Sales commissions are paid to employees or companies that sell merchandise in stores or by calling on customers. The commission is meant to motivate sales persons to sell more. A commission may be paid in addition to a salary or instead of a salary. Common places that commissions are paid are in real estate marketing. This is a fee paid for services, usually a percentage of the total cost. Example: Jack’s Gallery sold Amanda’s painting for \$500, so Amanda paid them 10% commission (\$50).

Sales Commissions is the amount of money that an individual receives based on the level of sales he or she has obtained. A commission is generally a percentage of the sales price of an item. For example, if a salesperson receives a 10% commission on their sales and sells \$1500 worth of merchandise, they would earn \$150 in commissions. The salesperson is provided a certain amount of money in addition to his/her standard salary based on the number of sales obtained.

Explanation

A commission sales structure utilizing the percent of sales structure uses a percent to calculate commission based on sales. For example, if Jan’s salesperson sold a \$50,000 car and Jan agreed to pay him one percent of the sales, the salesperson would make \$500.

This structure works best when the product is a want, rather than a need. A need is essential to living, while a want is a desire. If you have a business where you must convince a customer to purchase a particular product or service, then a percent of sales structure encourages your employees to sell, because otherwise they do not get paid.

Example 1: Only commission

Sharon makes money by commission rates. She gets 17% of everything she sells. If Sharon sold \$37000 worth of items this month, what is her salary for the month?

Amount of money made = Base salary + (Amount sold × Commission percentage)

= 0 + (\$37000 × 17%)

= \$6290

Example 2: Base salary and commission

Jose makes 10000 a month plus some money by commission rates. He gets 6% of everything he sells. If Jose sold \$59000 worth of items this month, what is his salary for the month?

Amount of money made = Base salary + (Amount sold × Commission percentage)

= \$10000 + (\$59000 × 6%)

= \$10000 + \$3540

= \$13540

Example 3: Base salary and commission with quotas

Tiffany makes a base monthly salary of \$3600. As a vendor, she must sell \$17000 worth of items per month. She also makes a 5% commission on all sales beyond the monthly quota. If Tiffany sold \$23800 worth of items this month, what is her total salary for the month including base salary and commission to the nearest dollar?

The amount of money Tiffany makes from the commission is based on how much she sold this month over the quota.

Amount of money made = Base salary + (Amount sold over quota × Commission percentage)

= \$3600 + ((\$23800 – \$17000) × 5%))

= \$3600 + (\$6800 × 5%))

= \$3600 + \$340

= \$3940

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