Worked example
Quota $500,000.00. The plan pays 4% up to 50% of quota, 8% from 50% to 100% and 12% above quota. The rep closes $560,000.00 (112% of quota).
| Tier | Revenue in tier | Rate | Marginal |
|---|---|---|---|
| Tier 1 | $250,000.00 | 4% | $10,000.00 |
| Tier 2 | $250,000.00 | 8% | $20,000.00 |
| Tier 3 | $60,000.00 | 12% | $7,200.00 |
| Marginal payout | $37,200.00 | ||
| Retroactive payout | $560,000.00 | 12% | $67,200.00 |
Same ladder, same revenue: retroactive tiering costs $30,000.00 more for this rep. Effective rates: 6.64% marginal vs 12% retroactive.
The retroactive cliff
Under the retroactive version of this plan, a rep at $499,999.99 earns $40,000.00. One cent more — exactly $500,000.00, 100% of quota — earns $60,000.00: a jump of $20,000.00 for one cent of revenue. Thresholds are inclusive at the lower bound in this calculator ([from, to)); check how your plan document defines them.
Designing tiers
- Start at 0 and keep tiers contiguous. Gaps and overlaps are the most common source of disputes; the calculator rejects them.
- Prefer % of quota thresholds when reps have different quotas — the same ladder then fits everyone.
- Choose marginal unless you want cliffs. Retroactive tiers can motivate a final push, but they also invite sandbagging and deal timing games.
- Price the plan on a team before rolling it out: run it in the plan simulator against your current plan.
- For a single multiplier above quota, the accelerator calculator is simpler.
Frequently asked questions
What is a tiered commission structure?
A plan where the commission rate changes as revenue or quota attainment crosses thresholds. Higher tiers usually pay higher rates to reward overperformance, but a plan can also pay less in lower tiers (a decelerator).
Is "graduated" the same as "marginal"?
Yes. Graduated, marginal or cumulative tiers all mean each slice of revenue earns the rate of the tier it falls in, like income tax brackets.
Why does retroactive tiering create cliffs?
Because crossing a threshold re-prices every dollar already sold. One extra dollar can raise the payout by thousands, which encourages deal timing games right below thresholds.
Which is cheaper for the company?
With rates that rise from tier to tier, marginal tiers always pay less than or the same as retroactive tiers on the same revenue. Use the plan simulator to see the cost on a whole team.