Commission | Definition, Examples, Calculating, Steps & Formulas

Introduction

A commission can be paid in addition to a salary or in place of a salary, and many individuals work “on commission”. A commission is paid to encourage a company or employee to make more sales. Real estate agents and salespeople frequently earn a commission.

In this article, we’ll discuss what a commission is, how to calculate a commission and its rate, how to use a formula to determine it, and how to solve commission-related problems.

What is a commission?

A commission is the sum of money that someone receives when they sell something. Typically, it represents a percentage of the total sales volume.

Several occupations pay on commission, including brokers, automobile salespeople, insurance agents, and real estate agents. This could imply that they get a commission, which is money a worker earns when a sale is made.

Let us say, for example, a car salesman earns a commission earns a 4% commission on sales. If we would like to get the 4% of his total sales, that is his commission pay. So, if the car salesman sells a total of \$30000, he will get a commission of \$1200. The straight commission can be easily calculated by multiplying the commission rate by the total sales.

How to calculate a commission?

Math and percentages are both used to calculate a commission. Commonly, you will hear about the percentage that an individual will earn as a commission. The commission is then determined by taking the sale price or the total sales and applying the percentage.

The detailed steps for calculating a commission are provided below.

Steps in Calculating a Commission

Step 1: Identify the total sales and the commission rate from the given problem.
Step 2: Convert the commission rate into a decimal.
Step 3: Multiply the total sales by the commission rate.
Step 4: Answer the question with a complete sentence.

Example 1

Leticia works in travel. When she arranges a cruise for a client, she gets paid a commission of 6%. What percentage of the \$2500 cruise booking fee will she get paid?

Solution

Let us follow the steps in calculating a commission to answer the question.

Step 1: Identify the total sales and the commission rate from the given problem.

The total sales and the commission rate are \$2500 and 6%, respectively.
Total Sales = \$2500
Commission Rate = 6%

Step 2: Convert the commission rate into a decimal.

The commission rate of 6% is equal to 0.06 in decimal.

Step 3: Multiply the total sales by the commission rate.

Multiplying the total sales by the commission rate, we have,
\$2500 × 0.06 = \$150

Step 4: Answer the question with a complete sentence.

Leticia will receive a \$150 commission from a \$2500 cruise booking fee at a 6% commission rate.

Example 2

Marivic sells computers and receives a 3% commission from each sale. What is her commission if she sold items for \$45000?

Solution

Let us follow the steps in calculating a commission to answer the question.

Step 1: Identify the total sales and the commission rate from the given problem.

\$45000 in total sales, and the commission percentage was 3%.
Total Sales = \$45000
Commission Rate = 3%

Step 2: Convert the commission rate into a decimal.

The commission rate of 3% is equal to 0.03 in decimal.

Step 3: Multiply the total sales by the commission rate.

Multiplying the total sales by the commission rate, we have,
\$45000 × 0.03 = \$1350

Step 4: Answer the question with a complete sentence.

A \$45,000 sale will result in a \$1350 commission for Marivic at a 3% commission rate.

Example 3

In a jewellery store, Maria is a salesperson. A 12% commission on her sales is given to her. She made a total of \$1525 in sales on a hectic day. Find Maria’s commission.

Solution

Let us follow the steps in calculating a commission to answer the question.

Step 1: Identify the total sales and the commission rate from the given problem.

The total sales and the commission rate are \$1525 and 12%, respectively.
Total Sales = \$1525
Commission Rate = 12%

Step 2: Convert the commission rate into a decimal.

The commission rate of 12% is equal to 0.12 in decimal.

Step 3: Multiply the total sales by the commission rate.

Multiplying the total sales by the commission rate, we have,

\$1525 × 0.12 = \$183

Step 4: Answer the question with a complete sentence.

At a 12% commission rate, Maria will receive \$183 from the total sales of \$1525 jewellery.

What is the formula to calculate commission?

A commission is the sum of money that someone receives when they sell something. Calculating straight commission uses the formula:

Total Sales×Commission Rate=Commission

Example

Calculate the commission based on each item’s commission rate and total sales.

( a ) Total Sales = \$200, Commission Rate = 2%
( b ) Total Sales = \$800, Commission Rate = 3%
( c ) Total Sales = \$1600, Commission Rate = 5%
( d ) Total Sales = \$8200, Commission Rate = 2.5%
( e ) Total Sales = \$12500, Commission Rate = 3.25%

Solution:

( a ) Total Sales = \$200, Commission Rate = 2%

Let us first convert the commission rate of 2% into a decimal. 2% is equal to 0.02 in decimal.

Substituting the given to the commission formula, we have,

Total Sales × Commission Rate = Commission

\$200 × 0.02 = \$4

As a result, a \$200 sale commission at a 2% rate is \$4.

( b ) Total Sales = \$800, Commission Rate = 3%

Converting 3% into decimals gives us 0.03.

Plugging in the given values to the formula, we have,

Total Sales × Commission Rate = Commission

\$800 × 0.03 = \$24

The commission for an \$800 sale at a 3% commission rate is, therefore, \$24.

( c ) Total Sales = \$1600, Commission Rate = 5%

Let us convert the commission rate of 5% into a decimal. 5% is equal to 0.05 in decimal.

Using the commission formula, we have,

Total Sales × Commission Rate = Commission

\$1600 × 0.05 = \$80

At a 5% commission rate, a \$1600 sale yields an \$80 commission.

( d ) Total Sales = \$8200, Commission Rate = 2.5%

Converting 2.5% into decimals gives us 0.025.

Plugging in the given values to the formula, we have,

Total Sales × Commission Rate = Commission

\$8200 × 0.025 = \$205

At a 2.5% commission rate, the commission on an \$8200 sale is \$205.

( e ) Total Sales = \$12500, Commission Rate = 3.25%

Let us convert the commission rate of 3.25% into a decimal. 3.25% is equal to 0.0325 in decimal.

Using the commission formula, we have,

Total Sales × Commission Rate = Commission

\$12500 × 0.0325 = \$406.25

With a 3.25% commission rate on a \$12500 sale, the commission is \$406.25.

How to find the commission rate?

The payment corresponding to a fixed payment or a percentage of a sale is known as a commission rate. Real estate agents, vehicle salespeople, and insurance brokers are examples of professions that are compensated on commission. A percentage of the sale is typically used to express commission rates. Knowing the sale and commission amounts will allow you to compute the commission rate.

Steps in Finding the Commission Rate

Step 1: Identify the total sales and the commission amount from the given problem.
Step 2: Divide the commission amount by the total sales.
Step 3: To get the answer in percentage, multiply by 100.
Step 4: Answer the question with a complete sentence.

Example 1

Based on a total sales of \$1,000, a salesman earns a \$200 commission. Determine the applied commission rate.

Solution

Let us follow the steps in finding the commission rate.

Step 1: Identify the total sales and the commission amount from the given problem.

The total sale and the commission are \$1000 and \$200, respectively.

Total Sale = \$1000

Commission = \$200

Step 2: Divide the commission amount by the total sales.

Dividing the commission amount by the total sale, we have,

200 ÷ 1000 = 0.2

Step 3: To get the answer in percentage, multiply by 100.

Multiplying 0.2 by 100 will give us 20%.

0.2 × 100 = 20%

Step 4: Answer the question with a complete sentence.

The salesperson was given a commission rate of 20%.

Example 2

A food representative receives a commission of \$1575. What percentage of her \$45000 in annual sales is the commission?

Solution

Let us proceed with the steps for calculating the commission rate.

Step 1: Identify the total sales and the commission amount from the given problem.

\$45,000 is the total amount of the sale, and \$1575 is the commission.

Total Sale = \$45000

Commission = \$1575

Step 2: Divide the commission amount by the total sales.

When we divide the commission by the total sale, we get,

1575 ÷ 45000 = 0.035

Step 3: To get the answer in percentage, multiply by 100.

We will get 3.5% if we multiply 0.035 by 100.

0.035 × 100 = 3.5%

Step 4: Answer the question with a complete sentence.

3.5% of the sale of the food representative went toward commission.

Example 3

A sold home worth \$250000 earns a real estate agent a commission of \$12500. Determine the commission rate.

Solution

Let us follow the steps in finding the commission rate.

Step 1: Identify the total sales and the commission amount from the given problem.

The commission is \$12500, and the total sale is \$250000.

Total Sale = \$250000

Commission = \$12500

Step 2: Divide the commission amount by the total sales.

Dividing the commission amount by the total sale, we have,

12500 ÷ 250000 = 0.05

Step 3: To get the answer in percentage, multiply by 100.

We will get 5% if we multiply 0.05 by 100.

0.05 × 100 = 5%

Step 4: Answer the question with a complete sentence.

The real estate agent was given a commission rate of 5%.

What is the formula to calculate the commission rate?

The payment corresponding to a fixed payment or a percentage of a sale is known as a commission rate. A percentage of the sale is typically used to express commission rates. Understanding the sale and commission amounts will allow you to compute the commission rate. Divide the commission amount by the total sales to obtain a straightforward calculation for the commission rate.

$Commission\: Rate\:=\frac{Commission}{Total\: Sales}$

Example

Calculate the commission rate based on each item’s commission and total sales.

( a ) Total Sales = \$500, Commission = \$20
( b ) Total Sales = \$750, Commission = \$45
( c ) Total Sales = \$1600, Commission = \$250
( d ) Total Sales = \$40000, Commission = \$2500
( e ) Total Sales = \$500000, Commission = \$80000

Solution

Let us determine the commission rate for each item using the formula.

( a ) Total Sales = \$500, Commission = \$20

Commission Rate = Commission ÷ Total Sales
Commission Rate = \$20 ÷ \$500
Commission Rate = 0.04
0.04 is equal to 4% in percentage.

( b ) Total Sales = \$750, Commission = \$45

Commission Rate = Commission ÷ Total Sales
Commission Rate = \$45 ÷ \$750
Commission Rate = 0.06
0.06 is equal to 6% in percentage.

( c ) Total Sales = \$1600, Commission = \$300

Commission Rate = Commission ÷ Total Sales
Commission Rate = \$300 ÷ \$1600
Commission Rate = 0.1875
0.1875 is equal to 18.75% in percentage.

( d ) Total Sales = \$40000, Commission = \$2500

Commission Rate = Commission ÷ Total Sales
Commission Rate = \$2500 ÷ \$40000
Commission Rate = 0.0625
0.0625 is equal to 6.25% in percentage.

( e ) Total Sales = \$500000, Commission = \$80000

Commission Rate = Commission ÷ Total Sales
Commission Rate = \$80000 ÷ \$500000
Commission Rate = 0.16
0.16is equal to 16% in percentage.

More Examples

Example 1

The sales of Marites are as follows: \$400, \$300, \$150, \$500, \$250, and \$450. If she will get 5% of her total sales as commission. What will she be paid?

Solution

By adding each of Marites’ sales, let us first determine her total sales.

Total Sales = \$400 + \$300 + \$150 + \$500 + \$250 + \$450
Total Sales = \$2050

Let us convert 5% to decimal by dividing it by 100. Hence, we have 0.05.

Substituting the total sales and the commission rate into the formula, we have,

Total Sales × Commission Rate = Commission
\$2050 × 0.05 = \$102.50
A \$2050 total sales results in a \$102.50 commission at a 5% commission rate.

Example 2

The McKenzie family buys a life insurance policy worth \$450000 from an insurance broker. If the insurance broker charges a 3% commission, how much will they pay her?

Solution

In this problem, the commission rate is 3% while the total sale is \$450000. The percentage form of 3% is 0.03.

Let us now use the given information in the formula to calculate the commission.

Total Sales × Commission Rate = Commission
\$450000 × 0.03 = \$13500

The McKenzie family must pay a \$13,500 commission to the insurance broker.

Example 3

Bob, a pharmaceutical sales representative, receives a 4% commission when he sells medication to doctors. If Bob makes the following sales: \$1000, \$2500, \$3250, \$1250, and \$4100, how much commission will he receive?

Solution

By adding Bob’s sales, let us first determine his total sales.

Total Sales = \$1000 + \$2500 + \$3250 + \$1250 + \$4100
Total Sales = \$12100

Let us convert 4% to decimal by dividing it by 100. Hence, we have 0.04.

Substituting the total sales and the commission rate into the formula, we have,

Total Sales × Commission Rate = Commission
\$12100 × 0.04 = \$484
From his \$12100 in sales, Bob will get a commission of \$484.

Example 4

Patricia works as a real estate agent. She gets paid a 3% commission every time she sells a house. How much commission will she receive for selling a \$550000 house?

Solution

In this scenario, the commission rate is 3%, while the total sale is \$550000. The percentage form of 3% is 0.03.

Let us now use the given information in the formula to calculate the commission.

Total Sales × Commission Rate = Commission
\$550000 × 0.03 = \$16500
Patricia will receive \$16500 in commission after she sells a \$550000 house.

Example 5

A salesman earns a monthly commission rate of 15% for sales. How much commission will he receive if her weekly sales are as follows: Week 1: \$1250, Week 2: \$3500, Week 3: \$4250, and Week 4: \$1800?

Solution

Let us first find his total sales by adding all his sales from Week 1 to Week 4.

Total Sales = \$1250 + \$3500 + \$4250 + \$1800
Total Sales = \$10800

Let us convert 15% to decimal by dividing it by 100. Hence, we have 0.15.

Substituting the total sales and the commission rate into the formula, we have,

Total Sales × Commission Rate = Commission
\$10800 × 0.15 = \$1620
The salesperson will receive a commission of \$1620 from his total sales.

Example 6

When Sam sold an automobile for \$21000, he received an \$850 commission. What was his commission rate?

Solution

The commission amount and the total sales are \$1680 and \$21000, respectively.

We plug the given information into the formula to calculate the commission rate.

Commission ÷ Total Sales = Commission Rate
\$1680 ÷ \$21000 = 0.12 or 12%

Therefore, the commission rate applied was 12%.

Summary

A commission is the sum of money that someone receives when they sell something. Typically, it represents a percentage of the total sales volume.

Steps in Calculating a Commission

The payment corresponding to a fixed payment or a percentage of a sale is known as a commission rate.

Steps in Finding the Commission Rate

Formulas

Commission= Total Sales×Commission Rate

Commission Rate=$\frac{Commission}{Total\: Sales}$

Frequently Asked Questions on Commission
( FAQs )

What is the difference between commission and commission rate?

A commission is the sum of money that someone receives when they sell something. Typically, it represents a percentage of the total sales volume. The commission rate, on the other hand, is the payment corresponding to a fixed payment or a percentage of a sale.

The following are the formulas to use when calculating commission and commission rates.

Commission= Total Sales×Commission Rate

Commission Rate=$\frac{Commission}{Total\: Sales}$

What is the formula for calculating commission?

The formula to calculate commission is given by,

Commission=Total Sales×Commission Rate

where,

Commission= the sum of money that someone receives when they sell something

Total Sales = the earnings generated by regular business operations

Commission Rate = percentage of a sale

What are some examples of jobs that are paid on a commission basis?

Because salespeople’s responsibilities are closely linked to a company’s revenue targets, a commission is a common compensation option. The chance to earn a commission incentivizes those people to meet or surpass their objectives.

Commission can also appear in other situations. When you successfully place an applicant for employment, you are frequently compensated with a commission, typically a portion of the candidate’s annual pay. You can receive commissions as an account manager from customers you upsell or renew for the following year.

Additionally, you may receive a portion of the proceeds when selling a real estate property. In some roles, the commission makes up most of your pay, making your income highly erratic and reliant on your performance.

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