Common Sales Commission Structures: An Overview

There is no single commission structure that works best for all teams. As a manager, it’s up to you to choose the one that best supports business needs and motivates reps for the foreseeable future.

Some of the most common sales commission structures include:

• Base salary plus commission: Reps receive a base salary independent of quota in addition to commissions for each sale.
• Commission only: Reps only receive commission payments for the sales they make.
• Tiered commission: Reps earn a variable commission rate depending on how much they’ve sold, with different sales performance tiers offering different payouts.
• Draw against commission: Reps receive a set amount of their monthly commission payments upfront that they must repay through future commission payouts.
• Territory volume commission: Reps earn commissions based on the total sales for their region(s). In shared territories with more than one rep, the commissions may be divided between them.
• Gross profit commission: Reps earn commissions based on the profit from products and services rather than the total amount sold. 
• Multiplier commission: Reps earn a standard commission based on the percentage of each sale, but this amount is multiplied by factors like exceeding quota or selling special products. 

As a sales manager, you may use a combination of these commission structures to incentivize different behaviors and outcomes within your team. For example, you might offer a base salary plus commission to provide stability for new hires while using tiered commissions to motivate experienced reps to exceed their quotas.  

How to Calculate Sales Commissions

At a fundamental level, there is the sales commission rate: the percentage of a sales price paid to an individual for their efforts in selling a product or service. This rate is typically based on the amount of revenue or profit generated by the sale, and it can vary depending on the industry, company, and type of sale.

Basic Formula (Straight Commission)

The basic formula for a percentage-based sales commission: 

Total Sales ($) x Commission Rate (%) = Total Commission ($)

Example: A salesperson receives a 5% commission on all sales they make, so if they sell $10,000 worth of products in a month, they will earn an additional $500 in commission. This commission is in addition to their regular salary or wages, so if they make $2,000 per month, their total monthly earnings would be $2,500.

But again, that’s the basic formula. There are more!

Before we go into some of the different commission structures, know that all are variable commissions. Oxford Languages defines a variable as “an element, feature, or factor that is liable to vary or change.”

Variable commission is a “catch-all” for any type of commission based on the amount of revenue or products/services sold rather than a fixed salary. As this infographic highlights, more than half of reps receive 25 to 49% variable pay. 

However, they’d prefer that number to be at least a 50/50 split (or even higher variable proportion). The good news? Most managers (69%) agree!

So, what are the common types of variable sales commissions? 

1. Graduated or tiered commissions: This type of commission structure rewards salespeople for reaching specific sales targets, with higher commissions paid for higher levels of sales.
2. Gross profit (or gross margin) commission: Commission is calculated based on the percentage of the gross profit margin of each sale.
3. Commission bonuses: Some companies offer bonuses or incentives for salespeople who exceed sales targets or milestones.

In short: Different commission rate formulas can be used, such as graduated commission rates that pay commissions based on sales tiers, gross profit commission rates that pay commissions depending on the amount of profit a product brings in, and bonus commission rates that are paid when specific sales goals are met. Each commission rate formula has pros and cons, so it’s important to understand how each type works before deciding which rate is best for a business. 

Some commission structures have a maximum amount of commission that a salesperson can earn, called commission caps. With commission caps, businesses can adjust their commission structures as needed to make sure they stay within budget. For example, a salesperson might have a commission cap of $500 per month, so even if they make more than $10,000 in sales, they would still only earn $500 in commission.

Now, let’s look at each of these commission rate examples.

Graduated or Tiered Commission

In a graduated or tiered (often used interchangeably) commission structure, the percentage of commission you earn increases as you sell more products. Multiple commission levels or "tiers" correspond to different sales volume milestones. 

Are you looking to motivate your sales team? Hit certain sales milestones? Launch a new product or service? Enter a new market?

If so, a graduated commission structure may be a good option. This model is often used in industries where salespeople have the potential to earn significant amounts of money through commissions, such as real estate, automobile, insurance, and financial services. 

Here’s an example of what this could look like: 

• For sales between $0 and $10,000, the commission rate is 5%
• For sales between $10,001 and $20,000, the commission rate is 7%
• For sales over $20,001, the commission rate is 10%

As you can see, there’s an incentive to sell more because the commission rate increases at each level. So, if you crack the $10,000 level, you’ll bump to a 7% commission rate.

There are often “additional incentives” associated with a tiered commission structure — bumps for selling new products or services, selling add-ons, upgrades, and so on.

In layman’s terms, the formula for calculating tiered commission is multiplying the salesperson's sales by the appropriate percentage for each tier. 

Using the example above, let’s say they made $25,000 in sales. Commission is calculated as follows:

1. For the first $10,000 in sales, the commission is $10,000 x 5% = $500
2. For the next $10,000 in sales (between $10,000 and $20,000), the commission is $10,000 x 7% = $700
3. For the remaining $5,000 in sales (over $20,000), the commission is $5,000 x 10% = $500
4. The total commission is $500 + $700 + $500 = $1,700

To calculate tiered commission in Excel, you can use the following formula:

=SUM(IF(A1:A10<=B1,A1:A10*C1,0), IF(A1:A10>B1,(A1:A10-B1)*D1,0), IF(A1:A10>B2,(A1:A10-B2)*E1,0))

In this formula, A1:A10 is the range of cells containing the sales amounts, B1 is the upper limit of the first tier, C1 is the percentage for the first tier, D1 is the percentage for the second tier, B2 is the upper limit of the second tier, and E1 is the percentage for the third tier.

Again, using the example above, you could use the following formula:

=SUM(IF(A1:A10<=10000,A1:A10*0.05,0), IF(A1:A10>10000,(A1:A10-10000)*0.07,0), IF(A1:A10>20000,(A1:A10-20000)*0.1,0))

This formula will calculate the commission for each sale in the range A1:A10, based on the tiered commission structure. The SUM function is then used to add the commissions for all the sales in the range to give the total commission earned.

Gross Profit Commission

As indicated by this commission structure, gross profit (or gross margin) is tied to the profitability of a specific sale. 

Not all sales are created equal. Some have higher profit margins compared to others. If you sell more high-profit margin deals, you’ll make more commission. More low-profit margin deals ... less commission. Note: the commission rate is usually the same, but the total commission will vary.

A gross profit commission calculator could look like this: 

Revenue ($) - Costs ($) = Gross Profit Margin ($) x Commission Rate (%) = Total Commission ($)

Example: You close a $100,000 deal. However, the cost of that business was $10,000. The gross profit margin is $90,000. If you receive a 10% commission, that would equal $9,000 in commission.

Note: If this were a “straight” commission model, you’d earn $10,000 in commission (10% of $100,000).

To calculate gross profit commission in a spreadsheet, you can use the following formula:

=(SUM(A1:A10)-SUM(B1:B10))*C1

In this formula, A1:A10 is the range of cells containing the sales amounts, B1:B10 is the range of cells containing the cost of goods sold, and C1 is the commission percentage.

So, if you want to calculate a 10% commission on the gross profit of sales in the range A1:A10, with the cost of goods sold in the range B1:B10, you could use the following formula:

=(SUM(A1:A10)-SUM(B1:B10))*0.1

This formula will first calculate the gross profit for each sale in the range A1:A10, by subtracting the cost of goods sold from the sales amount. It will then multiply the gross profit by the commission percentage to calculate the commission for each sale. The SUM function is then used to add up the commissions for all the sales in the range to give the total commission earned.

Commission Bonuses

Commission bonuses are typically based on performance or delivery of expected objectives and results, giving employees a tangible reward for their hard work beyond a salary increase. They are typically leveraged to motivate employees to focus on important areas of the business and drive positive results.

For example, a salesperson might earn a $1,000 bonus if they exceed their sales target by a certain amount.

To calculate a commission bonus in a spreadsheet, you can use the following formula:

=IF(A1>B1,C1,0)

In this formula, A1 is the sales amount, B1 is the threshold sales amount at which the bonus is earned, and C1 is the bonus amount.

For example, if you want to calculate a $1,000 bonus for sales over $20,000, you could use the following formula:

=IF(A1>20000,1000,0)

This formula will check whether the sales amount in cell A1 is greater than $20,000. If it is, the formula will return the bonus amount of $1,000. If it is not, the formula will return 0.

You can use this formula for each sales amount in a range of cells and then use the SUM function to add up the bonuses for all the sales in the range to give the total bonus earned. For example, if you have sales amounts in the range A1:A10, you could use the following formula to calculate the total bonus earned:

=SUM(IF(A1:A10>20000,1000,0))

This formula will apply the IF formula to each sales amount in the range and then use the SUM function to add up the bonuses for all the sales in the range to give the total bonus earned.

Revenue-Based Commission

A revenue‑based commission is one of the simplest structures—sales reps earn a commission purely as a percentage of the revenue generated. 

For example, say a sales rep receives a 10% commission on the revenue generated from their sales actions. If they sell products that produce $50,000 in revenue, they will see a $5,000 commission on their next payment because revenue multiplied by the commission rate equals the commission.

However, you may want to account for things like revenue from multiple product lines, the possibility of returns or cancellations, or even splitting revenue among several reps. For example, if you’re tracking revenue per transaction or per product category, you might calculate commissions on each revenue line before summing them up.

The basic formula is simple:

Revenue ($) x Commission Rate (%) = Total Commission ($)

If you have revenues from different sources (say, Regions or Product Lines), you could write:

(Rev1×Rate1) + (Rev2×Rate2)+…= Total Commission ($)

In Excel, if cell A2 contains revenue from Product Line 1 and B2 holds the commission rate (expressed as a decimal), then the commission for that line is:

=A2*B2

If you have multiple lines (say, revenue in cells A2 through A10 and a common commission rate in cell B2), you might use:

=SUM(A2:A10)*B2

Or if each product has its own commission rate in B2:B10:

=SUMPRODUCT(A2:A10, B2:B10)

Residual Commission

Not all products or services are one-time sales. Subscriptions or Software-as-a-Service (SaaS) services are billed to customers regularly, typically every month or every year. 

In a residual commission agreement, sales reps earn a commission each time the customer is billed. This commission formula recognizes future potential, so reps who keep customers on longer earn more than reps who make a sale but can’t keep clients. It’s one of the few commission structures directly tied to customer lifetime value (LTV) and recurring revenue.

Let’s take the example of a sales rep who brings on a new SaaS client. The software's monthly subscription cost is $5,000. If the rep’s commission is 5%, they can earn $250 monthly without pitching another lead or closing a new sale. They only need to keep that existing client happy and maintain their agreement to be billed for future months. 

Here’s the formula: 

Monthly Revenue ($) x Commission Rate (%) = Total Commission ($)

For this formula, the monthly revenue ($5,000) gets multiplied by the commission rate (5%) to get the residual commission earned each month ($250).

In a spreadsheet, simply put the following formula into cell C2:

=A2*B2 

In this case, cell A2 represents the monthly revenue amount, and B2 represents the commission percentage. Multiply them to get the commission earned, showing up in cell C2.  

Accelerated Commission

An accelerated commission structure works like a standard, tiered commission but with accelerators that reward higher performance milestones. Rather than simply paying a different flat commission rate for each tier, it may only reward higher performance above certain sales quotas but at a much more aggressive rate. It’s designed to reward highly motivated reps to drive their performance even higher over time. 

So, if a rep earns a base commission of 10% but has an accelerated rate of 15% on all sales above their $100,000 monthly quota, they could see payouts like this:

For the first $100,000 (under quota), they get 10%, or $10,000. But on the next $20,000 (above quota), they earn 15%, or $3,000. 

The Excel formula would look something like this:

=IF(Revenue > Threshold, (Threshold * Base_Rate) + ((Revenue - Threshold) * Accelerated_Rate), Revenue * Base_Rate) 

For the example we shared above, you could put the following formula into the E2 cell:

 =IF(A2>B2, (B2*C2)+((A2-B2)*D2), A2*C2) 

So, a revenue of $120,000 would be entered into the A2 cell, and the threshold of $100,000 would be entered into the C2 cell. Next, add the 15% accelerated rate in cell D2. Your result of the $13,000 commission should show up in cell E2. 

Territory-Based Commission

Territory-based commission, also called a territory volume commission, rewards sales reps based on the total sales volume for a territory, regardless of their role in revenue. 

This method promotes teamwork among reps, as it pays everyone the same amount for shared territories. It can also be used for territories with just one rep or for reps with more than one territory at a time.

Let's say a rep manages Region A, which had $30,000 in sales last month, and Region B, which had $20,000. If the same rep has an 8% commission rate, they will earn $2,400 and $1,600, respectively, for a total of $4,000. (If this territory is shared between two reps, they may both earn that commission amount or divide it, depending on how their sales compensation plan is set up.)

Here is an example formula for territory sales in an Excel spreadsheet:

=SUM(Sales_Region) * Commission_Rate 

In our example above, the total of all territory earnings (SUM)(Sales_Region) gets multiplied by the commission rate to get our $4,000 earnings. 

For our Excel spreadsheet, we’ll put the following formula in cell D2:

 =(A2+B2)*C2

In this formula, Region A’s earnings are put into cell A2, Region B’s into B2, and so on to total them together. This total amount is multiplied by the amount in C2, or the commission rate. The total commission appears as the product in D2.  

Draw Against Commission

In a draw against commission, sales reps receive a set amount of their commission before they earn it. If they fail to meet the quota needed to cover what they’ve been paid, the overdrawn amount will come from future commissions. 

For example, say a rep earned $2,500 in commissions for the month but was already paid $2,000 as a set monthly draw against those commissions. They will receive the remaining $500 in commissions at the next payout.

The formula for drawing against commissions looks like this:

=MAX(Commission - Draw, 0) 

For our example, the rep’s $2000 already-paid commissions (or draw) get subtracted from the earned commissions to find the amount left to be paid.

In an Excel document, the below formula would be entered into cell C2:

=MAX(A2-B2, 0) 

The commission earned goes into cell A2, with the draw amount in cell B2. 

The resulting commission left to be paid then appears in cell C2. 

Also, the converse can happen when a sales rep doesn’t make their quota. For example, a rep may only earn a $2000 commission (A2) but take a $2500 draw (B2). In this case, the draw is more than the commission, resulting in -$500 in the C2 cell. 

Automate Sales Commission Calculations With CaptivateIQ

While most sales commission calculations might not seem too complicated, they quickly add up, as you have to input, monitor, and adjust Excel sheets constantly. As you scale, the complexity grows exponentially with more sales reps, varied commission structures, and multiple product lines to track.  

CaptivateIQ simplifies the entire process. It integrates with your existing tech stack (CRM, ERP, HRIS) to automatically pull in sales data and calculate commissions in real-time. Using an intuitive visual interface, you can easily design and modify commission plans, from simple percentage-based structures to complex multi-tier systems with accelerators and special incentives.

The result is a transparent, error-free commission process that saves hours of admin work while keeping your sales team motivated. Sales reps get instant visibility into their earnings through personalized dashboards, while sales leaders and finance teams get powerful analytics to optimize compensation plans and forecast costs. No more spreadsheet nightmares—just accurate, automated commission management that scales with your business.

CaptivateIQ helped us automate portions of our commission processes, freeing up time to focus on streamlining and exploring new ways to manage the parts that couldn't be automated. A process that was once completely manual and took 5-6 hours a month to prepare statements has been trimmed to 2.5 hours each month. — Lynn Bell, Vice President, Revenue Enablement, DataBank IMX

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