A tiered commission is a commission model in which the rate increases as a salesperson reaches higher levels of performance. Instead of one fixed percent of sales, effort is rewarded with incremental steps that make the model more dynamic and motivating.
The purpose of tiered commission is to create a stronger incentive to surpass baseline. When a salesperson can see that each additional sale not only brings more commission in dollars, but also triggers a higher rate, additional energy is created in the sales work.
A simple example:
The calculation will be:
Tiered commission differs from flat rate commission because it rewards extra performance disproportionately. The higher a seller goes over his quota, the better it pays.
The model is often used in growth-oriented organizations that want to ensure that top performers perform at their best. It is particularly popular in the SaaS and consulting industries, where big deals can be critical to growth.
In short, tiered commission makes commission more flexible and scalable. It gives a clear signal: the more you perform, the higher your reward will be.