How to Calculate Commission: Flat, Tiered, and Draw Plans
October 21, 2026
Sales commission is calculated by applying a percentage to sales, and plans differ mainly in which sales count and which rate applies. A flat plan pays one rate on all sales. A tiered plan pays higher rates as sales rise. A draw plan pays an advance that is later offset against earned commission. Understanding which structure you are on tells you how much each additional sale is really worth.
Skip the math and get your answer instantly:
Open the Margin & Markup Calculator →Flat and Tiered Commission
A flat 5% commission on $80,000 in sales pays $4,000. Simple, predictable, and easy to forecast.
A tiered plan might pay 4% on the first $50,000 and 7% on sales above that. On $80,000 in sales, the pay is $50,000 × 0.04 + $30,000 × 0.07 = $2,000 + $2,100 = $4,100. Read the plan carefully, because some plans apply the higher rate to all sales once a threshold is passed (a cliff), which is much more generous than applying it only to the excess (marginal).
Draw Against Commission
A draw is a regular advance paid before commissions are earned. If you receive a $2,000 monthly draw and earn $3,500 in commission, you are paid the remaining $1,500. If you earn only $1,200, you may owe $800 back, depending on whether the draw is recoverable or non-recoverable.
Recoverable draws create a deficit that carries forward, which can be risky in slow months. Always find out how the balance is handled if your earnings fall short.
Questions to Ask About Any Plan
Details in the fine print often matter more than the headline rate. Ask what counts as a sale, when the commission is earned (at booking, at invoice, or at payment), and what happens to commission on refunds or cancellations.
Also ask whether quotas reset monthly or quarterly, whether there is a cap, and how territory or account changes would affect your earnings.
- Is commission calculated on revenue or on gross profit?
- Is there a cap on earnings?
- Are clawbacks applied for returns or cancelled contracts?
- When is commission paid: at sale or after customer payment?
Frequently Asked Questions
How do I calculate commission on a sale?
Multiply the sale amount by the commission rate. A 6% commission on a $12,000 sale pays $720.
What is the difference between a cliff and marginal tier?
With a marginal tier, higher rates apply only to sales above the threshold. With a cliff, the higher rate applies to all sales once the threshold is reached.
What is a commission clawback?
A clawback is a rule that reclaims commission already paid if a sale is later refunded, cancelled, or not collected.
Should commission be based on revenue or profit?
Many companies base it on revenue for simplicity, but profit-based plans prevent heavy discounting. Check which basis your plan uses.