What is sales commission and how to calculate commission rates?

Sales commission is an amount paid to the sales agent or rep agency based on either a percentage of the sale's value or on a percentage of the gross margin.

While there is no set formula for calculating commission rates payable to freelance sales agents and the fact that sales commissions are always negotiable, it's ok to play around with the figures until you hit that sweet spot.

Typically commission rates for physical products will be slightly lower than those of service providers. This is generally because the costs associated with manufacturing physical products are much higher than a service provider's overheads.

Typically, we see sales commission levels for manufactured products sit somewhere in the region of around 7 - 15% on the sale value, or 20 - 40% on the gross sales margin, which is calculated by subtracting each sale's direct expenses.

On average, services pay a much higher commission percentage due to much lower overheads. You'll see commissions of anywhere between 20 - 50%+ offered, especially when selling online SaaS services for which expenses incurred per sale are significantly lower.

You might think those figures are high, but what you have to bear in mind is that independent sales reps not only incur their own expenses while selling your products and services - especially if developing their own territories - but they are potentially giving you access to their existing networks of contacts that have been nurtured over several years, and this comes at a price.

Useful Links

Commission Calculator

Margin Calculator

Did this answer your question?