Commission Calculator · Practical guide
Tiered Commission Structure Example
A concrete walkthrough of how tiered rates translate into actual pay.
At a glance
The Short Answer
Under a common tiered plan — 5% on the first $10,000, 7% on the next $10,000, 10% above $20,000 — a salesperson with $25,000 in sales earns $1,700, an effective rate of 6.8%.
Interactive tool
Commission Calculator
Enter your own values, then compare the result with the examples below.
Commission Results
Slice-by-Slice Breakdown
Tiered commission applies each rate only to the portion of sales inside that tier, like tax brackets:
| Tier | Range | Rate | Commission |
|---|---|---|---|
| Tier 1 | $0 – $10,000 | 5% | $500.00 |
| Tier 2 | $10,000 – $20,000 | 7% | $700.00 |
| Tier 3 | Above $20,000 | 10% | $500.00 |
| Total | $25,000 | 6.8% effective | $1,700.00 |
How Tiers Change Behavior
The structure rewards pushing past each breakpoint: the $5,000 above $20,000 earned at 10% pays as much as the entire first $10,000 did at 5%. That accelerating payout is exactly why companies use tiers — to keep top performers selling after they have already hit a comfortable number.
Compare With a Flat Rate
The same $25,000 at a flat 8% pays $2,000 — $300 more than this tiered plan, even though 8% sounds lower than the top tier. Always compute the total dollars, not the headline rate. Enter your own breakpoints and rates in the calculator above to model your actual plan.
Frequently Asked Questions
Why is my effective rate lower than my top tier?
Because earlier tiers pay less. Only the sales above $20,000 earn 10%; everything below it earns 5% or 7%, which drags the average down to 6.8% in this example.
Do all tiers apply to all my sales?
In a marginal (bracket-style) tiered plan like this one, yes — every dollar passes through each lower tier first. Some plans instead pay the single highest achieved rate on all sales, known as a retroactive tier plan.
What is a typical number of tiers?
Two to four tiers are common. More tiers create finer incentives but make the plan harder to explain and forecast.
Can I customize the example's tiers?
Yes — the calculator's tiered mode lets you edit both breakpoints and all three rates to match your compensation plan exactly.