Worked example
A $100,000 sale with $60,000 cost of goods (40% margin), comparing 20% of margin with 6% of revenue, and testing a 10% discount.
| Input | Value |
|---|---|
| Sale price (before discount) | $100,000.00 |
| Cost of goods sold | $60,000.00 |
| Commission rate on gross margin | 20% |
| Commission rate on revenue | 6% |
| Discount to test | 10% |
| Result | Value |
|---|---|
| Commission on margin | $8,000.00 |
| Commission on revenue | $6,000.00 |
| Margin plan as a rate on revenue | 8% |
| Gross margin | $40,000.00 |
| Gross margin % | 40% |
| Margin commission after discount | $6,000.00 |
| Revenue commission after discount | $5,400.00 |
| Change in margin commission | -25% |
| Change in revenue commission | -10% |
- Gross margin: price − cost: $40,000.00
- Margin commission: margin × margin rate: $8,000.00
- Revenue commission: price × revenue rate: $6,000.00
- Revenue-equivalent rate: margin commission ÷ price: 8%
- Discounted price: $90,000.00
- Discounted margin: discounted price − cost: $30,000.00
- Margin commission change: -25%
- Revenue commission change: -10%
Formulas
Gross margin = sale price − cost of goods sold
Margin commission = gross margin × margin rate
Revenue-equivalent rate = margin commission ÷ sale price = margin rate × margin %
Discounted margin = sale price × (1 − discount) − cost of goods sold
Because cost does not move when price does, a discount comes entirely out of margin. In the default example a 10% price cut removes 10% of revenue but 25% of margin, so a margin-paid rep loses 25% of the commission while a revenue-paid rep loses 10%. That leverage is the main reason companies pay on margin.
How to read the results
- Revenue-equivalent rate — the revenue rate that would pay the same on this deal. It only holds at this margin %; on a lower-margin deal the margin plan pays less.
- Change after discount — the percentage drop in each commission. It does not depend on the rates, only on how much of the base disappears.
- To find the flat revenue rate that pays a target variable at quota, use the commission rate calculator.
Limitations
- One deal, one cost figure. Margin definitions (freight, rebates, services cost) vary by company; use the one in your plan.
- Negative margins are shown as negative commission with a warning rather than silently set to zero, because plans treat them differently.
- We do not publish typical margin rates or revenue rates — we have no sourced benchmark data.
Frequently asked questions
How do you calculate commission on gross margin?
Subtract the cost of goods from the sale price to get gross margin, then multiply by the margin commission rate. A $40,000 margin at 20% pays $8,000.
How do I convert a margin rate to a revenue rate?
Multiply the margin rate by the margin percentage. 20% of a 40% margin is equivalent to 8% of revenue — but only on deals with exactly that margin.
Why do margin plans discourage discounting?
A discount reduces price while cost stays fixed, so the margin shrinks proportionally more than revenue. The rep’s commission shrinks with it.
Do reps need to see cost data on a margin plan?
They need enough to predict their pay. Some companies publish a standard cost per product rather than actual cost; whichever you use, it must be the same figure the payout is calculated on.