Calculating the sales commission as a percentage of the sales revenue is the most common way to do this. Here is what you need to know.

What should be the sales commission cost as a percentage of revenue?

A typical rate would be 10% in software companies. But it can vary from 0% to 30%. What makes this rate vary so much is the way compensation plans are designed. Base salaries, quotas and accelerators will obviously modify the level of commissions.

Compensation plans should have a good balance between base salaries, commissions, and an alignment with business strategy.

Because every company has different goals at different moments, every compensation plan should be unique, and therefore commission rates.

 

How do you calculate sales commission percentage?

The calculation is pretty basic.

commission rate = (commission / sales price) x 100

 

CCOS or sales commissions ?

The CCOS or Compensation Cost of Sales, adds base sales reps’ salaries to the formula. It’s much more representative of your sales team’s efficiency. Sales commissions are useful for finance calculations, CCOS to measure sales representative performance. The commission is more of a sales rep point of view, while COOS is more a company point of view.

Commissions

Commissions = sales revenues * commission rate

Ex : 800 = 10000 x 8%

With an 8% commission rate, this sales rep would earn 800$ for a 10,000$ deal.

CCOS

CCOS = (base salaries + variable commissions) / sales revenues

Ex : 58% = (5000 + 800) / 10000

With a 58% CCOS, a sales representative is paid 0.58$ for every dollar of revenue he brings.