Work, pay & shifts
How to Design a Tiered Commission Plan
A tiered commission plan is a promise about what each extra sale is worth. Get the thresholds and rates right and it rewards the results you want; get them wrong and it either overpays average performance or gives top performers no reason to keep going. This guide walks through designing tiers from target pay, testing what a design costs, and writing down the edge cases that cause disputes later.
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Start from target pay and expected sales
Decide what a salesperson who hits the expected number should earn in commission, then work backwards. If expected sales are $120,000 a year and target commission is $8,000, the plan needs an effective rate of about 6.67% at that level. Tiers of 5% to $50,000, 7% to $100,000, and 10% above pay exactly that progressively: $2,500 + $3,500 + $2,000.
Test the cost at more than one sales level
Three designs that all look reasonable, compared at low, expected, and high sales:
| Design | $80,000 sales | $120,000 sales | $160,000 sales |
|---|---|---|---|
| 5% / 7% from $50k / 10% from $100k (progressive) | $4,600.00 | $8,000.00 | $12,000.00 |
| Flat 6% on all sales | $4,800.00 | $7,200.00 | $9,600.00 |
| 4% to $100k, then 12% (progressive) | $3,200.00 | $6,400.00 | $11,200.00 |
The flat 6% plan pays most at $80,000 and least at $160,000. The 4%/12% plan does the opposite, concentrating pay on sales above $100,000. Which is right depends on whether you want to reward consistency or stretch.
Place thresholds where effort changes
- Put the main step-up at or near quota, so the higher rate starts where extra effort starts.
- Keep the first tier wide enough that ordinary months aren’t all paid at the bottom rate.
- Avoid thresholds so high that almost nobody reaches them — an unreachable tier changes nothing.
- Three or four tiers are usually enough. Every extra tier is another number to explain and another boundary to dispute.
Choose progressive or bracket deliberately
Bracket tiers make each threshold a cliff: with the first design above paid as brackets, $99,999.99 of sales pays $7,000.00 and $100,000 pays $10,000.00. That is a strong incentive, but it also invites deal-timing and makes late returns expensive. Progressive tiers have no cliffs. If you aren’t sure, start progressive.
Check the edges before launch
- Zero sales and sales inside Tier 1 only.
- Sales exactly at each threshold, and one cent below.
- Very high sales — is there a cap, and should there be?
- A large return just after a period closes.
- A salesperson who starts or leaves mid-period.
Write the rules down
- What counts as a sale: booked, invoiced, or paid; before or after discounts, tax, and shipping.
- The period tiers are counted over, and whether they reset.
- Exactly how thresholds are read (“from” or “over”) and whether tiers are progressive or bracket.
- How returns, cancellations, and chargebacks from earlier periods are handled.
- Any cap, draw, or minimum, and when commission is paid.
Designing Commission Tiers FAQ
- How many commission tiers should a plan have?
- Enough to reward the behaviour you want and few enough to explain in one sentence each — commonly two to four.
- Should a tiered commission plan have a cap?
- A cap limits cost but also tells top performers to stop. Many plans avoid caps and handle windfall deals with a separate review rule instead.
- What is a decelerator?
- A lower rate below a minimum, such as 2% until sales reach 50% of quota. It is a tier like any other, so it can be modelled the same way.
- Should every salesperson have the same tiers?
- Not necessarily. Thresholds usually follow each person’s quota, so territories of different sizes can share rates but have different dollar thresholds.
- How do I check what a new plan will cost?
- Run last year’s actual sales for each person through the proposed tiers and compare the total with what you paid. Then try a weak year and a strong year.
Related guides
- Progressive vs Bracket TiersThe same commission tier table can pay very differently. Compare progressive (marginal) and bracket (retroactive) tiers, the cliff at each threshold, and how to tell which plan you have.
- Accelerators and QuotaHow quota attainment works, how to turn attainment-based tiers into dollar thresholds, and what a commission accelerator above quota is actually worth at different sales levels.
Open the tool
Jump into Tiered Commission Calculator when you are ready to process your files.
