What is a commission (Remuneration)?
Fee accruing to an agent, broker, or salesperson by mutually agreed upon, or fixed by custom or law, for assisting, commencing, and/or accomplishing a commercial transaction.
A business pays to a salesperson in exchange for his or her services in either facilitating or completing a sale is called commission fee. Calculating a sales commission is based on the structure of the underlying commission agreement. The following factors typically apply to the calculation.
Working of Commission Calculator
This commission calculator brought the simplest way to calculate commission. It calculates the percentage-based remuneration.
This Online Commission Calculator assists you to determine the commission amount from the sales in a quick and easy fashion. You can calculate your commission amount. by entering the revenue and commission rate. This Online Commission Calculator also lets you find out the expenses and calculate the profit as well. The commission amount can be ascertained from the sales amount (Revenue) or Gross profit.
What is the Formula of commission?
To find out the commission just take sale price, multiply it by the commission percentage, divide it by 100. An example calculation: a Bluetooth device is sold for $50. The salesperson works on a commission – he/she gets 12% out of every transaction, which amounts to $6.
The formula commission is:
Commission = Sales Price * Commission Percentage / 100.
What is Sales Commission?
The amount of money that an individual receives based on the level of sales he/she has acquired. The salesperson is provided a reliable amount of money including to his/her standard salary based on the number of sales obtained.
How does commission work?
Let’s assume you purchased 100 shares of ABC Company at $30 per share, and your broker charges a 2% commission to make the trade.
The shares themselves would cost $3,000 ($30 x 100 shares), but the broker would also need to be paid for finding someone to sell the shares to you. For their services, they would charge $60 ($3,000 x 2%). The total cost of the transaction would be $3,000 + $60 = $3,060.
Four months later, you decide to sell your ABC shares. Now selling at $70, you would receive $7,000 ($70 x 100 shares) from the sale. But again, the brokerage would take 2% ($350), so the actual pursues from the transaction would total $6,650 ($7,000 – $350).
Although most investors would calculate the profit on the ABC Company investment as simply the difference between $7,000 and $3,000, the savvy investor takes commissions into account and knows that the actual profit is $6,650 – $3,060 = $3,590.
Most often stockbrokers come to mind when deciding commissions, but commissions are the foremost means of reimbursement for real estate agents, financial advisors, investment bankers, and many others.
How to calculate a commission?
The following factors typically apply to the calculation:
Commission rate. This is the percentage or fixed payment related to a certain amount of sales. For example, a commission could be 8% of sales or $40 for each sale.
Commission basis. The commission usually depends on the total amount of a sale, but it may be based on other factors, such as the gross margin of a product. when there are substantial differences between the profitability of different products, management may use a profit commission base, and it wants to give an incentive to the sales staff to sell the most profitable items. The basis may also depend on cash received from a sale, rather than from the initial sale. this is used most commonly when a company wants to involve the sales staff in collecting unsettled accounts receivable. Another divergence is to offer a special commission rate on. An inventory that management wants to eliminate from stock, they offer a special commission rate, usually before the inventory becomes outdated.
Overrides. Various commission rates may apply if a dependable target is reached. For example, the commission rate maybe 2% of sales but retroactively changes to 4% if the salesperson achieves a certain quarterly sales targets.
Splits. If more than one salesperson is involved in a sale, the commission is split. It is also possible that the manager of a sales region will earn a section of the commissions of the salespeople working in that region.
Payment delay. It can be difficult to assemble information for a commission calculation, hence the delay in making payments. Commissions are usually paid based on sales from the previous month.
For example, the commission plan of Mr. Henry is to earn 4% of all sales, less any returned merchandise. If he comes to $50,000 in sales by the end of the quarter, the commission retroactively turns to 5%. In the first quarter, he has $52,500 of sales, less $500 of returned merchandise. Consequently, the calculation of his commission for the whole quarter is:
$52,000 Net sales x 5% Commission rate = $2,600
By the end of the reporting period, If commissions are not to be paid by the end of the reporting period, then the amount of commission expense is added in a reversing journal entry, with the estimated amount of payroll taxes. This strategy is only used under the accumulate basis of accounting, and make sure that the expense is recorded in the same period as the sales transaction that prompted the commission.
How is salary plus commission Calculated?
This example shows you how to calculate a commission check based on a salesperson who sells $60,000 worth of products for one month.
On a straight commission of 10 percent for a salesperson, you calculate pay using this formula:
Total Sales x Commission percentage = Commission
$50,000 x 0.20 = $10,000
With a guaranteed base salary for a salesperson of $2,000 plus an additional 5 percent commission on all products sold, you calculate pay using this formula:
Base salary + (Total Sales x Commission percentage) = Gross pay
$3,000 + ($50,000 x 0.05) = $5,000
Having a base salary although this employee may be happier, he can count on each month, he actually makes less with a base salary because the commission rate is so much lower. By selling $50,000 worth of products he made only $3,000 in commission at 5 percent.
Without the base pay, he would have made 10 percent on the $50,000 or $6,000, so he actually got paid $1,000 less with a base pay structure that includes a lower commission pay rate.
Just $30,000 worth of products sold If he has a slow sales month, his pay would be:
$30,000 x 0.20 = $6,000 on straight commission of 10 percent
$30,000 x 0.05 = $1,500 plus $3,000 base salary, or $4,500
The salesperson would make more money with the base salary rather than the higher commission rate for a slow month.
What is the best commission rate?
There is not really any standard commission rate for independent sales representatives since commissions vary depending on what is required. Commissions for independent sales representatives can vary from as low as 5% to as high as 40%. The industry average appears to be between 20% – 30% of gross margins, or 7 – 15% of gross sales, with lower commissions “easy sales,” being offered i.e. manufactured products with a simple sales cycle and little or no service or training demanded and higher commissions being offered for sales that are more complex and have higher service requirements. In addition to the level of effort required to sell your products.