12% base, 15–20% above quota
Insurance	% of premium (year 1)	30–100% first year, 5–10% renewal
Retail	% of personal sales	1–10%
Recruitment	% of placement salary	15–25% of first-year salary
Advertising	% of media spend	10–20%
Auto Sales	Flat per unit or % of profit	$200–$800 per unit or 20–25% of gross profit
Financial Services	% of assets or fees	0.5–1.5% of AUM

Draw vs Commission and OTE

Draw against commission provides a guaranteed minimum payment (the “draw”) that your future commissions repay. If you earn less in commission than the draw amount, you “owe” the difference.

Example: $4,000 monthly draw with 10% commission.

• Month 1: Sell $30,000 → Commission $3,000 → Draw covers the $1,000 gap → You owe $1,000
• Month 2: Sell $60,000 → Commission $6,000 → Repay $1,000 draw debt → Take home $5,000

OTE (On-Target Earnings) is your expected total comp when hitting 100% of quota:

OTE = Base Salary + Expected Commission at 100% Quota

A role advertised at “$80,000 base + $80,000 OTE commission = $160,000 OTE” means you’d earn $160,000 total only if you hit your full quota. Most reps should evaluate the realistic attainment rate — if only 40% of the team hits quota, adjust your expectations accordingly.

When negotiating, focus on the commission rate at attainable levels, not just the ceiling. A plan with high accelerators above 150% of quota sounds great but means less if quota is unrealistic.

Calculate instantly with our Commission Calculator.