Definition – What is commission?
Commission is an amount paid to the person or company selling it on the sale of an item.
Payment is often as a percentage of revenue (sales commission), a percentage of profit (profit commission), or a designated amount per unit sold (unit commission).
Formula – How to calculate commission
Sales Commission = Sale Price x (Revenue Commission / 100%)
Profit Commission = Profit x (Profit Commission / 100%)
Unit Commission = Quantity Sold x Commission per Unit
In our example business, sales commission is 2% on revenue and 20% on profit. There is a bonus of $10 per unit sold.
The salesperson sells 3 units for a total revenue of $500 and $100 profit.
Sales Commission = $500 x (2% / 100%) = $500 x 0.02 = $10
Profit Commission = $100 x (20% / 100%) = $100 x 0.20 = $20
Unit Commission = $3 x 10 = $30
Total Commission = $10 + $20 + $30 = $60
Sources and more resources
- Accounting Tools – How to calculate a commission – Some examples of how commission can be calculated.
- Wikihow – How to calculate commission – More examples of how commission structure can be set up and calculated.
- Wagepoint Blog – How commission works and how to choose the right payroll structure – How commission and payroll structure can be combined.