Commission — Definition, Formula & Examples
Commission is a fee someone earns for making a sale, usually calculated as a percentage of the total sale price. For example, a salesperson who earns 5% commission on a $200 sale receives $10.
A commission is a form of variable compensation determined by applying a fixed rate (expressed as a percent) to the value of goods or services sold, such that the amount earned is directly proportional to the sale amount.
Key Formula
Where:
- = Commission earned (in dollars)
- = Total sale price (in dollars)
- = Commission rate (as a decimal)
How It Works
To find commission, multiply the sale price by the commission rate written as a decimal. If you know the commission amount and want to find the sale price, divide the commission by the rate. Some jobs pay only commission, while others pay a base salary plus commission.
Worked Example
Problem: A real estate agent earns a 6% commission on every home sold. If she sells a house for $250,000, how much commission does she earn?
Convert the rate: Write 6% as a decimal.
Apply the formula: Multiply the sale price by the commission rate.
Answer: The agent earns $15,000 in commission.
Why It Matters
Commission problems appear frequently on standardized math tests as percent applications. Understanding commission also prepares you for real-world situations — from evaluating job offers in sales careers to understanding fees charged by financial advisors and real estate agents.
Common Mistakes
Mistake: Forgetting to convert the percent to a decimal before multiplying.
Correction: Always divide the percentage by 100 first. For instance, 6% becomes 0.06, not 6.