Commission Formulas for Every Plan Type
Every commission formula you'll need: revenue-based, margin-based, unit-based, milestone, and quota attainment. With worked examples for each plan type.
Commission formulas don't have to be complex. Every plan type—revenue-based, margin-based, unit-based, milestone—uses a variation of the same core calculation. This is the reference guide.
The core formula
Commission = Amount × Rate
Every formula below is a version of this. The variation is in what you're multiplying (revenue, margin, units, deal count) and how the rate is applied (flat, tiered, conditional).
Revenue-based commission formulas
Flat rate
The simplest structure. One rate applies to all revenue.
Commission = Total Revenue Closed × Rate
Example: Rep closes $720,000 at a 9% flat rate.
$720,000 × 0.09 = $64,800
Flat-rate plans are easy to explain and administer. Reps can calculate their own payout mentally after every deal. The limitation: they don't specifically reward pushing above quota—the math is identical at 95% and 115% attainment.
Tiered rate (accelerators)
Different rates apply to different revenue bands. The key rule: each rate applies only to revenue within its band, not to all revenue.
Commission = (Tier 1 Revenue × Tier 1 Rate)
+ (Tier 2 Revenue × Tier 2 Rate)
+ (Tier 3 Revenue × Tier 3 Rate)
Example plan: $900K annual quota
| Attainment | Rate |
|---|---|
| 0–100% of quota ($0–$900K) | 9% |
| 100–125% ($900K–$1,125K) | 13.5% |
| 125%+ (above $1,125K) | 18% |
Rep closes $1,080,000 (120% of quota):
Tier 1: $900,000 × 0.09 = $81,000
Tier 2: $180,000 × 0.135 = $24,300
Total: $105,300
vs. flat 9%: $1,080,000 × 0.09 = $97,200. The accelerator adds $8,100.
Rep closes $1,260,000 (140% of quota):
Tier 1: $900,000 × 0.09 = $81,000
Tier 2: $225,000 × 0.135 = $30,375
Tier 3: $135,000 × 0.18 = $24,300
Total: $135,675
Tiered plans reward overperformance but add calculation complexity. At three tiers, reps can still track manually. Above that, spreadsheet errors become common.
Deriving the commission rate from OTE and quota
Most plans don't state a commission rate directly—it's derived from OTE and quota:
Commission Rate = On-Target Variable ÷ Quota
Example: AE with $200K OTE, 50/50 base-to-variable split, $1M quota.
On-target variable (OTV) = $100,000
Commission rate = $100,000 ÷ $1,000,000 = 10%
At 100% quota ($1M closed): $1,000,000 × 0.10 = $100,000 ✓
For more worked examples by role, see how to calculate sales commission.
Margin-based commission formula
Margin-based plans pay on gross margin (revenue minus cost of goods sold or cost of delivery) rather than on top-line revenue. The rate is higher to compensate for the smaller base.
Commission = Gross Margin × Commission Rate
Example: Rep closes a $100,000 deal. COGS is $40,000, so gross margin is $60,000. Commission rate is 15%.
$60,000 × 0.15 = $9,000
Compare to a revenue-based plan at 9%: $100,000 × 0.09 = $9,000. Equivalent payout—but the margin-based plan gives reps an incentive to protect pricing. If the rep discounts the deal to $85,000 (COGS unchanged):
- Revenue-based: $85,000 × 0.09 = $7,650
- Margin-based: ($85,000 − $40,000) × 0.15 = $45,000 × 0.15 = $6,750
The margin plan penalizes discounting more sharply. That's the point. It works best when reps have meaningful pricing authority.
The administration challenge: you need COGS at the deal level, which requires a clean connection between your CRM and ERP or billing system. Most mid-market companies calculate margin-based commission in spreadsheets post-close, which creates a 2–7 day lag between deal close and commission calculation.
Unit-based commission formula
SDRs, BDRs, and some CSM roles are often compensated on activity units (meetings booked, qualified opportunities created, renewals closed) rather than revenue.
Commission = Units Completed × Rate Per Unit
Deriving the per-unit rate:
Rate Per Unit = On-Target Variable ÷ Quota (in units)
Example: SDR with $40,000 OTV and a 60-meeting quarterly quota.
Rate per meeting = $40,000 ÷ 60 = $666.67/meeting
At 60 meetings (100% quota): 60 × $666.67 = $40,000 ✓
At 48 meetings (80%): 48 × $666.67 = $32,000
With accelerator: 1.5x per-unit rate for meetings above quota.
At 70 meetings (116.7% quota):
Base (60 meetings): 60 × $666.67 = $40,000
Accelerator (10 meetings): 10 × $666.67 × 1.5 = $10,000
Total: $50,000
Unit-based plans are transparent and easy to verify. The risk: if quota is set in unit terms (meetings booked), reps optimize for quantity over quality. Define what counts as a qualified unit carefully.
Milestone and bonus formula
For roles where revenue attribution isn't direct—sales engineers, RevOps, solutions consultants—milestone bonuses are common. The formula is simpler.
Bonus = Target Bonus × Payout % Based on Achievement
Example: Sales engineer has a $20,000 annual target bonus tied to team quota attainment.
| Team quota attainment | Payout % | Bonus |
|---|---|---|
| Below 85% | 0% | $0 |
| 85–100% | 50–100% (pro-rated) | $8,500–$20,000 |
| 100–110% | 100–150% | $20,000–$30,000 |
| 110%+ | 150% (max) | $30,000 |
At 95% team attainment: the range covers 85–100%, so payout is pro-rated. Distance from threshold: (95% − 85%) ÷ (100% − 85%) = 10 ÷ 15 = 66.7%. Payout: $20,000 × (50% + 66.7% × 50%) = $20,000 × 83.3% = $16,667.
Most companies simplify this to a step function (three defined payouts at threshold, target, and max) rather than a continuous pro-ration. Both approaches are defensible.
Quota attainment formula
Quota attainment tells you where a rep sits as a percentage of their period goal. It's the input to most commission triggers.
Quota Attainment = (Actual Revenue ÷ Quota) × 100
Example: Rep closes $850,000 against a $1,000,000 quota.
($850,000 ÷ $1,000,000) × 100 = 85%
Attainment is straightforward for single-product, revenue-only plans. It gets complicated when:
- Multiple products have separate quotas. A rep might be at 110% on product A and 60% on product B. Which attainment determines tier rate?
- Weighted components (ARR + NRR, or new logo + expansion) must be blended. Define blended attainment explicitly in the plan document.
- Partial-year reps need prorated quota. A rep who starts 6 weeks into a quarter doesn't have a full quarter's quota—ramp adjustments must be defined in advance.
Split commission formula
When multiple reps share credit for a deal:
Rep Commission = Deal Value × Commission Rate × Split Percentage
Example: Two AEs co-sell a $150,000 deal. Rep A gets 70% credit, Rep B gets 30%. Rate: 9%.
Rep A: $150,000 × 0.09 × 0.70 = $9,450
Rep B: $150,000 × 0.09 × 0.30 = $4,050
The same split percentage should apply to quota credit: Rep A gets $105,000 toward quota, Rep B gets $45,000. If payout splits but quota credit doesn't, you create misaligned incentives.
For the full treatment of split design and common disputes, see commission splits: when and how to split sales credit.
Where formula complexity creates problems
A single formula on a flat plan takes 30 seconds to calculate. Add tiered rates, multi-product attainment, splits, clawbacks, and ramp adjustments—and the same pay period becomes a multi-hour spreadsheet exercise.
The specific failure modes we see in manual processes:
Rate lookup errors. Tiered plans require applying the right rate to the right revenue band. In spreadsheets, this typically means VLOOKUP or nested IF statements. A single formula error mis-categorizes every rep in the affected tier.
Stale plan versions. Mid-year plan changes (different rate, new product launch, territory adjustment) are applied to future deals but sometimes retroactively recalculate past periods. Without version control on the plan itself, you can't reconstruct which rate applied when.
Split disagreements. Reps almost always track splits at the deal level in their own spreadsheet. If your CRM records split % differently than the payout system, disputes follow.
Clawback arithmetic. Recovering commission from a future payout requires knowing the original deal commission amount, the current period payout, and whether the shortfall carries forward. Three fields, each with its own tracking problem.
Tools like Carvd apply these formulas programmatically to every deal in your CRM—eliminating the formula lookup step and giving reps a real-time view of their payout before the period closes. For a broader look at what commission software handles, see the guide to commission tracking software.
Related reading
- How to calculate sales commission (formulas + examples) — worked examples for flat rate, tiered, and quota-based plans
- Tiered commission structure: how to build one that scales — designing accelerator tiers that motivate without surprising finance
- Commission errors: the most common mistakes — calculation errors, data entry problems, and formula bugs that drive disputes
- Commission spreadsheet: free template + why you'll outgrow it — building a calculation spreadsheet and recognizing when to move on
Last updated: March 15, 2026