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Pricing & margin

Sales commission calculator — tiers, accelerators and caps

Work out tiered sales commission with accelerators above quota, a payout gate and an optional cap. Shows the effective blended rate on every dollar sold.

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Short answer

Tiered commission pays a different rate on the sales in each attainment band, so you calculate it band by band and add the results. On a $1,200,000 quota, $1,545,000 of sales at 2.5% to quota and 3.75% from 100% to 150% pays $30,000 + $12,937.50 = $42,937.50. That is a 2.78% effective rate, 143.1% of target.

A tiered commission plan is easy to describe and easy to get wrong. Rates change at attainment thresholds, a gate can zero the whole payout, and a cap can quietly remove the incentive for the last third of the year. The arithmetic decides all three.

Enter the quota, actual sales and your plan's rates. The calculator pays each band separately, applies the gate and the cap, then reports the effective blended rate, the payout against target, the marginal rate on the next dollar sold, and the sales figure where the cap starts binding.

Your numbers

$
$

Same basis as the quota: booked, invoiced or recognised.

% of quota

Below this attainment nothing is paid. Set it to 0 for a plan with no gate.

Rates by attainment band
%
%

1.50× the base rate

% of quota
%

2.00× the base rate

Cap
% of target

Target commission is the payout at exactly 100% attainment: $30,000.00. This cap is $60,000.00.

Result

Commission earned
$42,937.50

128.8% of a $1,200,000 quota · 2.78% effective rate on sales

Attainment128.8%
Target commission at quota$30,000.00
Payout vs target143.1%
Effective blended rate2.78%
Marginal rate on the next dollar3.75%
Sales where the cap binds$1,950,000
Each rate applies only to the sales dollars inside its own band.
BandSales in bandRateCommission
Up to 100% of quota$1,200,0002.50%$30,000.00
100% to 150% of quota$345,0003.75%$12,937.50
Above 150% of quota$05.00%$0.00
Commission paid$1,545,0002.78%$42,937.50
Attainment = $1,545,000 ÷ $1,200,000 = 128.8% (gate 70% = $840,000)
Band 1: $1,200,000 × 2.50% = $30,000.00
Band 2: $345,000 × 3.75% = $12,937.50
Band 3: $0 × 5.00% = $0.00
Commission = $42,937.50 → 2.78% of sales, 143.1% of the $30,000.00 target
128.8% attainment pays $42,937.50 — 143.1% of the $30,000.00 target — at a 2.78% effective rate against a 2.50% base. $12,937.50 of that comes from the accelerator bands, and the cap starts binding at $1,950,000 of sales.

Everything is computed in your browser. Nothing you type is sent anywhere or stored.

The formula

Commission = Σ (sales inside each attainment band × that band's rate), zero below the gate, limited by the cap
Quota
The target for the period. 100% attainment is the boundary where accelerators start.
Attainment
Actual sales ÷ quota, expressed as a percentage.
Gate
Minimum attainment before anything is paid. A cliff, not a rate — below it the payout is zero.
Band rate
The commission rate applied to the sales dollars that fall inside that band only.
Cap
Maximum payout, expressed here as a multiple of the commission earned at exactly 100% attainment.

This is the marginal or band-by-band method: each rate applies only to the dollars inside its own band, the way income tax brackets work. The alternative — a retroactive or cliff plan that reprices all sales at the higher rate once you cross quota — pays substantially more and creates a step change in the payout curve. Read your plan document before assuming which one you are on; the arithmetic differs by thousands of dollars at the same attainment.

Worked example

Quota
$1,200,000
Actual sales
$1,545,000
Payout gate
70% of quota
Rate to quota
2.5%
Rate 100–150%
3.75%
Rate above 150%
5.0%
Cap
200% of target commission
Result
$42,937.50 · 128.8% attainment · 2.78% effective rate · 143.1% of target

Attainment is $1,545,000 ÷ $1,200,000 = 128.8%, well clear of the 70% gate. The first $1,200,000 pays 2.5% = $30,000. The $345,000 above quota sits in the accelerator band and pays 3.75% = $12,937.50. Nothing reaches 150% of quota, so the 5.0% band pays nothing. Total $42,937.50, which is 143.1% of the $30,000 target commission and a 2.78% effective rate on sales. The cap sits at $60,000 and would not bite until sales reached $1,950,000.

The four levers in a tiered sales commission plan

Almost every plan is built from the same four parts. Each one changes behaviour in a specific and fairly predictable way, and each one has a cost you can quantify before you sign the plan off.

LeverWhat it doesWhat it costs you
Gate or thresholdPays nothing until attainment clears a floorA cliff: at 69% the rep earns nothing, at 71% they earn in full, so late-period sandbagging concentrates around the gate
Base ratePays on every dollar up to quotaPredictable and the bulk of the spend; too low and the plan stops motivating below quota
AcceleratorRaises the rate on sales above quotaRising cost per dollar exactly when margin may be thinnest, since over-quota deals are often the discounted ones
CapLimits total payoutThe marginal rate falls to zero at the ceiling, and deals get pushed into next period
Model each lever separately. A plan is the interaction between them, not any one rate.

The effective rate is the number to manage

The headline rate in the plan document is not what you pay. In the worked example the base rate is 2.5% and the effective rate is 2.78%, because a quarter of the sales earned the accelerator. At 150% attainment the same plan pays $52,500, a 2.92% effective rate. Budget the effective rate against forecast attainment, not the base rate against quota. That gap also settles arguments about affordability: if your contribution margin is 37% and the effective rate reaches 3%, commission consumes about 8% of contribution — check the denominator with the contribution margin calculator before agreeing to a richer accelerator.

What a cap actually buys

A cap protects the compensation budget against an outlier quarter, which is a real risk when one deal can be several times quota. The cost is the point where it starts binding. In the example the cap is $60,000, reached at $1,950,000 of sales — 162.5% of quota. Every dollar after that pays the rep nothing, and what happens next is not a mystery: deals get held for the next period, forecast accuracy drops in the quarter you most need it, and your best rep starts asking about territory changes. If the concern is windfall deals rather than sustained overperformance, a per-deal limit or a lower rate in a high band solves it without turning off the incentive.

Commission on revenue or on margin

Paying on revenue makes discounting free for the seller. A rep giving away 10% of price loses 10% of commission and the business loses far more, because the cost of goods does not move — the discount cascade calculator shows how fast that gap opens. Paying on gross profit or contribution aligns the two, at the price of a harder plan to explain and a dependency on cost data the seller cannot see or verify. A common middle path keeps revenue as the basis and adds a margin floor below which the deal earns a reduced rate.

Accruing it every month, not at year end

Commission accrual is a monthly close task that needs attainment to date, the band each rep currently sits in, and any cap headroom left. Most teams rebuild that in a spreadsheet from an order export because the plan lives in a document rather than in the ERP. You can ask for the raw inputs instead: "booked revenue by sales rep against quota, this quarter to date" — answered from your own data with the query shown, so the accrual you post is one you can defend. Variance work continues in budget vs actual variance analysis.

Frequently asked questions

How do you calculate tiered sales commission?

Split the sales into attainment bands, apply each band's rate to only the dollars inside that band, then add them up. On a $1,200,000 quota with $1,545,000 of sales: $1,200,000 × 2.5% = $30,000, plus $345,000 × 3.75% = $12,937.50, for $42,937.50. Check whether your plan is banded or retroactive before you start.

What is a commission accelerator?

A higher rate that applies to sales above quota, designed to reward overperformance. A plan paying 2.5% to quota and 3.75% beyond it has a 1.5× accelerator. Accelerators normally apply only to the dollars in the higher band, not retroactively to everything sold.

What is the effective commission rate?

Total commission divided by total sales. It is the only rate that matches what you actually pay, because banded plans blend several rates together. A 2.5% base plan paying $42,937.50 on $1,545,000 of sales has a 2.78% effective rate. Use it for budgeting and for cost-of-sale comparisons.

What is a commission gate or threshold?

A minimum attainment, often somewhere between 50% and 80% of quota, below which no commission is paid at all. It is a cliff rather than a rate, so it creates a sharp jump in the payout curve. Reps just below the gate at period end have a strong incentive to pull deals forward or push them out.

What does a commission cap do to seller behaviour?

Once the cap is reached the marginal rate is zero, so additional deals are worth nothing to the seller in that period. The predictable result is deals moved into the next period, weaker forecast accuracy and retention risk on top performers. A per-deal limit usually addresses windfall risk with less collateral damage.

Should commission be paid on revenue or gross profit?

Revenue is simpler and visible to the seller, but it makes discounting painless for them and expensive for you. Gross profit or contribution aligns incentives and needs cost data the seller may not be able to verify. Many plans keep revenue as the basis and add a margin floor that triggers a reduced rate.

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