Tiered commission is a compensation structure where commission rates change at different performance thresholds. Instead of a flat rate on all sales, reps earn progressively higher (or sometimes lower) percentages as they hit specified targets. This creates accelerating rewards for exceeding quota. According to Alexander Group (2024), 78% of B2B SaaS companies use tiered commission structures.
Tiered structures align rep motivation with company goals:
According to WorldatWork (2024), tiered commission increases average rep performance by 15% compared to flat rates.
| Tier | Attainment Range | Commission Rate | Rate Change |
|---|---|---|---|
| Tier 1 | 0-50% | 5% | Base rate |
| Tier 2 | 50-100% | 10% | 2x base |
| Tier 3 | 100-150% | 15% | 1.5x tier 2 |
| Tier 4 | 150%+ | 20% | 2x tier 2 |
Rep with $100,000 quarterly quota sells $140,000:
| Tier | Revenue in Tier | Rate | Commission |
|---|---|---|---|
| Tier 1 (0-50%) | $50,000 | 5% | $2,500 |
| Tier 2 (50-100%) | $50,000 | 10% | $5,000 |
| Tier 3 (100-140%) | $40,000 | 15% | $6,000 |
| Total | $140,000 | $13,500 |
Rates increase at higher attainment levels. Rewards overperformance.
| Attainment | Rate |
|---|---|
| 0-100% | 8% |
| 100-125% | 12% |
| 125%+ | 16% |
Rates decrease at higher levels. Used when company wants to cap earnings or when territory has limited upside.
No commission until minimum threshold reached. Ensures baseline performance before earning variable.
When a higher tier is reached, the new rate applies to all sales in that period (not just incremental). Creates large jumps at tier boundaries.
Set achievable first tier: If Tier 1 threshold is too high, struggling reps give up. Make the first tier reachable to keep everyone engaged.
Create meaningful jumps: Tier rate increases should be significant enough to motivate. A jump from 10% to 10.5% won't change behavior. 10% to 15% will.
Limit number of tiers: 3-4 tiers is optimal. More creates complexity without additional motivation.
Align tier breaks with goals: Put tier boundaries at strategically important thresholds: 100% quota, stretch goals, or company targets.
| Factor | Flat Rate | Tiered Rate |
|---|---|---|
| Simplicity | Easy to calculate | More complex |
| Overperformance motivation | Linear incentive | Accelerating incentive |
| Top performer earnings | Proportional to sales | Disproportionately higher |
| Gaming risk | Low | Sandbagging to hit tiers |
| Mistake | Impact | Solution |
|---|---|---|
| Too many tiers | Confusion, admin burden | Stick to 3-4 tiers |
| Small rate increases | No behavioral change | Make jumps meaningful (25%+) |
| Unreachable top tier | Demotivates top performers | 15-20% should reach top tier |
| Monthly resets | End-of-month gaming | Consider quarterly tiers |
Both concepts are related. Tiered commission describes the overall structure with multiple rate levels. Accelerator specifically refers to the increased rate that kicks in when quota is exceeded.
Quarterly is most common in B2B SaaS. Monthly resets can lead to end-of-period gaming and make it harder for reps to reach higher tiers.
Use consistent sales processes, set realistic close dates in CRM, and consider including timing bonuses for deals closed before expected.
Calculating tiered commissions in spreadsheets is error-prone. With Prowi, you can automatically apply your tier structure, show reps their current tier in real-time, and calculate earnings instantly as deals close.