How to Calculate Tiered Gross Margin Commission

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Some companies choose to pay sales professionals commission based on the tiered gross margin percentage. This tiered system provides a monetary incentive for the sales professional to sell products at the highest possible price. Under this model, sales professionals receive a higher commission percentage as the gross margin percentage increases.

Subtract the cost of the product from the sales price. For example, assume a salesperson sold a product that cost $100 for $150. $150 - $100 = $50. This figure represents the gross margin for the product.

Divide the gross margin by the cost of the product. Continuing the same example, $50 / $100 = 50 percent. This figure represents the gross margin percentage for the sale of the product.

Determine the commission tier based on the gross margin percentage. For example, assume a company pays 10-percent commission on sales that result in a gross margin percentage of 35 percent or less, a 25-percent commission on sales that result in a gross margin percentage of between 36 and 60 percent and a 40-percent commission on sales that result in a gross margin percentage greater than 61 percent. Continuing the same example, the product sale would result in a 25-percent commission since the actual gross margin percentage was between 36 and 60 percent.

Multiply the appropriate commission tier percentage by the gross margin. Continuing the same example, $50 x 0.25 = $12.50. This figure represents the tiered gross margin commission for the sale of the product.

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