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Tiered sales commission and targets

Set commission bands, choose whether they apply tiered or as a total rate and add a target bonus. See what the rep earns, the effective rate and how much of the business’s margin commission takes.

Educational simulation. Not investment advice. Results are estimates based on the data you enter and do not replace advice from a qualified professional.

Reviewed on Oct 31, 2026

Example: a sales rep with $120,000 sold in the month, a $100,000 target and a $1,000 bonus.

Sales in the period
Target and margin

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—Commission for the period
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Commission by sales level

Total commission including bonus for sales from zero to twice the amount entered, under both ways of applying the bands.

Tap the chart to see the values.

How much of the margin goes to commission

Contribution margin on the sales entered, split between commission, bonus and what is left for the business.

Tap the chart to see the values.

Commission by band

Part of sales in each band and its commission, tiered method.

Next step

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Method, assumptions and sources

Formulas

Tiered: commission = Σ (sales inside band i × rate i)
Total: commission = sales × rate of the band the sales fall in
Total = commission + bonus (if sales ≥ target); effective rate = total ÷ sales; share of margin = total ÷ (sales × contribution margin)

Assumptions and limits

  • Bands are set by the upper sales limit for the period; the open-ended band covers everything above. Fixed bonus paid when sales reach the target. Constant average contribution margin.
  • Gross amounts: payroll taxes on commission, returns and cancellations are not included.

Official sources and references

  • Horngren, Datar & Rajan. Cost Accounting: A Managerial Emphasis (contribution margin). Pearson.
  • U.S. Small Business Administration, manage employees

Frequently asked questions

What is a tiered commission?

A commission plan whose rates rise as sales grow, split into bands. It rewards reps who sell more. Bands can apply in a tiered way (each rate only within its band) or as a total rate (the band reached applies to all sales).

How do I read the example result?

With $120,000 of sales and bands of 3%, 5% and 7%, tiered commission is $5,400, plus a $1,000 bonus for the $100,000 target: $6,400, or 5.33% of sales. With total rates it would be $9,400. Commission takes 15.2% of the $42,000 contribution margin.

What is the difference between tiered and total?

With tiered bands, each rate applies only to sales within its band and commission grows smoothly. With total rates, the band reached applies to everything, which pays more and creates cliffs at band limits. The choice changes the cost to the business a lot.

How do I fill in the bands?

One band per line with the upper sales limit and the rate, separated by a semicolon: "50000; 3". On the last line write "above; 7" for the open-ended band. If the last band has a limit, the calculator repeats its rate above it.

Why compare commission with margin?

Because commission is paid out of contribution margin (sales minus variable costs), not out of revenue. A 5% commission looks small, but on a product with a 25% margin it takes 20% of what is left for fixed costs.

Is a target bonus worth it?

It gives a clear goal and rewards extra effort, but it should fit inside the margin of the additional sales. Compare the bonus with the margin earned above the normal sales level. Unreachable targets demotivate; easy ones become a fixed cost.

What else should I consider?

Commissions are usually taxable wages and may affect overtime and benefits depending on local law and the employment contract. The calculator shows the gross commission only; talk to your accountant about payroll costs.

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Tiered sales commission: how to set bands and targets

A tiered commission plan pays higher rates as a rep sells more. There are two ways to apply the bands, and the difference in pay can be large.

Tiered (marginal)

Each rate applies only to the part of sales inside its band, like tax brackets. With 3% up to $50,000, 5% from $50,000 to $100,000 and 7% above, a rep who sells $120,000 earns $1,500 + $2,500 + $1,400 = $5,400. Commission grows smoothly.

Total (retroactive)

The rate of the band reached applies to all sales: the same $120,000 pays 7% on everything, $8,400. It is simple to explain and pushes reps into the next band, but it creates cliffs: one more dollar past the limit can add hundreds in commission, which encourages shifting deals between months.

Target and bonus

A fixed bonus for hitting the target gives a clear goal. In the example, a $1,000 bonus for the $100,000 target brings tiered pay to $6,400, 5.3% of sales.

Look at margin, not just sales

Commission comes out of contribution margin. With a 35% margin, $120,000 of sales leaves $42,000, and $6,400 of commission takes 15.2% of it. If that slice is too large, little is left for fixed costs and profit.