Sales Commission Calculator
Tiered commission worked both ways, marginal and retroactive, with the marginal rate on the next sale and what paying on revenue does to discounting.
Revenue closed $120,000.00
Commissionable $120,000.00, the revenue
Commission $8,900.00
effective rate 7.42%
on the next sale 12%
Base salary $60,000.00
Total earnings $68,900.00
from commission 12.9%
The two ways to read a tiered plan
marginal, slice by slice $8,900.00 ← yours
retroactive, all at the top rate $14,400.00
difference $5,500.00
Slice by slice
$0 to $50,000 $50,000 at 5% = $2,500.00
$50,000 to $100,000 $50,000 at 8% = $4,000.00
$100,000 and up $20,000 at 12% = $2,400.00
Quota $100,000.00
Attainment 120%
over quota by $20,000.00
Tiered means two different plans. Marginal tiers pay each slice at its
own rate, like tax brackets, and come to $8,900.00 here. Retroactive
tiers pay the whole amount at the rate the top slice reached, and come
to $14,400.00. A plan document that says "tiered" without saying which
has not defined the compensation.
The rate that changes behaviour is the one on the next sale, which is
12% here rather than the 7.42% average. Anybody deciding whether to push
a deal into this quarter is doing that arithmetic, and a plan whose
marginal rate falls after a threshold is asking them to wait.
Paying on revenue makes a discount free to the rep: dropping the price
by ten percent to close costs them ten percent of their commission on
that deal and nothing else, while it may cost the company the whole
margin. Paying on gross margin fixes the incentive and requires the rep
to be able to see the margin.
A cliff is a plan that pays nothing until a threshold. It concentrates
the whole incentive at one point, so a rep at 85 percent of quota with a
week to go either pulls every lever available or gives up and starts on
next quarter. Both are expensive, and the second one is invisible until
the next period.
Commission accrues when the deal is signed and cash arrives when the
customer pays. A plan that pays on signature and a customer who does not
pay is a clawback, which is the least popular conversation in sales, so
the plan should say in advance which event triggers payment.
Quota attainment is not performance. It is performance against a number
somebody set, and a quota set too high makes a good quarter look like a
failure while a quota set too low pays out on a bad one. Look at
attainment across the team before concluding anything about one person.
Rate caps and accelerators point in opposite directions. A cap tells the
best rep to stop selling once they reach it, which is the opposite of
what the plan is for. An accelerator above quota costs more per unit and
buys the revenue that would otherwise have been held back.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
“Tiered commission” describes two different plans that pay different amounts, and plan documents routinely say it without saying which.
Marginal tiers work like tax brackets: each slice of revenue earns the rate for that slice. Retroactive tiers pay the whole amount at the rate the top slice reached, so crossing a threshold raises the rate on everything sold before it. On a plan of 5, 8 and 12 percent with thresholds at 50,000 and 100,000, revenue of 120,000 earns 8,900 one way and 14,400 the other.
That is 5,500 on one number, from a word nobody defined. Both are computed here whichever one you pick, because the comparison is the answer to the question you were about to ask.
How to use
- Put in the revenue closed and the tier table, one threshold and rate a line.
- Pick marginal or retroactive, and whether the plan pays on revenue or on margin.
- Read the marginal rate: that is what the next deal earns.
Example
120,000 closed against a 100,000 quota, marginal tiers, paid on revenue:
Commission $8,900.00
effective rate 7.42%
on the next sale 12%
Base salary $60,000.00
Total earnings $68,900.00
from commission 12.9%
The two ways to read a tiered plan
marginal, slice by slice $8,900.00 ← yours
retroactive, all at the top rate $14,400.00
difference $5,500.00
Slice by slice
$0 to $50,000 $50,000 at 5% = $2,500.00
$50,000 to $100,000 $50,000 at 8% = $4,000.00
$100,000 and up $20,000 at 12% = $2,400.00The effective rate is 7.42 percent and the rate on the next sale is 12. The second one is what anyone deciding whether to push a deal into this quarter is thinking about.
Pitfalls
Marginal or retroactive has to be written down. It is the largest single variable in the plan and the one most often left implicit. Reps assume retroactive because it is better for them; finance assumes marginal because it is cheaper. Both discover the assumption at the end of the quarter.
The marginal rate is what changes behaviour. The average rate describes the past. If the rate on the next unit of revenue falls after a threshold, the plan is asking a rep to hold deals until the next period, and they will.
Paying on revenue makes discounts nearly free to the rep. Ten percent off the price costs them ten percent of one commission and may cost the company the entire margin on the deal. Paying on gross margin aligns the incentive and requires the rep to be able to see the margin, or the end of every quarter becomes an argument about numbers they cannot check.
A cliff concentrates the whole incentive at one point. A plan that pays nothing below quota means a rep at 85 percent with a week left either pulls every lever available or writes the quarter off and starts on the next one. The second is invisible until the next period’s pipeline.
Say which event triggers payment. Commission accrues when the deal is signed and cash arrives when the customer pays. Paying on signature to a customer who never pays produces a clawback, which is the least popular conversation in sales and is much easier if the plan said so in advance.
A cap tells your best rep to stop. Once the cap is reached the marginal rate is zero, which is the opposite of what the plan is for. If the concern is a windfall on one enormous deal, handle that deal specifically rather than capping the plan.
Attainment is not performance. It is performance against a number somebody chose. A quota set too high makes a good quarter look like failure; too low pays out on a bad one. Read the whole team’s attainment before concluding anything about one person.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored, which matters for compensation figures.
The tier table accepts one threshold: rate a line, and tolerates commas, equals signs and currency
symbols. Tiers are sorted, and a table whose first threshold is above zero gets an implicit zero-rate
tier below it, which is how a plan with a cliff is expressed.
Both tier readings are computed every time, and the slice breakdown shows the marginal arithmetic in full so the number can be checked by hand. The test suite fixes the worked example in both readings, the flat-plan case where they agree, and the margin basis.
Currencies use their own decimal conventions: the yen has no minor unit, so it is shown without decimals.
Frequently asked questions
Which tier structure should I choose?
Should commission be on revenue or margin?
What is a normal split between base and commission?
How do accelerators fit?
100000: 12 is a twelve percent accelerator. It costs more per unit of revenue and
buys the revenue that would otherwise have been held back.