Designing Commission Tiers: The Psychology of "Just One More Deal"
The Goal:
A great commission plan should feel like a video game. The next "level" (tier) should always be visible and just attainable enough to make the rep push for one more deal before the quarter ends.
Most finance leaders design commission tiers in a spreadsheet, looking for a linear payout curve.
- 0-50%: 5%
- 50-100%: 10%
- 100%+: 15%
The math works. But does the psychology work?
Sales reps don't think in linear curves. They think in milestones. If the gap between Tier 1 and Tier 2 is too wide ($500k to $1M), the rep will "coast" once they hit $600k because the next level feels impossible.
If you want to drive velocity, you need to design tiers that trigger the "Just One More Deal" effect.
Here is the framework for designing tiers that motivate, rather than frustrate.
1. The "Goldilocks" Tier Width
How wide should a tier be?
- Too Wide: The rep loses motivation in the middle.
- Too Narrow: The jump in earnings isn't significant enough to care.
Best Practice: Tiers should represent roughly 1-2 months of average production.
If an average rep sells $50k/month, your tiers should be ~$50k-$75k wide. This ensures that the next pay bump is always within sight (a few weeks away), keeping the rep engaged.
2. Avoid the "Backward" Cliff
A common mistake is applying a higher rate retroactively to all revenue once a tier is hit.
Mistake: "Hit $1M and your rate on the whole year goes to 15%."
This creates a massive "Cliff" at $999k. A rep will do unnatural things (bad discounts, fake deals) to bridge that $1k gap because it's worth $50k in commission.
The Fix: Use Marginal Tiers.
"You get 10% on the first $1M. You get 15% on everything above $1M."
This removes the cliff and the desperate behavior that comes with it.
3. The "Kicker" vs. The "Tier"
Don't confuse the two.
- Tier: Based on volume (Revenue/Quota). Drives effort.
- Kicker: Based on quality (Multi-year, Upfront cash). Drives strategy.
Don't mix them. Don't say "Tier 2 applies only if you sell Multi-Year deals." That is too complex. Keep your Tiers purely on volume to drive the hustle, and use separate Kickers to shape the deal structure.
4. Visualizing the Path
The most important part of tier design isn't the rate; it's the Visibility.
If a rep has to wait for their paystub to see if they hit Tier 2, the incentive failed.
They need a dashboard that says:
- "You are $4,000 away from Tier 2."
- "Closing this deal will unlock a 12% rate."
That specific, real-time feedback loop is what drives the end-of-quarter hustle.
Frequently Asked Questions (FAQ)
How many tiers should we have?
Keep it simple. 3 to 4 tiers is the sweet spot. (e.g., 0-80%, 80-100%, 100-125%, 125%+). Any more than that, and the rep can't remember the rates.
Should we have tiers below 100% quota?
Yes. This is controversial, but paying a slightly lower rate (e.g., 8%) on the first 50% of quota helps protect the company against underperformers. It ensures that the highest payouts go to those who actually cover their seat cost.
Do tiers reset?
This depends on your sales cycle. For high-velocity transactional sales, monthly resets keep the energy high. For enterprise deals with 6-month cycles, annual tiers (or quarterly cumulative) are fairer, as they account for deal timing variance.
Related Reading
Simulate Your Reps' Behavior
Will your rep stop selling at 110%? Or will they push to 150%? It depends on the math.
Use our free Plan Design Wizard to model different tier structures and see exactly how they impact rep earnings and company payouts.
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