Commission Calculator

1. What is a commission? Commission amount and commission rate explained.
2. Commission rate formula
3. Sales commission calculation
4. Real estate agent commission calculation
5. Practical examples

* depending on who pays the fees, the commission would be extracted from the real estate seller thus reducing their net profit, or from the buyer, thus increasing the total price, or from both. Applies to the real estate agent commission calculator mode only.

    What is a commission? Commission amount and commission rate explained.

A commission is a percentage of the sale price of a good or a service. It is used to incentivise first-party or third-party salespersons, agents, negotiators, or advertisers by linking all or part of their pay to the sales volume of the goods or services sold / brokered. It is usually based on the list price of an item or service, but it can also be based on the actual sales revenue (net discounts, etc.), depending on arrangements.

The commission is linked to the sale price via the commission rate in the following manner:

Commission Amount = Sale Price · Commission Rate

where the rate can be expressed as a percentage, a decimal number or fraction. Obviously, this does not apply if the commission is for a fixed amount. By varying the commission amount with the sale price sales representatives are incentivised to sell more expensive items and these usually bring more revenue to the business selling the goods or services. However, this can have a negative effect on consumers who might be pushed towards options which are more expensive than necessary. This is true of commissions in the world of real estate, retail sales, and business to business alike.

If talking about multiple sales, it becomes instead:

Commission Amount = Sales · Commission Rate

    Commission rate formula

The calculation of a commission or commission rate is tied in with the sale price via a simple equation:

You can replace the sale price with the total amount of sales if the commissions come from multiple sales. Say you made $500,000 in sales with 1.5% commission, then just plug in the $500,000 as SalesPrice and 1.5% as a decimal (0.015) as the commission rate to calculate the commision amount.

The second formula is for the commission rate and it is derived from the first one by dividing both sides of the first equation by the sales price. It is used when our tool is in commission rate calculator mode ("calculate commission rate" is selected).

The rate is usually expressed as a percentage. If unsure about how to write it down as a decimal number for use in the formula, check out our percent to decimal calculator. In the second formula the result is a decimal fraction, but it can easily be converted to percentage, see our decimal to percent converter. Both equations are simple enough that they can be coded in an Excel spreadsheet, but having an online commission calculator can be handy when on the move or when one needs to do a quick check.

    Sales commission calculation

There are different types of commissions that you may come across that may invoke the need for a commission calculator. The most common type is the sales commission. The math here is quite straightforward - knowing the sales price and the commission rate percentage one can calculate the commission owed for a sale or a number of sales with a given sales total. In the reverse scenario - the sale price and the amount of commission to be paid out is known, and the rate is what is to be computed. This can be useful even if you know the nominal rate, but want to compute a net commission rate after removing transactional costs, taxes, and other expenses related to receiving the money.

Simply switch to sales commission calculator mode to perform these calculations. The output is very simple - just the sales commission percentage or the commission amount, depending on what is known.

Amount in sales with X% commission example

If in a given month you make $200,000 in sales with 2% commission, how much do you take home from these sales? Multiply $200,000 by 2 to $400,000, then divide by 100 to account for the percentage and get $4,000. So, with $200,000 in sales with 2% commission you would make $4,000 in commissions.

    Real estate agent commission calculation

A slightly different commission calculation scenario emerges when one needs to calculate the commission of a realtor for the sale or purchase of a real estate. In this case the commission would be paid on top of the sale price if it is owed by the buyer so our calculator outputs what the buyer needs to pay in total, commission included. Alternatively, if the seller is to pay the commission, they will get less than the agreed upon sale price, hence our tool outputs what that amount would be net of commission.

In some cases both the buyer and the seller of a house, office, or production facility would need to pay a commission to their respective real estate agent. Realtors have different conditions surrounding commissions on deals so make sure you know how much commission you would need to pay before you go into a real estate deal.

    Practical examples

Say you want to find the commission paycheck amount you would be owed if you are a sales rep and have made 20 sales worth $1,000 each this month. If the rate is 10% of gross sales, what is the paycheck amount?

The solution is to apply the formula above by substituting the rate with 10% / 100 = 0.1 and the sales amount with 20 · $1,000 = $20,000 in sales. Then we work out that the commission amount is $20,000 x 0.1 = $2,000.

In a second example, if you are buying a house and have been quoted a list price of $400,000 and a commission of $20,000 for the realtor, how do we determine the commission rate in this real estate deal without using our calculator? Simply divide $20,000 by $400,000 to get the rate which is 0.05. To convert this to a percentage rate, multiply by 100 to get 5 percent.