The Complete Guide to Sales Commission
By Arshi Khan, Founder of Just4Marketing · Last reviewed October 2026
Commission plans reward salespeople for the revenue they bring in, and the way rates are structured shapes how hard reps push past their targets. This guide explains flat and tiered commission, why tiered plans apply each rate only to its own band of sales, and how to check what a plan really pays.
Tiered commission, step by step
| Sales band | Rate | Sales in band ($120,000 total) | Commission |
|---|---|---|---|
| $0 – $50,000 | 5% | $50,000 | $2,500 |
| $50,000 – $100,000 | 8% | $50,000 | $4,000 |
| Above $100,000 | 10% | $20,000 | $2,000 |
| Total | 7.08% effective | $120,000 | $8,500 |
Designing a commission plan
Reward over-performance
Higher rates above quota (accelerators) keep top performers selling after they hit target.
Pay on what you value
Commission on gross profit or collected cash, not just bookings, avoids rewarding heavily discounted or unpaid deals.
Keep it simple
Reps should be able to calculate their own commission. Plans that need a spreadsheet to understand motivate less.
Frequently asked questions
How is tiered commission calculated?
Each rate applies only to the sales within its band. With 5% up to $50,000, 8% from $50,000 to $100,000, and 10% above, $120,000 of sales earns $2,500 + $4,000 + $2,000 = $8,500 — not 10% of the whole $120,000.
What is an effective commission rate?
It's total commission divided by total sales. In the tiered example, $8,500 on $120,000 is an effective rate of 7.08%, which lets you compare tiered and flat plans directly.
What is a typical commission rate?
It varies by industry and deal size. Many B2B sales roles pay roughly 5%–20% of the revenue they close, often with a base salary making up 50%–70% of total target pay.
What's the difference between tiered and retroactive commission?
In a retroactive (or 'cliff') plan, reaching a higher tier raises the rate on all sales, not just those above the threshold. That creates a big jump at each threshold. This calculator uses the more common marginal method.