Employees are usually paid based on hours worked or monthly salary, while commissions are usually paid based on the price of goods and services sold. Commission payments are common for certain positions, especially for sales employees because their main job is to make money for the company. In order to calculate commissions, you will need to know the calculation system used by the company and whether there are other factors that affect the overall commission income.
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Part 1 of 3: Knowing the Terms Underlying Commission Calculation
Step 1. Know what the commission calculations are based on
In general, the commission is calculated based on the purchase price of the goods and services you sell. However, there are companies that use a different basis for calculating commissions, for example based on net income or the cost of goods paid by the company.
Ask if there are certain products and services that are not included in the commission calculation. Companies may only pay commissions for the sale of certain products and services, not all
Step 2. Find out the percentage of commission paid by the company
For example, commission payments are set at 5 percent of the selling price of all products sold.
The percentage of commission can also be determined based on the type of product. For example, a company might pay a 6 percent commission for a hard-to-sell product and only 4 percent for an easy-to-sell product
Step 3. Find out if there are other conditions in calculating the commission
For example, there are companies that determine different commission percentages based on the amount of product sales. The commission percentage will change if the sales reach a certain amount.
- In a tiered commission calculation system, the commission percentage can increase to 7 percent, for example, if product sales reach IDR 50 million.
- Some calculations involve dividing the commission amount if you successfully sell or complete a project with other employees.
Tip:
part of the commission can be paid at the beginning of the period then the rest (after deducting what was received at the beginning) will be paid at the end of the period. This calculation is called "draw againts commission".
Part 2 of 3: Calculating Commissions
Step 1. Know the commission calculation period
Commission payments are usually made on a monthly or bi-weekly basis. For example, if your commission is paid every two weeks, the period might be from January 1 to January 15. This means, the commission to be paid is calculated only based on sales made from January 1 to January 15.
- Typically, commissions will be paid based on any sales you make between commission periods. For example, if you managed to make some sales in January, you might not get the commission until February.
- There may also be other factors that determine the timing of commission payments, depending on your company's business operations. For example, some new companies will pay a commission after receiving full payment from the customer for the product or service sold.
Step 2. Calculate the commission based on sales during the period
For example, if your commission is calculated based on the purchase price of the product sold and from January 1 to January 15 the total is IDR 30,000,000, your commission will be calculated from IDR 30,000,000.
If the commission percentage is determined by product type, commission calculations must be made for each product. For example, if you sell two products with the same amount of sales but different commission percentages, remember that you sell product A for $15,000 and product B for $15
Do you know?
There are various approaches that companies use to determine commissions. For example, the commission you receive may be calculated based on the gross profit margin or net profit of the products and services you offer.
Step 3. Multiply the commission percentage by the commission calculation basis during the sales period to calculate the commission you will receive
For example, if your product sales amounted to Rp. 30,000,000 from January 1 to January 15 and your commission percentage is 5 percent, the commission you receive is Rp. 1,500,000.
In some cases, you may need to calculate the real sales amount based on the commission you receive. Assuming that your commission is calculated as a percentage directly, you can calculate it by dividing the commission amount by the commission percentage (eg Rp1,500,000/0.05 = Rp30,000,000)
Step 4. Consider variable commission percentages
Some commission percentages may differ based on what product or service you sell. If your commission percentages differ by product type, multiply each commission percentage by each sales and then add up.
For example, say you sell product A for $15,000 with a 3% commission and product B for $15,000 with a 6% commission. This means that the commission payment for product A is IDR 450,000 and for product B is IDR 900,000. Thus, the total commission you receive is IDR 1,350,000
Step 5. Calculate tiered commissions
If the commission percentage changes according to the number of products sold successfully, multiply each commission percentage by the total sales in that range and then add up the results. For example, let's say you managed to sell $30,000 worth of products with 4% commission for the first $25 then 6% for the rest. That means, the commission you receive for the first range is IDR 1,200,000 and IDR 300,000 for the next range. Thus, your total commission is IDR 1,500,000.
In other cases, a larger percentage may be used for all sales if certain targets are met. For example, your commission percentage will increase from 4% to 5% if you sell more than IDR 30,000,000. The 5% percentage will be used to calculate the total commission you will receive if you reach this target
Part 3 of 3: Making the Necessary Adjustments
Step 1. Pay attention to whether there is a commission sharing
Commission sharing occurs when a sale involves more than one salesperson and they agree to share the commission. Alternatively, the sales manager area can receive commissions from the salespeople in the area concerned.
Do you know?
Commission sharing is common in real estate transactions. Real estate agents often share their commission with one or more agents who are also involved in selling the property.
Step 2. Consider any additional bonus structures or related incentives
In addition to using direct percentages, the commission calculation structure can also use numbers derived from more complex incentive calculations for a salesperson or other commissions earned individually.
For example, if you manage to earn the highest amount of commission within a section or team, you may be entitled to a top performance bonus
Step 3. The company may reduce your commission amount if a product or service is returned by a customer
You may also lose commission if payment for your service is not successfully billed for some reason (for example, a customer ordered the service and then canceled it).
