Flat vs Tiered Commission Structures Explained
Choosing the right incentive plan is critical when designing compensation models for sales organizations. The two most prominent approaches are flat commission rates and tiered accelerator plans.
Both models reward closed revenue, but they distribute payouts differently based on performance volume.
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Flat Commission Plans
A flat commission plan pays a fixed percentage on every dollar of revenue generated. For instance, a 7% flat rate pays $3,500 on $50,000 in sales and $7,000 on $100,000 in sales.
Flat plans offer simplicity and predictability. Sales reps always know their payout ratio, making income forecasting straightforward.
Tiered Commission Plans
Tiered plans scale the payout percentage upward as reps pass specific quota targets. A representative might earn 5% up to quota, 8% after hitting quota, and 12% for super-achievers.
Side-by-side comparison of total earnings on $150,000 in deals:
- Flat 7% Rate: $150,000 x 0.07 = $10,500.00
- Tiered (5% on $50k / 8% on next $50k / 12% on remaining $50k): $2,500 + $4,000 + $6,000 = $12,500.00
Which Model Works Best?
Flat plans suit transactional sales cycles with consistent deal sizes. Tiered plans excel in competitive B2B sales where motivating reps to stretch beyond 100% quota yields major growth benefits.
Test your compensation plan options using our free Sales Commission Calculator.
