A tiered commission plan pays a higher rate as the rep sells more. The idea is simple: the more you sell, the more each extra dollar is worth to you. The details, though, are where most commission disputes come from.
How tiers work
You define bands of sales and a rate for each band. For example:
| Tier | Monthly sales | Rate |
|---|---|---|
| 1 | $0 to $50,000 | 5% |
| 2 | Above $50,000 | 8% |
The big question is how the rate is applied once a rep moves up a tier. There are two ways.
Marginal vs retroactive
- Marginal: each rate applies only to the sales inside its band. Like income tax brackets.
- Retroactive: once the rep reaches a tier, that tier's rate applies to all sales in the period, from the first dollar.
Example
Using the tiers above, a rep sells $70,000 this month.
| Method | Calculation | Commission |
|---|---|---|
| Marginal | $50,000 × 5% + $20,000 × 8% | $4,100 |
| Retroactive | $70,000 × 8% | $5,600 |
Same plan, same sales, $1,500 apart. Retroactive tiers create a strong pull toward the next threshold, because crossing it raises the rate on everything already sold. Marginal tiers are cheaper and smoother, with no sudden jump at the line.
Mistakes to watch for
- The plan says one method, the spreadsheet does the other. Write the method in the plan in plain words.
- Unclear boundaries. Does 8% start at $50,000 or $50,001? Decide, write it down, and test the formula right on the line.
- Too many tiers. If a rep can't explain their own plan in one sentence, it's too complicated to motivate anyone.
FAQ
Which is better, marginal or retroactive tiers?
Neither is better in general. Retroactive tiers motivate harder near the threshold but cost more and can encourage holding deals to cross a line. Marginal tiers are predictable and fair. Many teams start with marginal tiers.
How many tiers should a commission plan have?
Usually two or three. More than that adds complexity without adding much motivation.
Can Pipedrive calculate tiered commission?
Not natively. Pipedrive stores deal values, but tiers need a calculation per rep per period. Delta Drive calculates tiered commission from Pipedrive deals, with either marginal or retroactive tiers.