Looking for a sales job with a good commission rate? As a sales recruiter for over a decade, I’ve learned that, while every sales candidate wants a great commission, determining what qualifies as a good sales commission depends on various factors, including the industry, company size, and sales structure. While some industries offer higher commission rates to attract top talent, others operate with lower percentages. Factors such as economic conditions, product type, and sales cycle length influence commission structures. Understanding these differences can help sales professionals assess job opportunities and ensure they receive fair compensation for their efforts.

Below, I’ll use my experience and my fellow recruiters at SalesForce Search, to review with you:

• What makes a good sales commission
• 9 factors affecting sales commission rates
• 6 ways sales commissions are calculated

What Is A Good Sales Commission?

What is considered a good sales commission varies significantly across industries. A high commission rate in one sector could be considered low in another. This variation stems from differences in customer expectations, sales cycles, budgets, pricing, and other considerations. 

Here’s a list of sales commission ranges in some industries to give you an example of how rates can vary:

• Tech industry – 5% to 20%
• Real estate – 4% to 8%
• Insurance – 5% to 15%
• Auto sales – up to 5%
• Finance – 1% up to 10%
• Retail – up to 15%
• Advertising – 5% to 20%
• Pharmaceutical – 2% to 10%

Your commission percentage can also vary based on your role – sales rep, account manager, or sales director. 

What Factors Affect Sales Commission Rates?

There are a lot of considerations that go into establishing commission rates. Here are some of the most commonly used by sales organizations:

1. Organization size: Larger companies generally have more financial resources to allocate for commissions compared to small startups. So they may offer higher rates. 
2. Location: Commission rates can vary by city and country due to differences in the cost of living. Companies in larger cities may pay higher commissions than companies in smaller towns. 
3. Economic conditions: During economic downturns, businesses may have less cash flow available to pay high commission rates.
4. Product type & sales cycle: Products with longer sales cycles often require sales reps to build and maintain relationships over time, justifying higher commission rates.
5. Sales experience: Experienced sales professionals typically earn higher commission rates than those new to the field. The same is true for people in more senior positions within the company. 
6. Deal size: Larger deals tend to have lower commission percentages, whereas smaller deals may offer higher rates to compensate for volume.
7. Sales cycle length: Industries with extended sales cycles, such as software, often have lower commission rates.
8. Market competition: In highly competitive industries like real estate and insurance, commission rates are often higher to attract and retain top sales talent.
9. Quota requirements: Companies with aggressive sales quotas may offer higher commission rates as an incentive for meeting challenging targets.

How Are Sales Commissions Calculated?

Sales commissions can be calculated using several methods. Sales professionals need to understand how commissions are calculated when considering a potential job. How commissions are calculated could have a big impact on your annual salary. Of course, some jobs come with a base salary with commission on top of that. (If you’re wondering whether you should take a job with no  base salary check out our post: Should You Take A Commission Only Sales Job?

In general, sales commissions are calculated based on a percentage of the sales revenue or profit generated by a salesperson. The specific calculation method depends on the commission structure used by the company. Here are the most common methods:

1. Flat-Rate Commission

This is a fixed percentage applied to every sale. For example, a sales rep receives 10% of sales. If the commission rate is 10% and a salesperson sells a product worth $1,000, the commission earned is $100.

2. Tiered Commission

With a tiered system, the commission rate increases as sales volume or revenue reaches certain thresholds. The more you sell, the higher the potential commission you can make. For example:

• Up to $5,000 → 5% commission
• $5,001 – $10,000 → 6% commission
• $10,000+ → 8% commission

3. Profit-Based Commission

You earn a percentage of the profit, not total sales revenue. For example, if you sell an item for $1,000, but it costs $500 to produce, you will get a commission on the $500 profit. So, if your commission is 10%, you’ll make $50 in commission. 

4. Draw Against Commission

The salesperson received a fixed amount as an advance (draw) against future commissions. If commissions exceed the draw, they receive the extra amount. For example, you are given a $1,000 monthly draw. At the end of the month, you earned $2,000 in total commission. You would then receive an additional $1,000 top-up. 

5. Residual Commission

Instead of a one-time commission payment, the salesperson continues to earn commissions on recurring sales, such as subscription fees. So, if you sell a monthly subscription to a customer for $50 and earn a 10% commission, you would get $10 per month as long as the subscription is active.

6. Bonus-Based Commission

Under this compensation plan, salespeople receive additional bonuses when they meet certain targets. For example, if you reach $10,000 in sales, you get a $250 bonus on top of regular commission/base pay. 

Each company may have different commission structures based on industry standards and business goals. Would you like a custom commission calculation example?

A Final Word on Sales Commissions and How They Are Calculated

Sales commissions play a crucial role in motivating and rewarding sales professionals. With various commission structures available salespeople need to understand how their earnings are calculated. Factors like industry standards, experience level, and market competition all contribute to commission variability. By evaluating these elements, both employers and employees can develop fair and competitive compensation plans that drive sales performance and business success.

Read More About Sales Commissions

12 Green Flags You’re In An Ideal Sales Environment (and 12 red ones that you’re not)

Should You Take A Commission Only Sales Job?

13 Reasons Salespeople Give For Not Hitting Sales Targets

Are You Getting Paid Fairly As A Salesperson? 5 Compensation Types & 6 Things To Watch Out For