Sales commission is compensation earned as a percentage of the revenue a salesperson generates. It aligns incentives — the more you sell, the more you earn. Understanding how commission works helps salespeople forecast income, managers design compensation plans, and recruiters compare job offers.
The commission formula
A $50,000 sale at a 6% commission rate: $50,000 × 0.06 = $3,000 commission earned. If the commission is split 60/40 with a manager, the salesperson receives $1,800 and the manager receives $1,200.
Common commission structures
- Straight commission: 100% of pay comes from commission. Common in real estate and insurance. High risk, high reward.
- Base + commission: A fixed salary plus a percentage on each sale. The most common model in B2B sales. Typical split: 60% base / 40% variable.
- Tiered commission: The rate increases as you hit higher sales thresholds. Sell $0–$100K at 5%, $100K–$200K at 7%, $200K+ at 10%. Rewards top performers.
- Revenue vs. profit commission: Some plans pay commission on gross revenue, others on net profit margin. Profit-based plans incentivize selling higher-margin products.
Typical commission rates by industry
- Real estate: 5–6% of the sale price, typically split between buyer's and seller's agents.
- SaaS / tech sales: 8–15% of annual contract value. Higher for new logos, lower for renewals.
- Retail: 1–10% depending on the product category.
- Insurance: 5–20% of the first year's premium, with smaller renewal commissions.
- Recruiting: 15–25% of the placed candidate's first-year salary.
Calculating target earnings
If you know your desired annual income and commission rate, you can work backwards to find the sales volume needed. Formula: Required Sales = Target Income ÷ (Commission Rate ÷ 100). To earn $100,000 at a 10% commission rate, you need $100,000 ÷ 0.10 = $1,000,000 in sales.