Worked example
A rep with $1,500,000 of revenue at a 10% commission rate on a plan capped at $120,000 of commission for the period.
| Input | Value |
|---|---|
| Revenue for the period | $1,500,000.00 |
| Commission rate | 10% |
| Commission cap | $120,000.00 |
| Result | Value |
|---|---|
| Commission paid | $120,000.00 |
| Commission forfeited to the cap | $30,000.00 |
| Uncapped commission | $150,000.00 |
| Effective rate before cap | 10% |
| Effective rate after cap | 8% |
| Revenue at which the cap binds | $1,200,000.00 |
- Uncapped commission: revenue × rate: $150,000.00
- Paid: lower of uncapped commission and cap: $120,000.00
- Forfeited: uncapped − paid: $30,000.00
- Effective rate after cap: paid ÷ revenue: 8%
- Cap binds at: cap ÷ rate: $1,200,000.00
Formulas
Uncapped commission = revenue × commission rate
Commission paid = min(uncapped commission, cap)
Forfeited = uncapped commission − commission paid
Effective rate after cap = commission paid ÷ revenue
Revenue at which the cap binds = cap ÷ commission rate
Beyond the binding point the marginal rate is zero: closing one more deal adds revenue but no pay. That is the behavior a cap is designed to create, and also the one reps notice first — deals can slip into the next period once the cap is reached.
How to use it
- Enter the revenue credited for the period the cap covers (month, quarter or year — match the cap).
- Enter a flat rate, or leave the rate and type the uncapped commission directly if your plan is tiered or accelerated. The accelerator calculator can produce that figure.
- Enter the cap. If the plan caps total pay instead of commission, subtract base salary first.
Limitations
- When you enter the uncapped commission directly, the binding revenue assumes the same average rate at every revenue level, which is only approximate on a tiered plan.
- Soft caps (a lower rate above a threshold rather than a hard stop) are not modelled; a plan simulation handles them.
- We do not say whether a cap is a good idea for your team or publish how common caps are — we have no sourced data on that.
Frequently asked questions
How does a commission cap work?
The plan calculates commission normally, then pays the lower of that amount and the cap. Anything above the cap is not paid in that period.
At what revenue does my cap start to bind?
Divide the cap by your commission rate. A $120,000 cap at 10% binds at $1,200,000 of revenue; every dollar sold above that pays nothing.
What is the difference between a cap and a decelerator?
A cap stops pay entirely above a point. A decelerator keeps paying, at a reduced rate. The marginal rate is zero under a cap and positive under a decelerator.
Does a cap change my effective commission rate?
Only once it binds. Below the cap the effective rate equals your plan rate; above it, the effective rate falls as revenue grows because pay stays flat.