In Business Sales Commission Increases Sales: Ways to Calculate Commission
How Do You Calculate Sales Commissions?
Commission or brokerage is percentage or an allowance that a person gets for doing his business. It may be related to selling or buying of goods etc. This article mainly focuses on how to calculate commission rate.
The simplest type of commission problem involves is finding the commission when the rate of commission is a uniform amount for each item transacted. Example: A newsboy receives $.15 for each Weekly Women’s Magazine that he sells. What is the amount of his commission, if he sells 125 copies? Solution: 125 x $0.15 = $18.75.
If the rate of commission is expressed as per cent, the commission is based on the total amount transacted. And the formula used is: Commission = Sales x Rate of Commission. Example: Marvin Rock sold through a real estate agent, a house and lot for $170,000. The agent charged 5 ½% of the sale price for his services.
How much was his commission? Solution: $170,000 x .055 = $9,350.
If commission and sales are known and the rate of commission is unknown, the relationship may be re-expressed as: Rate of Commission = Commission + Sales. Example: An agent received a commission of $99.00 for selling a refrigerator worth $1,800.00. What was his rate of commission? Solution: $99.00/$1,800.00 = .055 or 5.5% or 5 ½%.
If commission and rate of commission are known and the sales are unknown, the relationship may be re-expressed as: Sales = Commission/Rate of Commission. Example: For selling a 1975 Toyota car, Peter Marx received $1,365.00 which is 7% of the purchase price of the car. At what price was the car sold? Solution: $1,365.00/.07 = $19,500.00
Commission merchants may be paid on a straight commission basis, on a salary-and-commission basis, and on a graduated commission basis. In the cases where payments are made on a salary-and-commission basis, the commission is usually based on a fixed amount of sales known as quota. Under this, the salesman receives only his salary in the event he fails to meet the quota. If he exceeds the quota, then commission is granted him in addition to his regular salary. Thus, a salesman may earn only as much as the effort he exerts in his work.
Example: John Martin, a salesman, receives a monthly salary of $550.00 plus 3% commission on sales over $50,000.00. What was his total earning during the month of May if his sales amounted to $63,415.00?
Solution:
$63,415.00 - $50,000.00 = $13,415.00
$13,415.00 x .03 = $402.45 (commission)
$402.45 + $550.00 = $952.45 (total earnings)
Some business firms do not pay any regular salary to their salesman, especially if they are new with the company. Instead, a form of graduated commission is offered. Later, when the salesman has proven himself capable, then a regular salary may be given in addition to a percentage commission.
Example: George Ken of International Mutual Fund and Investment Corporation receives a commission of 3% on the first $12,000.00 sale, 4% on the next $12,000.00 and 5%on all sales in excess of $24,000.00. What commission did he get last month for sales which amounted to $30,000.00?
Solution:
$12,000.00 x .03 = $360.00
$12,000.00 x .04 = $480.00
$6,000.00 x .05 = $300.00
Total Commission: $1,140.00
Commission or brokerage is an allowance or percentage made to a person for performing a business services, like buying or selling goods or property and collecting money for another. Commissions provide additional incentives for the salesman to increase his sales; a person whose compensation is partly or wholly in terms of commissions is referred to as an agent, a solicitor, a broker or simply a commission merchant. The individual or business firm for whom the commission merchant acts is called the principal.
Source of idea: my old notes when I took up Business Mathematics