Sales Commission Calculator

Frequently Asked Questions

What is a typical sales commission rate for contractors?

Commission on revenue commonly runs 4% to 10% for in-home sales roles in HVAC, roofing, and solar, while commission on gross profit typically runs 20% to 40%. The two are not as different as they look: 8% of revenue on a job carrying 35% gross margin is about 23% of gross profit. What varies far more than the headline rate is whether the plan pays on revenue or on margin, and whether there is a base salary underneath it.

Should contractors pay commission on revenue or gross profit?

Gross profit, in almost every case. Paying on revenue means a rep who discounts to close still gets paid on the discounted price, so the entire cost of the discount falls on the company while the rep barely feels it. Paying on gross profit makes the rep a partner in the margin: a 10% price cut can cut their commission by a third, so they defend price without being told to. The main argument for revenue-based plans is simplicity and the fact that reps can verify the number themselves.

What is a draw against commission?

A draw is a guaranteed regular payment advanced against future commissions. A recoverable draw is a loan: if a rep draws $4,000 a month and earns $3,000 in commission, the $1,000 shortfall carries forward and is deducted from a later strong month. A non-recoverable draw is effectively a base salary — the shortfall is forgiven. Recoverable draws are common during ramp-up, but a rep who is persistently behind on a recoverable draw is usually a rep who is about to quit owing money.

How do tiered commission plans work?

A tiered plan raises the commission rate as performance rises — for example 20% of gross profit up to $30,000 of monthly margin, 25% from there to $60,000, and 30% above that. Tiers are usually applied marginally, meaning each rate applies only to the portion of margin inside that band, not retroactively to everything. Tiering on gross profit rather than revenue is the stronger design, because it accelerates pay for reps who hold price rather than reps who simply write large discounted tickets.

What should total sales compensation cost as a percentage of revenue?

For residential replacement work, all-in sales cost including base, commission, and payroll burden commonly lands between 8% and 14% of revenue, and it should be evaluated against gross profit rather than revenue. If total selling cost consumes more than about a third of gross profit, either the pricing is too thin to support a commissioned sales force or the plan is paying for activity rather than margin. Comparing cost per sold job against average job margin is more informative than any industry benchmark.

Should commission be paid on the sale or on collection?

Paying on collection protects cash and aligns the rep with the outcome, and it is the more common structure on larger tickets and financed work. Paying at signature is faster and reps prefer it, but it exposes you to paying commission on a job that cancels, gets a financing denial, or never collects. A middle path many contractors use is a partial payment at signature with the balance on collection, which keeps motivation intact while limiting clawback disputes.

Does commission get paid on financed jobs at the full ticket price?

That depends on how you treat dealer fees, and it is worth writing down explicitly. Third-party financing typically costs the contractor a dealer fee that reduces net proceeds, sometimes substantially on long zero-interest terms. If commission is paid on the gross ticket, the dealer fee is absorbed entirely by the company, which can make a financed sale less profitable than a cash sale at a lower price. Deducting the dealer fee before calculating gross profit keeps the incentive honest.

How do you handle commission clawbacks on cancelled jobs?

Define it in the plan document before it happens, because clawbacks are the most common source of sales-comp disputes. Typical practice is that commission on a cancelled or unfinanced job is reversed against the next commission payment, with the plan stating clearly how long the cancellation window runs and whether callbacks or warranty failures are also chargeable. Several states restrict deductions from earned wages, so confirm the mechanics with an employment attorney in your state rather than assuming.