Flat-commission structures pay everyone the same percentage. A 35% closer and a 65% closer earn proportional commissions on what they sell. The system is "fair" in the sense of consistent, but it produces a strange outcome: top closers feel undercompensated relative to their output, mid-tier closers feel reasonably treated, and bottom-tier closers feel okay because they're still earning at the same percentage despite producing less.
Hormozi's alternative: ratcheted commission. Higher close-rates earn higher commission percentages.1 At 50% close-rate, you keep your job. At 60%, you get praise. At 70%, your commission goes from 10% to 15%. Above 80%, your commission jumps to 25%. The ratchets reward the closers who genuinely produce — and they signal to mid and bottom tiers that the path to higher comp is straightforward: improve close-rate.
A comp architecture with three operating principles:
Tiered commission rates by close-rate. Specific thresholds (50%, 60%, 70%, 80%) with explicit commission percentages at each tier. Closers know exactly what they're being measured on and what each threshold unlocks.
Setters and closers both ratcheted. Setters get commissions on appointment-shows; closers get commissions on closes. Both teams' comp scales with performance. Closers earn a higher percentage because the skill is rarer, but setters still have ratchets because their work is equally important to overall throughput.2
Structural turn-over expected. The ratchet design implicitly accepts that bottom-tier closers will exit. This is structural turn-over, not a bug. The role requires intensity that some operators can sustain and others can't. The comp design surfaces the difference.3
The classical flat-commission rationale: "if everyone earns the same percentage, the team is motivated by their own output." This is true but incomplete. Flat commission fails to differentiate. The top closer at 60% close-rate earns 6/4 = 1.5x the bottom closer at 40%. They produce 60/40 = 1.5x more output. The math balances, but the system doesn't reward excellence — it rewards proportional effort.
Ratcheted commission breaks the proportional rule. The 60% closer at the 15% commission tier earns 0.6 × 1.5 = 0.9 units of commission per call. The 40% closer at the 10% tier earns 0.4 × 1.0 = 0.4 units of commission per call. The ratio is now 0.9 / 0.4 = 2.25x — significantly more than the flat-comm 1.5x output ratio.
The asymmetry is deliberate. It tells the team: being great isn't just a little more rewarding than being mediocre; it's substantially more rewarding. This serves two purposes: (1) tigers are appropriately compensated and don't get poached by competitors; (2) dogs and horses see the gap and either ascend or leave.
This comp architecture composes with:
In the $21.6M case study (see $21.6M Mercenary-to-In-House Case Study), Hormozi's target for all-in comp (closers + setters + director + commissions) was sub-10%. The achieved number: 9%.4 Down from the previous 20% paid to the mercenary outsourced team.
What this 9% looks like operationally: top-tier closers might earn 18-22% commission on their sales (high ratchet), bottom-tier closers might earn 8-10% (low ratchet), setters earn smaller percentages on schedule-rates, the director takes a flat salary plus team-performance bonus. The 9% is a weighted average across the team.
The key insight: ratcheted comp aligns individual comp with output while keeping aggregate comp cost predictable. When top closers earn more, they're earning more on more output — so the total cost as a percentage of revenue stays bounded. Flat comp, by contrast, can produce aggregate-cost surprises because the percentage applies regardless of performance distribution.
You're designing a new comp structure for a sales team of 8 closers and 4 setters. You want to install ratcheted commission.
Step 1: identify the thresholds. For closers, you might pick:
For setters, calibrated to schedule-rate:
Step 2: model the aggregate comp cost. Run the numbers on your current team's performance distribution at the new ratchets. Make sure aggregate comp stays within budget (typically 7-12% of revenue depending on the business).
Step 3: roll out with team transparency. Closers should know exactly where they are on the ratchet and what the next threshold unlocks. Transparency is the discipline that makes ratchets work — closers calibrate their behavior to the explicit threshold targets.
Step 4: review quarterly. Some closers will rise across thresholds; some will fall. Some will exit. The structural turn-over is part of the system. The discipline is to keep the ratchets calibrated to actual market-rate compensation as the team's distribution shifts.
The ratcheted commission architecture and the broader comp-design tradition converge on the principle that variable comp drives behavior but vary on structure.
Classical sales-comp design typically uses progressive commission (commission rate rises as cumulative sales hit milestones) rather than ratcheted commission (commission rate rises with close-rate). The two are structurally similar but the variable being optimized differs: progressive optimizes for total sales (more calls + more closes); ratcheted optimizes for close-rate quality (better closes per call).
The Hormozi position favors ratcheted because it produces better quality of closes (less first-30-day-refund, less customer-success drag) rather than just more closes. The ratcheted version is more appropriate for businesses where customer-quality matters; the progressive version is more appropriate for high-volume transactional businesses where volume is the primary lever.
The convergence: both traditions agree that variable comp produces variable behavior. The divergence: which variable to ratchet on. The Hormozi recommendation is calibrated for service-businesses where close-quality compounds; progressive comp is calibrated for businesses where close-quantity dominates.
The ratcheted comp architecture isn't just a sales tactic. It's a performance-tiered-reward structure that shows up in any domain with operator-output variance.
Behavioral Mechanics: Six-Minute X-Ray Elicitation Suite (Hughes) — influence-operations frequently structure operator-pay with tiered performance rewards because operator-output varies wildly. The structural parallel: ratcheted comp in commercial sales and tiered-influence-operator-pay are the same architecture. The insight: every domain with high operator-variance eventually arrives at tiered reward structures because flat-rates don't differentiate adequately.
Eastern Spirituality: Guru Authority Transmission Theology Hub — many spiritual lineages have implicit "ratchets" of recognition and responsibility as practitioners demonstrate sustained practice and outcomes. Senior monks aren't paid more (typically) but receive more recognition, more responsibility, and more access to advanced teachings as they ascend tiers. The structural parallel: tier-based-recognition in spiritual lineages and ratcheted-comp in commercial sales serve the same function — differentiate and reward sustained excellence. The insight: the architecture is universal; only the specific currency (money, recognition, responsibility) varies by domain.
History: History Hub — military promotion systems are ratcheted: rank ascends with demonstrated capability and time-in-grade. Higher ranks unlock significantly higher pay, authority, and resources. The Roman cursus honorum was an early formalization. The structural parallel: military promotion architectures and commercial sales ratcheted-comp are the same architecture in different domains. The insight: every operational domain with sustained operator-development eventually arrives at tiered-reward structures. The architecture is invariant; the implementation varies.
The Sharpest Implication
The ratcheted comp architecture implies that most sales operations are accidentally subsidizing their worst performers at the expense of their best. Flat commission applied across a performance-variant team transfers compensation budget from the top performers (who generate more output per dollar comped) to the bottom performers (who generate less). The top performers eventually figure out the math and leave for ratcheted-comp competitors; the bottom performers stay because they're being over-paid relative to their output. The result is an adverse-selection cycle that hollows out the top of the team over time.
The fix is structural. Ratcheted comp aligns reward with output, which retains top performers (they're paid for their actual contribution) and creates exit pressure on bottom performers (they're paid less but they're also producing less). The team self-sorts toward higher-quality talent without the operator having to make uncomfortable individual termination decisions — the ratchets do the sorting structurally.
Generative Questions
How aggressive should the top ratchet be? Probably enough to make the top closer's per-call earnings 2-3x the bottom closer's. Less than that and the differentiation isn't sharp enough; more than that and the aggregate cost spikes for outlier performers.
Should there be a ceiling on commission? Probably no for closers; the more they sell, the more they earn, and the more total revenue accrues to the company. Ceilings cap upside in a way that demotivates top closers. The exception: roles where individual output is constrained by external factors (volume of inbound leads); there, ratchets can be ceiling-capped by structural availability.
How do ratchets interact with team-vs-individual incentives? Probably as a hybrid — individual ratchets for personal performance plus a small team bonus for total team output. The team bonus prevents pure-individual optimization at the expense of team-cohesion (which us-vs-them framing also prevents).