More often than not, sales professionals get paid on commission. This is a type of payment method wherein you receive a part or a percentage of the sales price of the merchandise you sell. Sometimes, the commission would be your only earnings, but there are also times when the commission would be an additional incentive for you as a salesperson. You can use this commission calculator to compute how much you would earn based on different factors.
How to use the commission calculator?
Just like any other online calculator, you can use this commission rate calculator easily without having to compute your commission manually. Follow these easy steps to use this convenient tool:
- First, input the Sale Price of the item which is a monetary value.
- Then, input the percentage of your Commission.
- Finally, if you have any Extra Commission or Bonus, then input the monetary value as well.
- After entering all the values, the calculator will automatically generate your Commission Amount and the Real Revenue.
What is commission?
Commission is the percentage amount paid to a salesperson. It can either be a fixed amount or a flexible amount. If you’re computing your commission using an online percent commission calculator, you need to know all the values to input into the online tool.
Usually, the commission would depend on the total amount of the product along with other factors such as net and gross profit. Sometimes, businesses offer a profit-based commission to their salespersons. In such a case, there is a significant difference between the profits one would earn on varying products. This may be an extra incentive to the salesperson who can sell the product at the most profitable price.
For most businesses, sales commissions are a standard method of compensating their employees. Compared to standard methods of compensation, sales commissions are more dynamic as they’re based on the salesperson’s performance.
There are also times when a commission is the method of payment in the world of real estate. In such cases, you can use a real estate commission calculator to determine how much you’ll earn each time you make a sale.
How to calculate commission?
When a salesperson, a broker or any other type of financial agent closes a deal or makes a sale, he would get a commission from it. This would be a percentage of the product’s selling price whether it’s a house or any other type of goods. Aside from using this commission calculator, you can manually compute what you’ll earn using this commission formula:
Commission = Sale amount × Commission percentage
What is a fair commission rate for sales?
There are many reasons for employers to pay commissions to their salespersons or employees. But the main reason for this is to keep the employees motivated to do their best so that they earn a lot from commissions.
Furthermore, employers can provide good compensation to industrious employees because they’re actually earning their own salaries. There are also companies which give employees a base salary with the commission as an added incentive to compensate for lean times. When it comes to sales, employers should set a fair commission rate. They can do this by following these simple steps:
- Come up with a basic salary for the employees. It should be enough for the employee to get by financially but it should also be low enough that the employee will feel motivated to earn more through the commission. The basic salary will depend on the employment location as well as the job type.
- Think about how much the best salespersons in the company should earn. This value will depend on the company’s location and the products that your company sells. It should be a high value but still attainable.
- Create the commission scheme by determining what percentage of sales the company would award to its employees each time they make a sale. Usually, 5% is already good enough, but some companies even go as high as 20%.
- The company has to pay its employees at least once a month. The more often the employee gets paid, the more he will feel motivated to meet his sales goals.
What are the different types of commission rates for sales?
Salespeople differ from other types of workers, especially in terms of how they get paid. Aside from their base salary, they would receive a commission based on how much they’re able to sell within a given time period. Commissions come with their own distinct tax rules, and you can calculate them in different ways:
For this type of commission, salespeople only earn whenever they make a sale, and they don’t receive a base salary. Companies who offer this type of commission do so to motivate their employees more or so that they can reduce overhead costs. Experts see this type of commission as polarizing. Although it might make a lot of sense for sales which have a high yield such as real estate, it’s not ideal in industries or companies where the process of buying extends over a period of months. To compute straight commission, use this formula:
Earnings = Sale x Commission Rate
Base pay plus commission
Most people see this as the “best medium” when it comes to paying employees of sales. This involves giving the employees a basic salary along with a chance to earn commissions with each sale that they make. This type offers employees stability as well as added incentives for good performance. But when it comes to the perfect ratio of commission to guaranteed compensation, there is no standard value. You can compute this commission with the following formula:
Earnings = Base Salary + (Sale x Commission Rate)
Draw against commission
This is a lot like the straight commission where the employee earns commission based on what he’s able to sell. But there’s a slight difference. With this type of commission, the employers give an advanced payment to their salespeople then subtract that amount from the commissions he earns. You can compute this commission using this formula:
Earnings = (Sale x Commission Rate) – Advance Payment
Finally, this type of commission involves tiers wherein an employee’s commission rate increases when he moves up in the tiers which the company sets. For instance, a salesperson may earn a 10% commission while he’s in the first tier. When he moves up, his rate goes up to 20%, and so on.