For high-growth companies, implementing a tiered commission structure can align sales behaviors with key revenue goals. This motivational framework offers increasing rewards for incremental performance levels.
With a tiered plan, account executives receive higher commission rates as they progress through predefined revenue tiers. This inspires AEs to push into higher performance tiers to earn bigger payouts.
Who is this for?
This tiered commission template is perfect for high-growth companies who:
- Are transitioning from basic commission to advanced structures
- Want to compensate reps based on revenue quality
- Seek to promote collaboration between sales roles
- Need to structure sales teams with specialized positions
- Have between $2M to $10M in revenue
More specifically, this template works best for companies that:
- Are in the Series A funding stage
- Have a total sales team size of 20-25 reps
- Find that excel sheets no longer serve complex sales comp plans
- Want to incentivize the right behaviors and outcomes
- Need to smooth collaboration between AEs and SDRs
- Require specialized sales roles for scaling
This framework is flexible enough to optimize new customer acquisition and expansion of existing accounts.
Implementing This Tiered Commission Plan for AEs
A tiered compensation structure offers increasing payouts as account executives progress through predefined performance tiers.
Here are some best practices for implementing a tiered commission plan:
- Set clear incremental revenue ranges for each tier based on goals
- Attach accelerating commission multipliers to higher tiers to increase motivation
- Establish 3-5 tiers to allow flexibility in goal-setting
- Use SPIFFs and contests to incentivize key behaviors
- Implement a transparent process for reviewing tier advancement
- Celebrate public recognition when reps reach new tiers
- Ensure quota assignments support rep progression through multiple tiers
- Continually refine tier targets and multipliers based on data and feedback
This template provides sample tiers, quota calculations, and payout formulas to demonstrate how the framework can be customized.
Aligning sales behaviors with company goals requires an iterative approach based onUsage data, win/loss analysis, and rep feedback are key to optimizing the plan.
Metrics to Have Ready For Maximum Impact
To fully leverage this tiered commission template, there are key metrics you should have on hand:
- Number of sales reps by role (AEs, SDRs, Account Managers)
- Historical quota attainment percentages for your sales team
- Average deal size and sales cycle length for your AEs
- Revenue projections and growth targets for the next 1-2 years
- Customer profile data - industry, size, geo, persona
- Expansion revenue and upsell/cross-sell metrics
- Sales activity metrics - calls, emails, demos, opportunities
- Rep ramp times and trajectory to full quota
- Performance distribution of top, average, and underperforming reps
How the Tiered Commission Template Works
A tiered compensation structure can drive sales performance by aligning rep incentives to key revenue goals. This template provides a blueprint for building an integrated tiered plan.
Template Tabs
- Comp Plan: Defines 4 tiers with ascending payout multipliers
- Earning Calculations: Shows payout calculations for a sample rep
- Financial Model: Estimates total comp costs for a team
Commission Tiers
The foundation is creating incremental performance tiers with attached commission rates.
The template has 4 predefined tiers:
- Tier 1: 0-60% quota achievement, 0.5x payout rate
- Tier 2: 60-100% achievement, 1x rate
- Tier 3: 100-150% achievement, 1.25x rate
- Tier 4: 150-250% achievement, 1.5x rate
Higher tiers reward overachievement with accelerated payout rates.
With defined tiers and rates in place, payouts are calculated based on:
- Individual rep quota assignment
- Attainment % determining the tier threshold achieved
- Corresponding payout multiplier for that tier
Reps are motivated to progress through tiers to earn higher commissions.
Sample Quota and Commission Calculations
- Example rep has $900k quota and achieves $792k = 88% attainment
- This puts them in Tier 1 with a 0.5x payout rate
- With 88% attainment, their commission is 0.5 x $52,800 = $26,400
This shows how tier, attainment %, and multiplier determine commission payout.
Modeling Total Compensation Costs
The Financial Model estimates costs for 8 reps:
- Sets team quota at $7.2M based on $900k individual quotas
- Calculates 88% team attainment based on example rep
- Payout is 0.5 x $422,400 = $211,200 in tiered commissions
Optimizing the Plan with SPIFFs
SPIFFs incentivize behaviors like larger deal sizes or faster sales cycles:
- Attach SPIFFs to specific activities or outcomes
- SPIFFs combined with tiered commissions enhance motivation
- The template shows SPIFFs for multi-year deals and payment terms
- Multi-Year SPIFF: 0.5% payout on multi-year deals (ex: $990 on $198k)
- Payment Terms SPIFF: 0.5% payout on upfront annual contracts (ex: $990 on $198k)
The SPIFFs in this template motivate larger, longer contracts paid upfront.
How does this benefit you?
This structure helps sales leaders:
- Motivate reps to progress through tiers with accelerating payouts
- Segment and reward top performers
- Incentivize key sales behaviors through SPIFFs
- Model variable compensation costs based on performance
- Optimize compensation plans to drive growth
The Critical Role of Account Executives
Account executives are core drivers of revenue growth, tasked with acquiring new customers and expanding existing accounts.
This tiered commission plan aims to optimize AE performance by:
- Motivating AEs to push into higher tiers with increasing payouts
- Allowing granular tracking of sales activities and pipeline trends
- Incentivizing behaviors that lead to bigger deal sizes
- Promoting customer loyalty and retention efforts
- Enabling flexible SPIFFs to encourage key outcomes
Essential Skills for Successful Account Executives
- Building Relationships: Excel in creating lasting connections with customers, acting as a trusted advisor throughout their journey.
- Customer Focus: Prioritize customer satisfaction, actively listen to feedback, and proactively address challenges.
- Consultative Selling: Master asking insightful questions, active listening, and tailoring solutions to meet unique customer needs.
- Growth Mindset: Identify and act on expansion opportunities within existing accounts, cross-selling and upselling strategically.
- Collaboration and Communication: Effectively collaborate with cross-functional teams for a seamless customer experience.
- Results-Driven: Be motivated by results, taking ownership of sales targets while prioritizing long-term customer success.
Key Metrics for Tracking Account Executive Performance
- Sales Quota Attainment: Measure the percentage of achieved revenue targets, showcasing overall performance.
- Pipeline Growth: Reflects effectiveness in prospecting, qualifying leads, and building a strong customer base.
- Deal Velocity: Measures efficiency in closing deals, indicating productivity in expanding customer relationships.
- Average Deal Size: Assess the ability to secure deals of varying sizes and contribute to overall revenue potential.
- Expansion Revenue: Measures success in identifying and capitalizing on expansion opportunities within existing accounts.
- Expansion Rate: Calculates the percentage of customers expanding their usage, showcasing effectiveness in driving expansion.
- Pipeline Velocity: Measures how quickly opportunities move through the sales pipeline.
- Customer Retention: Reflects the percentage of customers renewing contracts, indicating success in fostering loyalty.
- Customer Lifetime Value (CLTV): Measures the total value a customer brings over their lifetime, showcasing contribution to company growth.
- Renewal Rate: Measures the proportion of customers renewing subscriptions or contracts at a specified period.
This template will empower your AEs to drive sales growth by aligning their activities and priorities to your revenue goals.
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