Sales commission is a cornerstone of compensation in industries ranging from real estate and automotive to software and insurance. Unlike a flat salary, commission ties your earnings directly to your performance, rewarding you for every deal closed. Understanding how commission works is essential whether you are evaluating a job offer, negotiating better terms, or simply budgeting your monthly income.

Straight Commission

In a straight commission model, your entire income comes from the percentage you earn on each sale. There is no base salary or guaranteed minimum. This structure is common among independent real estate agents and freelance sales representatives. While it carries the highest financial risk during slow periods, it also offers the highest earning potential for top performers with no cap on income.

Base Salary Plus Commission

The most common structure in corporate sales, base-plus-commission guarantees a fixed monthly salary while adding commission on top for every sale closed. The base provides financial stability for covering living expenses, while the commission component motivates performance. A typical split might be 60/40 or 70/30, where 60-70% of your on-target earnings come from base salary and the remainder from commission.

Tiered Commission

Tiered commission structures reward salespeople with progressively higher rates as they exceed sales thresholds. For example, a rep might earn 5% on the first $50,000 in sales, 8% on sales between $50,001 and $100,000, and 12% on everything above $100,000. This accelerator model is designed to push top performers to close more deals once they surpass their quota.

Commission Splits

In many industries, the stated commission rate is split between the salesperson and the company or brokerage. Real estate is a classic example: a 6% commission on a home sale is typically divided between the listing agent and the buyer's agent, and each agent then splits their share with their brokerage. A 70/30 brokerage split on a 3% agent commission means the agent keeps 2.1% and the brokerage retains 0.9%.

Calculating OTE (On-Target Earnings)

On-Target Earnings represent the total compensation a salesperson can expect when hitting 100% of their sales quota. OTE is calculated by adding the annual base salary to the expected annual commission at quota attainment. For example, if your base salary is $60,000 per year and your expected commission at quota is $40,000, your OTE is $100,000. Employers use OTE as the headline figure in job postings, so always ask for the quota amount and historical attainment rates to assess how realistic the OTE truly is.

Commission rates differ dramatically across industries based on deal size, sales cycle complexity, and profit margins. The table below provides a general reference for the most common industries that use commission-based compensation.

Note: These are industry averages. Actual rates depend on your specific employer, territory, product, experience level, and whether the commission is based on revenue or profit margin.

The commission formula is straightforward, but the method varies depending on your compensation structure. Below are three worked examples covering the most common scenarios.