Understanding Commission-Based Sales Revenue: A Breakdown of Salary and Commission Calculations

Understanding the intricacies of salary and commission in the realm of sales is crucial for both sales professionals and employers. In this article, we will walk through a specific scenario involving a commissioned salesman to explain how to calculate the value of goods sold based on given salary and commission rates. We will also provide formulas and steps that can help you solve similar problems.

Salesman's Salary and Commission Structure

Consider a salesman who is paid a basic monthly salary of Sh. 6500, and he receives a commission of 8% on all sales above Sh. 70000. One month, he earned a total of Sh. 13700. This article aims to derive the total sales value for that month based on his earnings, examining the component of his salary and commission in detail.

Calculating the Commission Earnings

The first step is to subtract the basic salary from the total earnings to isolate the commission earned:

Commission earnings Total earnings - Basic salary
Salesman's earnings - Sh. 13700 - Sh. 6500 Sh. 7200

Step 1: Isolation of the Commission Component

Sh. 13700 - Sh. 6500 Sh. 7200

The commission amount of Sh. 7200 is given on the sales portion, which is over Sh. 70000.

Applying the Commission Rate to Determine Total Sales

The commission rate of 8% is the percentage of sales value above the base threshold of Sh. 70000. Therefore, we can set up the equation to find the total sales value:

Step-by-Step Equation Breakdown

Define the commission as a percentage of the sales value over Sh. 70000. Use the formula: Commission 0.08(x - Sh. 70000), where x is the total sales value. Rearrange the equation to solve for x:

Sh. 7200 0.08(x - Sh. 70000)

Multiply both sides by 100 to remove the decimal:

Sh. 7200 / 0.08 x - Sh. 70000

Add Sh. 70000 to both sides to isolate x:

x (Sh. 7200 / 0.08) Sh. 70000

Solving the Equation

Calculate the value:

Sh. 7200 / 0.08 Sh. 90000
Sh. 90000 Sh. 70000 Sh. 160000

Therefore, the total sales value for that month is Sh. 160000.

Additional Tips and Calculations

For further clarity, here are a few additional methods to verify the same result:

Method 1:

Sh. 13700 - Sh. 6500 Sh. 7200 (commission earnings)
Sh. 7200 / 0.08 Sh. 90000 (net eligible sales for the commission)
Sh. 90000 Sh. 70000 Sh. 160000 (total sales)

This confirms the total sales value is Sh. 160000.

Method 2:

Using the salary formula for a commission-based pay structure:

Pay Sh. 6500 0.08×X - Sh. 70000
Sh. 13700 Sh. 6500 0.08×X - Sh. 70000
Sh. 7200 0.08×X - Sh. 70000
Sh. 7200 / 0.08 X - Sh. 70000
Sh. 90000 X - Sh. 70000
X Sh. 90000 Sh. 70000
X Sh. 160000 (total sales)

This equation confirms that the total sales value is Sh. 160000.

Conclusion

Understanding how to calculate the value of goods sold based on salary and commission is crucial for both sales professionals and employers. By breaking down the problem and using clear formulas, the total sales value can be accurately determined. This knowledge can help in planning and performance measurement in a sales environment.

Keywords

Commission-based sales, salary calculations, sales revenue