How to Calculate Commission: Formulas, Worked Examples and the Edge Cases That Break Payroll

Calculating commission is multiplication: the amount the rep is credited with, times the rate the plan pays on it. A rep credited with $50,000 of new revenue on a 10% plan earns $5,000.

The arithmetic is never what goes wrong. What goes wrong is everything that decides the two inputs: which deals count, when they count, at what value, who gets credit, and which rate applies once the rep crosses a tier. Most commission disputes are a missing rule, not a wrong formula.

This guide covers the formulas for the common plan types, worked examples for each, and the edge cases a sales ops or RevOps person should write down before the first payout. All figures below are illustrative examples written for this guide, not market benchmarks.

The basic formula

Commission = commissionable amount × commission rate

Each side needs a definition:

• Commissionable amount is the value the plan pays on. It might be total contract value, first-year annual contract value (ACV), monthly recurring revenue, gross margin, units sold, or meetings held. It is rarely “the invoice total”, because invoices include tax, shipping, one-off services or pass-through costs that the plan usually excludes.
• Commission rate is either a percentage (of revenue or margin) or a fixed amount per unit (per deal, per meeting, per seat).

If the plan is built from an OTE, the rate usually falls out of it: variable pay at target divided by quota. A rep with $40,000 of variable pay at target and a $500,000 quota has an effective rate of 8%. The guide to OTE in sales walks through how base, variable and quota fit together, and what a sales quota is covers how the denominator is set.

Commission formulas by plan type

Plan type	Formula	Typical use
Flat rate	Amount × rate	Simple AE plans, partner referral fees
Tiered, marginal	Each slice of the amount × the rate for that slice	Plans that pay more above quota without creating cliffs
Tiered, retroactive	Whole amount × the rate of the highest tier reached	Plans that want a strong push to the next tier
Gross margin	(Revenue − cost of goods) × rate	Resellers, hardware, services with variable delivery cost
Per unit	Units × amount per unit	SDRs paid per meeting held, per-seat sales
Quota attainment based	Variable at target × attainment % (with a curve or tiers)	Plans that pay on % of target rather than dollars
Draw against commission	Max(commission earned, draw), with the draw recovered later	New hires during ramp, long sales cycles

Flat rate

Illustrative example: an AE closes three deals in a month worth $18,000, $24,000 and $9,000 of first-year ACV. The plan pays 10% of first-year ACV.

Commission = ($18,000 + $24,000 + $9,000) × 10% = $51,000 × 10% = $5,100.

In a spreadsheet with deal values in B2:B4 and the rate in E1: =SUM(B2:B4)*E1.

Tiered: marginal vs retroactive

This is the single most common source of “the spreadsheet says one thing, the rep says another”. Both versions are called “tiered”, and they give very different answers.

Illustrative plan, quarterly:

Tier	Attainment band	Rate
1	$0 – $100,000	8%
2	$100,001 – $150,000	12%
3	Above $150,000	15%

The rep closes $160,000 in the quarter.

Marginal (each slice at its own rate):

• First $100,000 × 8% = $8,000
• Next $50,000 × 12% = $6,000
• Last $10,000 × 15% = $1,500
• Total = $15,500

Retroactive (whole amount at the highest tier reached):

• $160,000 × 15% = $24,000

The retroactive version has a cliff. At $150,000 the rep earns $150,000 × 12% = $18,000; one more dollar of revenue moves them into tier 3 and adds $6,000. That creates the behaviour you’d expect: deals get held back or pulled forward to land on the right side of a threshold. Unless you specifically want that pressure, use marginal tiers. They pay more above quota without a jump at any single dollar.

A marginal tier calculation in a spreadsheet, with the closed amount in B1:

=MIN(B1,100000)*8% + MAX(MIN(B1,150000)-100000,0)*12% + MAX(B1-150000,0)*15%

Each term takes only the slice of revenue inside its band. Put the band edges and rates in their own cells rather than inside the formula, so changing the plan next year doesn’t mean editing every row.

Gross margin

Illustrative example: a reseller rep sells $40,000 of hardware that cost the company $31,000, plus $6,000 of installation services that cost $2,500 to deliver. The plan pays 20% of gross margin.

• Hardware margin = $40,000 − $31,000 = $9,000
• Services margin = $6,000 − $2,500 = $3,500
• Commission = ($9,000 + $3,500) × 20% = $2,500

Margin plans stop reps from buying revenue with discounts, because every dollar of discount comes straight out of their commissionable amount. The cost is complexity: the rep needs to see cost data, or at least the margin per line, or they can’t predict their pay. Decide in writing whose cost figure is used (standard cost at the time of quote, or actual cost at delivery) because they differ whenever supplier prices move.

Per-unit plans for SDRs

SDR plans usually pay on meetings or opportunities rather than revenue, because the SDR doesn’t control whether a deal closes.

Illustrative example: an SDR earns $110 per qualified meeting held and $250 per meeting that becomes a sales-accepted opportunity within 30 days. In the month they hold 14 qualified meetings, and 5 of them become opportunities.

Commission = (14 × $110) + (5 × $250) = $1,540 + $1,250 = $2,790.

The formula is trivial. The definitions are not:

• Held, not booked. Paying on booked meetings rewards filling calendars with prospects who never show up.
• “Qualified” needs a written test the AE can’t override after the meeting, such as a checklist of role, company size and stated problem, captured on the meeting record.
• The opportunity window (30 days in the example) needs a clock that starts at the meeting date and a system of record that stamps it, or every late conversion becomes a negotiation.

Quota attainment curves

Some plans pay on attainment percentage instead of dollars: the rep earns a share of variable pay at target equal to their attainment, adjusted by a curve.

Illustrative example: variable at target is $20,000 per quarter. The plan pays nothing below 50% attainment, pays linearly from 50% to 100%, and pays 1.5× the linear rate above 100%. The rep hits 110%.

• Payout for the first 100% = $20,000
• Payout for the extra 10% = $20,000 × 10% × 1.5 = $3,000
• Total = $23,000

The threshold at 50% is a deliberate cliff. Write down what happens at exactly 50%, because someone will land on it.

Draw against commission

A draw is an advance paid when commission earned is below a set amount. A recoverable draw is paid back out of later commission; a non-recoverable draw is a guaranteed floor that isn’t paid back.

Illustrative example: a new AE has a recoverable draw of $3,000 per month for their first quarter.

Month	Commission earned	Paid	Draw balance owed
1	$500	$3,000	$2,500
2	$1,800	$3,000	$3,700
3	$9,000	$9,000 − $3,700 = $5,300	$0

Before you offer a recoverable draw, decide what happens to an unrecovered balance if the rep leaves. Labour rules on recovering wages vary by country and, in the US, by state, so check with counsel before the plan goes out rather than after the first resignation.

The edge cases to decide before the first payout

These are the rules that turn a correct formula into a disputed one. Put each one in the written plan document.

1. When does a deal count? Options are signature date, booking date in the CRM, invoice date, or cash received. Paying on signature is simplest for reps; paying on cash received protects the company from deals that never pay. Many plans split it: commission is earned at signature and becomes payable when the first invoice is paid.

2. Which value counts on multi-year deals? A three-year contract can be commissioned on first-year value, total contract value, or year by year as each year renews. Paying on total contract value up front makes multi-year deals extremely attractive to reps, which is fine if the business wants multi-year commitments and risky if the later years are easily cancelled.

3. Split deals. When two reps or an SDR and an AE both work a deal, define the split percentages in advance (for example 70/30 for overlapping territories) and say who decides disputed cases. Without a rule, the split is decided by whoever complains loudest.

4. Clawbacks. If a customer cancels within a set period or never pays, a clawback reverses some or all of the commission. Define the period, whether partial refunds trigger partial clawbacks, and whether the clawback is taken from future commission or invoiced back. A clawback rule nobody can explain is worse than none.

5. Partial periods. New starters, leavers and people on leave all need prorated quotas. Prorate the quota by working days in the period, not calendar days, or a rep who starts mid-month around a public holiday is measured against days they couldn’t work.

6. Currency. For deals in another currency, state which exchange rate applies: the rate on signature date, invoice date, or a fixed plan rate for the year. A fixed plan rate removes currency noise from the rep’s pay.

7. Discounts and non-standard terms. Say whether discounts above a threshold reduce the commission rate, not just the commissionable amount. Some plans drop the rate when the discount exceeds what the rep could approve on their own.

A worked month: putting it together

Illustrative example for one AE in one month, on a marginal tiered plan (8% to $100,000, 12% above) with a 70/30 split rule for shared deals:

Deal	First-year ACV	Rep’s share	Credited amount	Note
A	$60,000	100%	$60,000	Signed and first invoice paid
B	$50,000	70%	$35,000	Shared with a neighbouring territory
C	$30,000	100%	$0	Signed, invoice unpaid: earned, not payable
D	$25,000	100%	$25,000	First invoice paid

Credited and payable this month: $60,000 + $35,000 + $25,000 = $120,000.

• First $100,000 × 8% = $8,000
• Next $20,000 × 12% = $2,400
• Payable commission = $10,400

Deal C is held until its invoice is paid. When it is paid next month, the plan document has to say whether it counts toward this month’s tiers (where the rep already crossed $100,000, so it pays 12%) or next month’s (where it starts at 8%). Pick one and write it down: “attainment is measured in the month the deal is signed; payment happens when cash arrives” is a common choice and is easy to audit.

How to keep commission calculations auditable

A commission statement should let a rep reproduce their own number without asking anyone. In practice:

1. One row per credited item (deal, meeting, opportunity) with the source record ID from the CRM, the credited amount, the rule that applied, and the period it counts toward.
2. Plan parameters in a separate table: tier edges, rates, split rules, clawback window. The calculation references them; nobody types a rate into a formula.
3. A frozen snapshot per period. Once a month is paid, store the inputs as they were. Re-running last month’s calculation against today’s CRM data will give a different answer, because deals get edited.
4. Adjustments as their own rows, with a reason and an approver, rather than edits to past rows.

For SDR teams, the hard part is usually step 1: getting a clean list of meetings held and their outcomes, rather than a calendar export someone cleans by hand. GTMStack’s SDR Operations tracks meetings and their outcomes per rep, which gives the per-meeting commission row a source record to point to. Whatever system you use, the statement is only as good as that row-level source.

The sales operations manager guide covers where commission administration sits among the rest of the sales ops role, if you’re deciding who should own the calculation.

Common mistakes

• Mixing up marginal and retroactive tiers between the plan document and the spreadsheet. Test the calculation at each tier edge and one dollar above it.
• Paying on bookings that later change. If the CRM value of a closed deal can be edited after payout, lock it or log changes as adjustments.
• No rule for disputed credit. Name the person who decides and the deadline for raising a dispute.
• Changing the plan mid-period without a written effective date and a statement of how in-flight deals are treated.
• A rate that only exists in someone’s head. If the plan PDF and the payroll calculation could disagree, eventually they will.