Commission-to-Revenue Ratio
Commissions paid as a percentage of revenue generated
What is Commission-to-Revenue Ratio?
Commission-to-revenue ratio is the percentage of revenue paid out as sales commission. It shows how much of income goes to reward the sales team.
It is a key cost measure, since commission plans that pay too much can hurt profit while those that pay too little can lose talent.
How this KPI is measured
- Function
- Sales
- Sub-function
- Sales Cost Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Total commissions paid / Total revenue) × 100
How to calculate it
Divide total commissions paid by total revenue, and multiply by 100.
For example, if commissions of 240,000 were paid on revenue of 3,000,000, the ratio is 8%.
Compare with industry norms and with your margins, and check whether commission is driving the behaviours you want.
Where it is used
Managing sales cost
Keep pay in proportion to revenue.
Designing plans
Test the cost of a scheme.
Forecasting
Budget commission cost.
How to improve it
Tips and common mistakes
- Look at commission as a share of margin as well.
- Simple plans are easier to understand and run.
- Ensure plans comply with employment rules.
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