How do I break down this commission structure between 3 people?

mathisnotmystrongpoint · 2023-06-16 18:42:17

Hello everyone,

Appreciate your time in helping me out with this. I have a business where employees earn extra on a tiered commission basis. Would love your help in explaining something to me so that it doesn't become a problem in the future when I try to calculate it;

So, Agent 1 always earns 70% split on commission with the company. With $100,000 for example, that would mean Agent 1 earns $70,000 and the company earns $30,000
Agent 2 always earns 50% split on commission with the company. With $100,000 for example, that would mean Agent 2 earns $50,000 and the company earns $50,000

Simple so far, right?

However, Agent 1 and Agent 2 have done a deal together and that's where I'm lost trying to figure out the best situation to do a fair split. So on $100,000 commission what would be the best/fairest way to split between 3 people, given the circumstances above?

My brain is turning to mush trying to figure this one out...

Bob · 2023-06-17 03:10:15

hi,

Welcome to the forum.

I'm a bit surprised that you have different commission rates. Doesn't this create friction within the company. I looked up Tiered Commission and found this page to be helpful:

https://spiff.com/glossary/tiered-commi … ommission.

In their examples a single member of the sales team is given higher rates when they achieve a sales target which is, after all, what commission is all about.

Do your employees know that others get different rates? Maybe Agent 1 gets more because they are given tougher assignments or ones which are more likely to fail. Then Agent 2 gets a lower rate because the tasks are easier or more likely to succeed.

One way to handle your question would be to split the money into 2 (or 3 if there are 3 agents) parts and then calculate each agents figure for their part.

eg. Say the amount is 120 000. Split into two lots of 60 000 and calculate as follows:

agent1 commission = 70% of 60 000 = 42 000. Agent 2 = 50% of 60 000 = 30 000

Or, if you want to weight the split according to the 70:50 difference you could split the amount, 120 000 in the ratio 70:50 so the calculation becomes

agent 1 = 70% of 70 000 = 49 000 and agent 2 = 50% of 50 000 = 25 000

If you do this then agent 2 will see that they're not getting as much as agent 1 whereas with the first method they only see their own figures.

Whatever you decide the best advice from the article is " it is important to consider several best practices to ensure that the plan is effective and fair for your entire team"

Hope that helps,

Bob

mathisnotmystrongpoint · 2023-06-17 16:57:17

Hi Bob,

Thank you for your help.

Yes the tiered commission structure is known by all employees and it is based on performance, dependant on total commission generated by each agent.

So, if I'm right in thinking I can also work it out like this;

Total Commission generated = 100,000
Because there are 2 agents involved in the deal plus the company, let's split that in two for the agents, 50,000 and 50,000
Agent 1 on 70% commission of 50,000 = 35,000, leaves company with 15,000 from the share
Agent 2 on 50% commission of 50,000 = 25,000 leaves company with 25,000 from the share

Company walks away with 40,000 in total which to me seems unfair because if agent 1 were to do the deal on their own they would have got 70,000 and company would have got 30,000. Again, if agent 2 were do the deal on their own they would have had 50,000 and company would have had 50,000.

In this instance I shared above, the company walks away better than both agents but I guess this is only an issue when multiple agents are involved and agents should be prepared to cut their losses to make a deal, rather than lose it entirely by trying to maximise their commission potential finding a deal on their own.

Please give me your honest opinion whether you believe this is the most straight forward/fairest way to break it down? If not, can you suggest something else?

Bob · 2023-06-17 20:19:15

I think it's fair for the company too because if the one combined job were actually two separate jobs, one for each agent, the outcome for the company would be the same.

Why not put it to the agents?

Bob

mathisnotmystrongpoint · 2023-06-18 22:12:13

Good point Bob. I will definitely put it towards the agents now. Just wanted to be sure first that I was on the right track with breaking down the commission fairly. Thanks for your help.

cheetahflycello · 2023-06-22 10:10:21

To calculate this, we need to consider the percentages each agent earns individually. Since Agent 1 takes 70% and Agent 2 takes 50%, we have a total of 120% accounted for. This means there's a remaining 80% to divide among the three agents.

To split it fairly, one way you could do it is by allocating a percentage of that remaining 80% to each agent. For example, Agent 1 could get 40%, Agent 2 could get 30%, and the third agent could get 10%. This way, everyone gets a share based on their individual commission splits, plus an additional portion from the remaining percentage.

Of course, the exact split would depend on the specific circumstances and the agreement between the agents. But I hope this gives you a good starting point to work with.

Math Is Fun Forum

#1 2023-06-16 18:42:17

How do I break down this commission structure between 3 people?

#2 2023-06-17 03:10:15

Re: How do I break down this commission structure between 3 people?

#3 2023-06-17 16:57:17

Re: How do I break down this commission structure between 3 people?

#4 2023-06-17 20:19:15

Re: How do I break down this commission structure between 3 people?

#5 2023-06-18 22:12:13

Re: How do I break down this commission structure between 3 people?

#6 2023-06-22 10:10:21

Re: How do I break down this commission structure between 3 people?

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