How do you calculate commission?
The basic formula is simple:
Commission = commission basis × commission rate
The hard part is everything around it: which basis, which rate at which level, and what happens when a deal changes afterwards.
Example 1: flat rate
8% of invoiced revenue. The rep invoices DKK 300,000 in the month.
| Calculation | Commission |
|---|---|
| DKK 300,000 × 8% | DKK 24,000 |
Read more about flat rate commission.
Example 2: tiered
Quarterly target of DKK 1,000,000. Each tier pays its own rate on the revenue inside the tier. The rep reaches DKK 1,200,000.
| Tier | Revenue in tier | Rate | Commission |
|---|---|---|---|
| 0-70% of target | DKK 700,000 | 5% | DKK 35,000 |
| 70-100% | DKK 300,000 | 8% | DKK 24,000 |
| Above 100% | DKK 200,000 | 12% | DKK 24,000 |
| Total | DKK 1,200,000 | DKK 83,000 |
Note: the rate applies only to the revenue inside the tier, not the whole amount. That is the most common calculation error. See tiered commission.
Example 3: accelerator
8% up to the DKK 1,000,000 target, 12% on everything above. Same result of DKK 1,200,000:
| Part | Calculation | Commission |
|---|---|---|
| Up to target | DKK 1,000,000 × 8% | DKK 80,000 |
| Above target | DKK 200,000 × 12% | DKK 24,000 |
| Total | DKK 104,000 |
Work backwards from OTE
The rate should come from pay, not the other way round. If a rep should earn DKK 360,000 a year in variable pay on an annual target of DKK 4,500,000, the average rate is 360,000 / 4,500,000 = 8%. Run your own numbers in the OTE calculator.
The mistakes that cost the most
- The whole amount at the top rate. Tiers are calculated tier by tier unless the agreement says otherwise.
- Forgotten corrections. Credit notes, discounts and cancellations after close must be offset. See correction and clawback.
- Wrong period. If the deal closed in March but was invoiced in April, which month does it count in?
- Shared deals. Without a fixed rule for split commission, every deal becomes a negotiation.
Commission calculation in Prowi
Prowi calculates commission automatically from CRM data, deal by deal, with every tier and correction, and shows reps the amount straight away. See commission management.
In Prowi
Every term on this page is a rule you can write into a commission model in Prowi. The model reads the deal from HubSpot the second it closes, applies the rule, and the rep sees the result on their phone before the day is over.