A tiered commission structure is a type of commission structure in which the commission rate increases as the sales volume increases. This type of structure is often used to motivate sales reps to achieve higher sales goals and overachieve.
In a tiered commission structure, there are typically two or more tiers, each with its own commission rate. For example, a sales rep might earn a 10% commission on the first $100,000 in sales, a 15% commission on the next $100,000 in sales, and a 20% commission on any sales over $200,000.
Tiered commission structures can be a valuable tool for motivating sales reps and ensuring that they are rewarded for their hard work.
Here are some additional things to consider when implementing a tiered commission structure:
- The type of sales: Some types of sales are more conducive to tiered commission structures than others. For example, tiered commission structures work well for complex sales that require the cooperation of multiple sales reps.
- The size of your sales team: Tiered commission structures can be difficult to manage if you have a large sales team. If you have a small sales team, a tiered commission structure may be easier to manage.
- Effective rates: Make sure your accelerators (the increased commission rates) maintain an effective rate that rewards the sellers but doesn’t overpay by diluting the profit of the sale.
- Using a sales commission tracking system like QuotaPath will help absolve you of the complexities that come with calculating tiered commission rates.