How to calculate commission
The formula is one line. The work is in the rules around it — tiers, thresholds, draws and what counts as a sale. Here is each one, with the arithmetic shown.
Updated September 28, 2026
The basic formula
Commission = commissionable sales × commission rate.
$5,000 of sales at 10% is $500. Everything else on this page is a rule about which sales count, or which rate applies.
First decide what counts as a sale
- Gross or net of discounts? Most plans pay on what the customer actually paid.
- Returns and cancellations. Decide whether they come back off next period's commission.
- Tax and tips. Neither is normally commissionable.
- Cost of goods. Some plans pay on margin (price minus cost) instead of price.
Two people using the same rate on different definitions of "sales" will get different answers — and that, not the rate, is where most commission disputes come from.
Tiered commission: marginal vs retroactive
Say the plan pays 5% up to $10,000 and 8% above it, on a $14,000 month.
| Method | Working | Commission |
|---|---|---|
| Marginal | 5% × $10,000 + 8% × $4,000 | $820 |
| Retroactive | 8% × $14,000 | $1,120 |
Marginal tiers pay the higher rate only on sales above the line. Retroactive tiers apply it to everything once the line is crossed, which makes the sale that crosses it worth far more than the others. Both are common; the plan must say which.
A minimum to earn
Some plans pay nothing until a person reaches a share of their goal — say 50% — and then pay on all of their sales. That creates a cliff: at 49% the commission is $0, and one more sale takes it to the full amount. The threshold guide works through why each later sale ends up worth about double its stated rate.
A draw against commission
A draw is an advance paid each period, later settled against commission earned. With a $2,000 monthly draw:
| Month | Commission earned | Draw paid | Result |
|---|---|---|---|
| 1 | $1,500 | $2,000 | $500 short, carried forward (recoverable draw) |
| 2 | $3,100 | $2,000 | $1,100 above the draw, less the $500 carried = $600 extra |
A recoverable draw carries shortfalls forward like this; a non-recoverable draw is a guaranteed minimum that is never paid back. Say which one in writing — and check your state's rules on recovering wages already paid.
Checking your numbers
For one person and one month, the commission calculator does the arithmetic, including a minimum to earn and a rate that climbs toward goal. For a whole team, the free commission spreadsheet has the formulas built in.
When doing it every month for everyone starts taking hours, CommissionBoard calculates it from your POS report and shows each person their own figure during the month.
CommissionBoard turns a POS export into a live commission leaderboard your staff can see on their phones. Start a trial, try the commission calculator or read the other guides.