In sales commission structures, a commission cliff might refer to a specific sales target or threshold that, once reached, triggers a change in the commission rate. For example, a salesperson might earn a lower commission rate for sales below a certain dollar amount and then, once that threshold is crossed, their commission rate increases significantly for sales above that threshold. This creates a "cliff" in their earnings where the commission structure shifts abruptly.
A common use case for cliffs is enforcing a minimum quota attainment before commissions are paid. This is also referred to as a commission floor. For example, a commission plan might have a floor of 60% quota attainment before any commission payouts. This means that before hitting 60% of quota, the rep wouldn't be paid any commissions. After hitting 60% of quota, the rep would be paid all their accrued commissions.
Another common use case for cliffs is in sales manager commission plans. This helps link team performance with the sales manager's compensation. For example, there may be a cliff of 40% team goal achievement before the sales manager earns their highest possible commission rate.