What a commission plan actually pays on
A commission plan has four moving parts, and every dispute about a pay cheque comes from one of them. The commissionable base is the pool of dollars the rate applies to. The quota is the number the plan calls 100% performance. The rate is what each dollar pays. And the band structure decides which dollars get which rate.
Start with the base, because it is the most common source of error. Some plans pay on booked revenue, some on invoiced revenue, some on collected cash, and some on gross profit. A plan paying 8% of revenue and a plan paying 20% of gross profit can produce identical cheques on a 40%-margin deal and wildly different ones on a discounted deal. Gross-profit plans exist precisely to make discounting expensive for the rep: cut the price 10% on a 40%-margin product and you cut your own commission by roughly a quarter. If you are not sure which basis your plan uses, look for the words net revenue, margin or gross profit in the plan document, and check the gross profit margin calculator to see what your deals actually contribute.
Next comes the shape. Almost every plan you will meet is one of three shapes: a flat rate on everything, a flat rate that only starts above a threshold, or a rate that steps up above quota. This calculator covers all three, because the third one is just the second with more bands.
How tiered and accelerated commission math works
Tiered commission is a marginal calculation, exactly like an income tax bracket. You do not pick one rate based on where you finished; you slice your closed business into bands and pay each band its own rate. Land at 125% of a $200,000 quota and the first $200,000 pays the base rate while only the last $50,000 pays the accelerated rate.
That is why your effective rate is almost never the accelerated rate. In the example above, an 8% base and a 12% accelerator produce a blended 8.8% on the whole $250,000. Reps who assume the headline accelerator applies to everything consistently overestimate their cheque by thousands.
Accelerators exist for a simple economic reason. The company's cost of the rep is mostly fixed: salary, benefits, tooling, management time. Once the rep clears quota, the marginal contribution of the next deal is far higher than the average, so the company can afford to share more of it and still improve its own margin. Plans therefore set the above-quota rate above the base rate, and often add a second step higher up. The default plan on this page is a typical shape: an 8% base, 12% above quota (1.5× the base) and 16% above 150% attainment (2× the base). Your own plan document is the only authority on the multiples it uses — read the rates off it rather than assuming a norm.
The threshold or cliff works the other way. Below it the plan pays nothing at all. This calculator treats the threshold as retroactive: once you clear it, band 1 pays on every dollar from zero, which is the design used by most technology and SaaS plans. Some plans instead pay only on the dollars above the threshold. At 61% attainment on a $200,000 quota and an 8% base rate, the retroactive design pays 8% of $122,000 = $9,760, while the above-threshold design pays 8% of the $2,000 excess = $160 — a $9,600 gap on identical performance, so it is worth reading your plan carefully.
Finally, note what the formula does not contain: any reference to how hard the quarter was, how many deals you worked, or how big your pipeline was. Those belong in a pipeline coverage calculation, not in a commission calculation.
Worked example: $250,000 closed against a $200,000 quarterly quota
Take a rep on a quarterly quota of $200,000 in new revenue, a $25,000 quarterly base salary, an 8% base commission rate, a 60% threshold, a 12% accelerator above quota and a 16% rate above 150% of quota. The rep closes $250,000.
- Convert the threshold into dollars. 60% × $200,000 = $120,000. The rep closed $250,000, so the threshold is cleared and band 1 opens.
- Find where the top band starts. 150% × $200,000 = $300,000.
- Slice the closed business. Band 1 is everything up to quota: $200,000. Band 2 is the amount between quota and $300,000: $250,000 − $200,000 = $50,000. Band 3 is anything above $300,000: $0.
- Pay each band its own rate. Band 1: $200,000 × 0.08 = $16,000. Band 2: $50,000 × 0.12 = $6,000. Band 3: $0.
- Add the bands. $16,000 + $6,000 = $22,000 commission.
- Attainment. $250,000 ÷ $200,000 = 125%.
- Effective rate. $22,000 ÷ $250,000 = 8.8%, not 12%.
- Total pay. $25,000 base + $22,000 commission = $47,000 for the quarter.
- Compare with OTE. At exactly 100% of quota the plan pays $200,000 × 0.08 = $16,000, so quarterly OTE is $25,000 + $16,000 = $41,000. The rep earned $47,000, or 114.6% of OTE.
Notice the leverage. Beating quota by 25% raised commission by 37.5% ($16,000 to $22,000) but raised total pay by only 14.6%, because half the package is fixed. That ratio — how much extra pay each extra point of attainment buys — is the single most useful thing to know about your own plan.
How to read attainment, effective rate and OTE
Attainment is the number your manager and your plan care about, and it is deliberately calibrated: 100% is defined as the level a fully ramped rep in a normal territory is expected to reach, which is exactly what makes OTE a meaningful target. Read the team's spread against that definition rather than against your own number. If the whole team clears quota comfortably, the quota sits below what the territories produce; if most of the team is stuck under the threshold, it sits above, and the threshold will be doing real damage to morale.
Effective rate is the number to watch across periods. It tells you the blended payout on every dollar you closed and it exposes discounting, mix shifts and band structure in one figure. If your effective rate falls while your attainment rises, your growth is coming from dollars that sit in cheaper bands — typically renewals or low-margin product.
OTE is a design target, not a promise. It is the pay you receive if you land at exactly 100% of quota, and it is built from a pay mix: the split between fixed and variable pay. A 50/50 mix is common for enterprise account executives, 60/40 for mid-market, and 70/30 or 80/20 for sales development and customer success roles where the individual controls less of the outcome. Reverse the arithmetic and you can check whether a plan is internally consistent: the base rate a plan must pay is simply target variable pay divided by quota.
Two sanity checks worth running on any plan you are offered. First, divide quota by OTE. That ratio is not arbitrary — it is the variable share of your pay mix divided by the base commission rate, so a 50/50 mix at an 8% base rate gives 0.50 ÷ 0.08 = 6.3×, and the same mix at a 6% rate gives 8.3×. Work out your own figure and compare it with the reference table below; a much lower ratio implies either an unusually high commission rate or a commissionable base smaller than it looks. Second, ask what the plan pays at 60% attainment. If the answer is zero, you are being asked to carry the risk of a bad territory personally.
Base commission rate implied by quota, OTE and pay mix
| OTE | Pay mix (base/variable) | Target variable pay | Annual quota | Implied base rate | Quota ÷ OTE |
|---|---|---|---|---|---|
| $120,000 | 50 / 50 | $60,000 | $750,000 | 8.00% | 6.3× |
| $120,000 | 50 / 50 | $60,000 | $1,000,000 | 6.00% | 8.3× |
| $160,000 | 50 / 50 | $80,000 | $1,200,000 | 6.67% | 7.5× |
| $180,000 | 50 / 50 | $90,000 | $1,500,000 | 6.00% | 8.3× |
| $90,000 | 70 / 30 | $27,000 | $450,000 | 6.00% | 5.0× |
| $75,000 | 60 / 40 | $30,000 | $600,000 | 5.00% | 8.0× |
| $200,000 | 40 / 60 | $120,000 | $2,000,000 | 6.00% | 10.0× |
Use this in reverse to audit an offer: if the quoted base rate is well below target variable pay ÷ quota, the plan cannot pay OTE at 100% attainment.
Draws, clawbacks and the rules that govern them
A draw is an advance, not a bonus. A recoverable draw that commission fails to cover leaves a balance the employer takes out of a later commission payment; a non-recoverable draw forgives the shortfall. Several states restrict an employer's ability to recover advances from wages, and once a commission is earned under the terms of the plan it is generally treated as wages under state wage-payment law. Check your state labour agency before assuming a balance is collectible.
Overtime is the other trap. Under the Fair Labor Standards Act, commissions paid to a non-exempt employee are part of the regular rate and must be worked into overtime pay. Section 7(i) exempts certain commissioned employees of retail or service establishments from overtime, but only when the regular rate exceeds one and a half times the minimum wage and more than half of the employee's compensation over a representative period of at least one month comes from commissions. Outside sales employees fall under a separate exemption. If you are non-exempt and paid partly on commission, the blended overtime rate calculator shows how the commission folds into your overtime rate.
On the company's side, ASC 340-40 requires incremental costs of obtaining a contract — sales commissions included — to be capitalised and amortised over the period of benefit rather than expensed when paid. That is why finance often books a commission over the customer's expected life even though the rep receives it in one cheque.
Mistakes that make a commission number wrong
- Applying the accelerator to every dollar. Bands are marginal. The accelerated rate touches only the dollars above quota, so the effective rate is a weighted blend of every band you reached and it only approaches your top band rate at high multiples of quota.
- Mixing the bases. A gross-profit quota against a revenue number, or bookings against collections, produces an attainment figure that means nothing.
- Forgetting the threshold is retroactive (or is not). The two designs differ by a full band of commission at attainment just above the cliff. Read the plan.
- Treating OTE as guaranteed pay. OTE is what the plan pays at exactly 100% attainment, and nothing about it is promised.
- Counting a draw as extra income. A recoverable draw is a loan against future commission and shows up later as a deduction.
- Ignoring the credit rules. Multi-year contracts, ramped deals, mid-quarter transfers and split credit change the commissionable amount long before any rate is applied.
- Assuming commission is final at booking. Many plans claw back commission on cancellations, non-payment or churn inside a stated window.
What this calculator assumes, and what it leaves out
The calculation assumes marginal bands, a single commissionable figure for one period, a threshold that is retroactive to zero once cleared, and no upper limit on payout. It nets a draw against commission in the same period the draw was paid.
It does not model commission caps, clawbacks on churn or non-payment, SPIFFs and bonuses for specific products, split credit between reps, overlay or team commissions, multi-year contract credit rules, ramped quotas for new hires, currency conversion, or the payroll and income tax withheld from the cheque. It also makes no attempt to distinguish booked from earned commission — the point at which a commission legally becomes yours is defined by the plan document and by your state's wage law, not by arithmetic.
Two related tools help with the numbers around the commission. Use the contribution margin calculator to check whether the deals you are paid on actually contribute after variable costs, and the customer acquisition cost calculator to see how commission loads into fully burdened CAC. If you are a contractor rather than an employee, the freelance hourly rate calculator is the right starting point instead.
Key terms
- Commissionable base
- The pool of dollars a rate applies to: booked revenue, invoiced revenue, collected cash or gross profit, as defined by the plan.
- Quota
- The performance level a plan calls 100%. Attainment is closed business divided by quota.
- OTE (on-target earnings)
- Base salary plus the variable pay earned at exactly 100% of quota. A design target, not guaranteed compensation.
- Pay mix
- The split of OTE between fixed and variable pay, written as base/variable — 50/50 for many enterprise sellers, 70/30 for roles with less direct control.
- Accelerator
- A higher marginal rate applied to dollars above a stated attainment. A rate that falls above a threshold is a decelerator.
- Threshold or cliff
- An attainment level below which no commission is paid at all.
- Draw
- A guaranteed advance against future commission. Recoverable draws create a balance that carries forward; non-recoverable draws do not.
- Clawback
- A contractual right for the employer to reverse commission already paid, usually on cancellation, non-payment or early churn.