How is a flat-rate sales commission calculated?
Flat-rate commission is the simplest structure: Commission = Sales Amount × Commission Rate. Example: A sales rep closes $85,000 in a month at a 7% flat commission rate → $85,000 × 0.07 = $5,950 in commission. This is applied consistently across all sales regardless of volume. The key variable is whether the rate applies to gross sales (total sales value before any deductions) or net sales (after returns, discounts, and allowances). Net commission is more common in B2B and SaaS — it protects the company from paying commission on revenue that is reversed.
How do tiered (accelerator) commission structures work?
Tiered commission structures increase the commission rate as sales exceed thresholds, incentivising reps to exceed quotas. Example: 0–$50,000 in sales: 5% commission; $50,001–$100,000: 7%; above $100,000: 10%. A rep who sells $120,000 earns: ($50,000 × 5%) + ($50,000 × 7%) + ($20,000 × 10%) = $2,500 + $3,500 + $2,000 = $8,000 total commission. Some structures use a "stacking" model (higher rate applies retroactively to all sales once a tier is crossed) — these are more aggressive and less common. Tiered structures are widely used in software sales, insurance, real estate, and retail wholesale.
What is the difference between commission on gross sales vs net sales?
Gross sales commission is calculated on the full invoice value before any deductions. Net sales commission is calculated after subtracting returns, refunds, discounts, and sometimes cost of goods (cost-plus models). Example: A $10,000 deal with a $1,500 discount and $800 in returns: Gross commission at 8% = $10,000 × 0.08 = $800; Net commission at 8% = ($10,000 − $1,500 − $800) × 0.08 = $7,700 × 0.08 = $616. Net commission is fairer to employers (they don't pay for revenue that doesn't materialise) and incentivises reps to negotiate on value rather than volume. Gross commission is simpler to administer.
How does split commission work when multiple reps are involved in a sale?
Split commission divides one deal's commission between multiple parties who contributed to the sale. Common scenarios: Inside/outside split — an inside sales rep (SDR) who sourced the lead gets 20–30%, the account executive who closed gets 70–80%. Manager override — a sales manager may earn 1–2% on all their team's sales in addition to their base. Geographic split — if a national rep and a local rep both touched the account, they split (e.g. 60/40). Referral split — a partner or affiliate who referred the deal gets a referral commission (typically 5–15%). Splits are documented in commission plan agreements. Example: $10,000 deal at 8% = $800 total → SDR gets $240 (30%), AE gets $560 (70%).
What is OTE (On-Target Earnings) and how does it relate to commission?
OTE (On-Target Earnings) is the total compensation a sales rep can expect to earn if they hit 100% of their quota — it equals base salary plus target commission. Example: OTE of $120,000 with a 50/50 split = $60,000 base + $60,000 target commission. If the rep's annual quota is $1,000,000 in revenue, their target commission rate is $60,000 ÷ $1,000,000 = 6%. OTE is the benchmark used when recruiting salespeople and designing comp plans. Industry benchmarks: Base/variable splits of 60/40 to 70/30 are common in enterprise SaaS; 50/50 in transactional sales; 80/20+ in account management roles with lower hunting requirements. Reps at 150% of quota should typically earn 2× their target variable (accelerators).