What is a commission override?
In sales, a commission override is a form of compensation paid to managers or team leaders based on the sales performance of their team members.
Unlike a regular commission that rewards individual sales efforts, commission overrides are designed to incentivize managers to support and guide their teams to success. This encourages a focus on team-wide achievements rather than just individual performance.
Commission override vs. regular commission: Key differences
Here's how commission override is different from regular commission:
Basis of calculation
- Regular commission: Directly tied to individual sales performance. Salespersons earn a percentage of the revenue they personally generate.
- Commission override: Earned by managers or team leaders based on the sales performance of their team members. It's an additional layer of compensation on top of any personal sales commission plan.
Incentive focus
- Regular commission: Motivates individual performance, encouraging salespeople to close more deals.
- Commission override: Encourages team management, collaboration, and leadership, as managers benefit from their team’s success.
Roll-up vs. override: Key differences
Here's how roll-ups are different from override:
Roll-Up
- In a roll-up structure, commissions earned by lower-level sales reps are rolled up to higher-level managers. This means that a portion of the commissions earned by subordinates is automatically attributed to their manager. The manager’s total commission includes their own sales and a share from their team, which simplifies the calculation process.
Override
- Overrides are additional commissions paid to managers on top of what their team members earn. Unlike roll-ups, the override is a separate percentage that isn’t deducted from the team member’s commission.
Types of commission overrides that you can use
Here are the common commission override types:
1. Tiered override
Managers receive a higher percentage as their team achieves higher sales milestones. This structure motivates continuous improvement and aggressive target-setting.
Example: A sales manager earns a 2% override on the first $500,000 in team sales, which increases to 4% once the team surpasses $1 million in sales. This structure motivates continuous improvement.
Also read: Tiered commission structure
2. Role-based override
Specific to the role or title, this type of override is often used to distinguish between different levels of management, with higher-ups earning a larger percentage.
Example: A regional sales director might earn a 3% override on all sales made within their region, while a district manager earns a 1.5% override on sales within their district, reflecting their different levels of responsibility.
3. Flat rate override
A fixed percentage is earned on every sale the team makes, offering simplicity and predictability in earnings.
Example: A team leader earns a consistent 2% override on every sale made by their team, regardless of the total amount or other factors. This simple structure provides predictable earnings.
How to structure commission overrides
- Define 'Who'
Identify which managerial roles will be eligible for overrides, such as team leaders, regional managers, or department heads.
- Define 'How much'
Establish a percentage that managers will earn based on the sales generated by their team. This could be a flat rate (e.g., 2% on all team sales) or tiered based on sales milestones. It is generally less than 4% of their eligible commission.
- Define 'alignment with company goals'
Tailor override percentages to align with company objectives. For example, higher overrides for high-margin products or strategic regions.
- Define your 'document'
Clearly communicate how overrides are calculated and ensure that they complement, rather than complicate, existing commission structures.
Benefits of commission overrides
Commission overrides ensure that managers are not just passive supervisors but active participants in driving the team's success.
- Encourages mentorship: Managers are more likely to invest time in developing their team members, knowing their success impacts their own earnings.
- Boosts overall sales: By aligning manager compensation with team performance, companies can drive higher overall sales.
- Improves retention: Money can be a retention motivator. Offering commission overrides can improve manager satisfaction and retention.
Implementing commission overrides effectively
- Ensure that the percentage offered is both motivating and sustainable.
- Strike a balance where the overrides are enough to incentivize team leaders without significantly eating into the company’s profits.
- Transparency in how these overrides are calculated is key to maintaining trust and motivation within the sales team.
Challenges and considerations to note
One of the main concerns is the potential for complexity in compensation plans, which can lead to misunderstandings or disputes if not clearly communicated.
That's why it is important to keep overrides to a minimum and less frequent. Many commission plans don't even accommodate overrides.
How to manage commission overrides on ElevateHQ?
Overrides are not common and frequent throughout the year. Trust us, we have 100s of customers and no one uses it. Although there is no dedicated feature, you can do this by adding a manual adjustment to a commission statement.
What's better is that you can make the adjustment go through an approval process. It means you can create a workflow with stakeholders who need to approve commission overrides. Once approved, it gets added to the user's commission statement and then to payout.
Here's how you add a manual adjustment
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