Oct 13, 2022
A tiered sales commission is an increased commission rate depending on the percentage of quota attainment.
A tiered commission structure motivates reps to increase productivity for a better and better commission rate as they move up the tiers. It rewards over achievement with higher commission rates. Reps are paid a multiplier after 100% of quota attainment.
In the table below, we’ve created 4 different tiers depending on the % of quota attained.
As you can see, going over 100% quota attainment is rewarded in a big way for sales reps. For example, at 100% of quota attainment, the Tier 1 commission rate is 7%. In contrast, at 200% of quota attained and above, the Tier 4 commission rate is14%!
Let’s break this down. Let’s say a SaaS Sales Rep’s OTE is $300,000. We can say the sales rep’s base salary is $150,000. So in Tier 1, our hero is making $150,000 base + a $150,000 commission.
Let’s say the sales rep crushes it and reaches Tier 4. At that point, any deal closed is earning the rep double commission! Same work, twice the reward.
Please note that the example above is simplified because commission rates are unique to each sales rep due to the relationship between variable and quota. So Tier Rates are a multiple of the base commission rates.
Think about it this way, although 2 reps are hired for the same role, they may have different quotas.
For example, an enterprise sales rep has a different quota than a small business sales rep. The reason being the deal size is entirely different. One person may be going after deals of $1,000,000+, and the other sales rep is going after deals of $50,000. The rep going after the smaller deals has a smaller quota.
Most companies also break their teams into market segments such as the Mid-Sized Team, Large Team, and Enterprise Team.
Although this may seem complex, it is essential to understand that a lot of work goes into quota assignments, and as a result, commission rates will vary among sales reps. But the tiered approach will motivate all levels of your sales organization.
As you may know, a sales commission clawback is a term used to refund paid sales commissions from the rep to the company.
So, where do Clawbacks fit into a Tiered Sales Commission environment? Deduct quota attainment backward, moving down the tiers. So your Clawback may start at Tier 4 and can continue to Tier 3, 2, and 1 depending on the Clawback Size.
Overachieving company goals, even at higher commission levels, is a positive event because it brings more than anticipated growth. Also, achievement in one region may compensate for underperformance in another and smooth out the whole sales effort.
Lucrative Accelerators naturally attract top talent. Top Sales Reps look for lucrative opportunities. They are in this business to outperform their peers and earn big paychecks. They are motivated to overachieve and expect to be compensated generously.
Sales Ops & Sales Leadership see accelerators as a motivational tool to ensure that regional and company quotas are met. The more growth the company needs, the more aggressive the accelerators should be to scale and encourage growth.
Do you need help with your 2023 Sales Compensation Plan? We’re happy to provide you with a free consultation.
Do you need help automating your sales compensation process? Learn more about ZenCentiv .