We saw earlier that salaries and wages are among the most common ways of earning an income. But now, we look at two other sources of income, viz. commissions and royalties.

**Commissions**

Commissions are income based on the value of items sold. This form of payment is mainly for sales people, real estate agents, etc., where they earn a commission based on the percentage of the value of goods sold.

**Example 1**** :**** **Ross earns 8% commission on the sale of every car he sells. Last month he sold 10 cars with a total value of $250,000. What is his commission earnings?

Ross’s commissions = 8% of 250,000 = $20,000

A related concept to the earning of commissions is that of **retainer**. A retainer is a fixed income earned that does not depend on the number of items sold. Typically, a lot of salespeople will have salaries that include a fixed retainer, and a variable commission (based on the number or value of the items sold).

**Example 2**** :**** **John is a real estate agent on a retainer of $1500 per month plus a commission of 3% on the properties sold by him. Last month John sold properties worth $275,000. How much did he earn?

First of all, irrespective of any sales made, John earns a retainer of $1500 per month.

Next we need to work out the commission on his sales.

Commission = 3% of John’s sales

= 0.03 x 275,000 = $8,250

Total earnings = retainer earnings + commission earnings

= 1500 + 8250 = $9750

**Royalties**

Royalties is another source of income based on the number of copies sold. Typically royalties are paid to a person who owns a copyright, and they include musicians, photographers, authors, etc.

For example, a musician who writes a piece of music is paid a royalty on the sale of his music (CD sales, or music downloads). Similarly, an author who writes a book is also paid a royalty based on the number of books or publications sold. And a photographer may earn royalty income whenever people use his/her photographs.

Royalties are calculated in the same way as commissions; that is, as a percentage of sales.

**Example 3**** :**** **Rebecca is a songwriter who is paid a royalty of 9.5% on all sales of her music. Calculate the royalty Rebecca earns if CDs containing her music sell for $125,000

Royalty earnings = 9.5% of $125,000

= 0.095 x 125,000 = $11,875