How can you compare tiered and flat commission plans?

1 What are tiered and flat commission plans?

A tiered commission plan is one where your commission rate increases as you reach certain levels of sales or revenue. For example, you might earn 10% for the first $10,000 of sales, 15% for the next $10,000, and 20% for anything above $20,000. A flat commission plan is one where your commission rate stays the same regardless of how much you sell. For example, you might earn 15% for every sale, no matter the amount.

2 What are the pros and cons of tiered commission plans?

A tiered commission plan can be appealing for direct sales professionals who want to reward themselves for higher performance and have a clear incentive to sell more, as well as creating a sense of achievement and recognition as you move up the tiers and earn higher rates. However, this plan can also create a plateau effect where motivation is lost once you reach the highest tier, a cliff effect where you miss out on a significant increase in commission if you fall short of a threshold by a small margin, and a complexity effect where you have to keep track of multiple tiers and rates to calculate your earnings.

3 What are the pros and cons of flat commission plans?

A flat commission plan can be appealing for direct sales professionals who want to have a consistent and predictable income and avoid the stress and uncertainty of variable rates. It can also create a sense of fairness and simplicity, as you know exactly how much you will earn for every sale and do not have to worry about thresholds or tiers. However, a flat commission plan can also have some drawbacks, such as creating a complacency effect where motivation to sell more or improve skills is lost, or a frustration effect where you feel underpaid or undervalued for your efforts. Additionally, it can create a stagnation effect where there is no opportunity to increase your income or advance your career, as there is no incentive to take on more challenges or responsibilities.

4 How can you choose the best commission plan for you?

When considering tiered and flat commission plans, there is no one-size-fits-all answer as it depends on goals, preferences, and personality. To make the best decision, consider your income goals - do you prefer a steady income or a variable income with the potential for higher rewards? Also consider your sales style - do you enjoy the challenge of reaching higher levels or the stability of a fixed rate? Lastly, think about your satisfaction level - do you value achievement and recognition or fairness and simplicity? By weighing these factors, you can find the commission plan that works best for you and helps you achieve your direct sales goals.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?