Retroactive rebate

Also: retroactive tiers · all-units rebate · vs incremental / marginal / bracket tiers

A retroactive rebate is a tiered rebate design in which crossing a volume threshold applies the new, higher rate to all qualifying volume in the period — not just the volume above the threshold. Its opposite is the incremental (marginal, or bracket) design, where each tier’s rate applies only to the volume inside that tier, the way income-tax brackets work.

The distinction is a single word in the contract, and it changes the value of every dollar in the program.

The worked example

Take tiers of 1% up to $1M, 2% from $1M to $5M, and 3% above $5M, with a customer finishing the period at $5.1M:

Retroactive: 3% × $5.1M = ~$153K — the final tier’s rate applies to everything.
Incremental: 1% × $1M + 2% × $4M + 3% × $0.1M = ~$93K.

Same volume, same tier table, $60K apart (run your own numbers) — decided entirely by whether the agreement says “retroactive to dollar one” or “on incremental volume.”

Why retroactive tiers are the highest-risk contract words in a rebate program

Spreadsheets don’t know which design the contract means. The formula was built for one interpretation; the renewal quietly changed the language; nobody changed the formula. The result is a silent, recurring misstatement in either direction.
One transaction can move the whole period. Near a boundary, a single late order re-rates every prior dollar. That makes quarter-end cutoff, returns, and late data disproportionately consequential — and makes the true-up hard to explain if the calculation isn’t reproducible.
The accrual estimate has a cliff in it. Under ASC 606 variable consideration, you accrue at the rate the customer is expected to finish at. With retroactive tiers, being wrong about the finishing tier doesn’t miss by a little — it misses on every dollar.

The operating discipline

The tier design must live in the governed agreement as a structured property — not in a formula someone remembers to update — and the calculation engine must apply exactly the design a human approved. That is how Aurgus models it: retroactive vs incremental is an explicit agreement term, attainment is computed deterministically against it, and boundary crossings propose recalculations that a named human approves. The full mechanics, including growth baselines and threshold-scope decisions, are on the tiered volume rebates page.