Your comp plan says you earn 10% commission. But at the end of the quarter, your actual rate was closer to 7.2%. What happened?
Welcome to the world of effective commission rate - the number that actually matters.
Stated Rate vs. Effective Rate
Your stated rate is what's written in your comp plan. Your effective rate is what you actually earned as a percentage of total revenue closed.
Effective Rate = Total Commission Earned ÷ Total Revenue Closed
These numbers differ because of tiers, thresholds, clawbacks, and deal mix.
Why Your Effective Rate Is Lower
Common reasons your effective rate falls below your stated rate:
- Tiered structures - Early revenue earns less than later revenue
- Thresholds - No commission until you hit a minimum
- Deal mix - 1-year deals often pay less than multi-year
- Clawbacks - Churned customers reduce your total
- Splits - Shared deals mean shared commission
Example Calculation
Let's say you closed $500K this quarter with this tiered structure:
| Tier | Revenue Range | Rate | Commission |
|---|---|---|---|
| 1 | $0 - $200K | 6% | $12,000 |
| 2 | $200K - $400K | 8% | $16,000 |
| 3 | $400K - $500K | 10% | $10,000 |
| Total | $38,000 | ||
Your effective rate: $38,000 ÷ $500,000 = 7.6%
Even though your top tier is 10%, your blended effective rate is only 7.6%.
💡 Pro tip
Track your effective rate every quarter. If it's trending down, you might be closing too many small deals or losing deals to clawbacks.
How to Improve Your Effective Rate
- Front-load big deals - Get through low tiers faster
- Push multi-year contracts - Usually pay higher rates
- Reduce churn - Every clawback hurts your effective rate
- Avoid splits when possible - Own your deals fully
Track your real commission rate
Comish calculates your effective rate automatically as you log deals.
Try Comish Free →Bottom Line
Don't fixate on your stated rate. Know your effective rate - it's the number that hits your bank account.