Overriding Commissions: A Complete Guide to Calculation and Benefits

In this guide, you’ll discover everything you need to know about overriding commissions, from the basics to real-world applications, calculation methods, and best practices.

What is an Overriding Commission?

If standard sales commissions reward individual effort, overriding commissions reward leadership and strategy. 

Overriding commission is an additional commission earned by sales managers, brokers, or senior-level professionals based on the sales performance incentives of their team.

Unlike direct commissions, which are paid only on personal sales, overriding commissions allow leaders to earn a percentage of their team’s revenue. This model is widely used in industries with multi-tiered sales structures, such as real estate, insurance, finance, direct sales, and travel agencies.

How Overriding Commissions Work

Let’s define override commission, break it down with a simple example, and learn how to calculate overriding commission.

Imagine you’re a regional sales manager overseeing a team of five reps. Each rep earns a 10% commission on every sale they close. As their manager, you receive an additional 3% override commission on their total sales revenue.

If your team generates $200,000 in sales this month, here’s what you’d earn:

Override Commission=Sales Revenue×Override Percentage

=200,000×3%=6,000

That’s $6,000 in extra earnings simply for leading and supporting your team effectively! Now, imagine scaling this across multiple teams or levels of management, and you can see how powerful commission overrides can be.

Key Benefits of Overriding Commissions for Sales Teams

Overriding commissions are a strategic tool that enhances sales performance, motivation, and retention. Here’s why they’re essential:

Encourages Leadership and Mentorship

Ever heard the phrase, “A great leader creates more leaders”? With overriding commissions, sales managers are directly incentivized to train, mentor, and develop their teams. The better their reps perform, the higher their commission overrides a true win-win situation.

Boosts Team Productivity

When sales leaders have a stake in their team’s success, they go the extra mile to drive performance. This results in:

• More structured sales training;

• Increased motivation among reps;

• Higher revenue for the company.

Strengthens Employee Retention

Replacing a top-performing salesperson is expensive. Studies show that the cost of replacing a sales rep can be as high as 200% of their annual salary when you factor in hiring, training, and lost revenue.

Overriding commission in sales create long-term earning opportunities for managers and team leads, keeping them invested in your business instead of looking elsewhere for better incentives.

Creates Passive Income Streams

With overriding commissions, sales leaders don’t have to rely solely on personal sales. Instead, they can develop their team, focus on strategic growth, and earn passive income from their team’s performance. 

Companies that integrate structured B2B sales incentives often see improved sales retention and a stronger leadership culture among sales managers.

Why Overriding Commissions Matter in Business Growth

Now, let’s zoom out and look at the bigger picture. Overriding commissions are not just beneficial to sales managers, they are a driving force behind business scalability. In fact, companies that use structured sales incentive programs see a 79% success rate in achieving their sales targets.

Here’s why:

Ensures a Scalable Sales Model

Overriding commissions allow businesses to scale without depending on a handful of top performers. By distributing earnings across multiple levels, companies can:

• Attract top sales talent;

• Ensure consistent revenue generation;

• Expand sales teams without increasing operational costs disproportionately.

Strengthens Sales Team Collaboration

In some commission-based models, reps are in constant competition sometimes to the company’s detriment. However, when team leaders earn based on group performance, they become invested in team success rather than just individual wins.

Encourages a Performance-Driven Culture

Sales incentives shape behavior. A well-structured override commission system pushes managers to cultivate high-performing teams, which translates to more sales, higher revenue, and increased company growth.

Aligns Incentives with Long-Term Business Goals

Many businesses make the mistake of focusing only on short-term sales wins. Overriding commissions ensure that managers and team leads are motivated to build sustainable, long-term revenue streams, rather than relying on one-time sales spikes.

Exploring Different Types of Overriding Commission Structures

Every business has unique goals, sales processes, and team dynamics, which is why different overriding commission structures exist to align incentives with performance.

Some businesses thrive on simplicity and predictability, using flat-rate overrides that ensure steady earnings for sales leaders. Others prefer performance-driven models, where overrides increase as teams hit higher targets. 

The key is choosing a structure that motivates your team, drives revenue, and scales effectively.

Let’s now break down the most common types of overriding commission structures:

Flat Percentage Override

If you’re looking for a straightforward and easy-to-manage commission program, a flat percentage override is your best bet. So, how does it work? 

A fixed percentage of every sale made by a subordinate is paid to their manager or team lead. The override rate remains the same, regardless of total sales volume.

For example, a sales manager earns a 3% override commission on all sales made by their team. If the team closes $250,000 in sales, the manager’s earnings would be:

250,000×3%=7,500

Why Use It?

• Easy to calculate and manage;

• Transparent and predictable;

• Encourages managers to focus on overall team success.

Potential Drawbacks

• No extra incentive for exceeding goals;

• Might not drive aggressive growth among managers.

From these observations, this type of incentive is best for companies that prioritize consistent team performance over competitive incentives.

Tiered Override Structure

A tiered override commission structure is designed to reward managers more as their teams hit higher sales targets. This model is particularly effective in sales-driven environments, where incentives are structured to push managers and reps to exceed quotas. 

Companies using sales performance incentives often see increased motivation and stronger team collaboration as employees work toward higher commission tiers.

With this structure, override percentages increase as total sales volume grows.

For example, a sales manager’s commission structure can include a 4% override percentage with a sales volume of up to $50,000, 4% with a sales volume of up to $100,000, and volumes over $100,000 attract 6%. 

So, let’s say the team generates $120,000 in sales, the manager’s commission would be:

(50,000×2%)+(50,000×4%)+(20,000×6%)=1,000+2,000+1,200=4,200

Why Use It?

• Encourages managers to push for higher team sales;

• Rewards increased effort and leadership;

• Creates a scalable commission model.

Potential Drawbacks

• More complex to track and calculate;

• Might create pressure among managers to push sales reps harder.

This structure is ideal for companies that want to drive aggressive growth and scale revenue systematically.

Role-Based Overrides

It is a no-brainer that not all managers play the same role in sales. A role-based override structure assigns different commission percentages based on seniority, responsibilities, and influence in the sales process.

Instead of a one-size-fits-all override, different positions receive different percentages of commission overrides.

For instance, the structure can offer a 2% override percentage for a team leader, 4% for a regional manager, and 6% for a senior sales manager. 

This structure can be good for an organization as it:

• Allows businesses to distribute commissions fairly based on responsibilities;

• Encourages career progression within the company;

• Increases engagement among higher-level managers.

However, it also has potential drawbacks, including:

• Requires a well-defined hierarchy to avoid conflicts;

• May lead to disputes over commission allocations.

Nevertheless, this structure is only best for companies with complex sales teams and multiple levels of leadership.

Performance-Based Overrides: Rewarding Top Performers

The last - but not least - override commission structure is the performance-based override. This structure links commissions directly to results. This model ensures that only high-performing managers earn override commissions, making it an excellent option for competitive sales environments. 

If your business operates on a hybrid compensation model, integrating hybrid incentive programs can help balance virtual and physical rewards while ensuring sales managers stay engaged and motivated.

For this to take effect, managers must meet specific performance criteria before earning their override commission.

For instance, an override commission may only apply if the manager’s team achieves at least 90%-100% of their quarterly targets, and gets 5%. 101%-120% can get a percentage of 7%.

So, if the team reaches 110% of their quota, the manager’s override is: 

Sales revenue x 7%

Why Use It?

• Motivates managers to push for high performance;

• Prevents commission payouts for underperformance;

• Encourages strategic team coaching and engagement.

Potential Drawbacks

• May discourage managers during slow sales periods;

• Requires clear and measurable performance metrics.

While it may seem more difficult to achieve, this structure is best for companies that prioritize high performance over blanket commission payouts.

So, which overriding commission structure should you go for? 

Which Overriding Commission Structure is Right for You?

In a nutshell, the structure you pick should motivate managers, reward performance, and drive long-term revenue growth without creating unnecessary complexity or conflict.

Here are some key factors to consider when choosing the right commission override model:

1. Business Goals: What Are You Trying to Achieve?

2. Want to encourage steady team sales growth? — A flat percentage override keeps things simple and predictable.

3. Need to push for higher sales targets? — A tiered override structure incentivizes managers to scale performance.

4. Looking for performance-based rewards? — A performance-based override ensures managers only earn when their team meets specific goals.
    

2. Team Structure

3. If your sales team has multiple leadership levels (e.g., team leads, regional managers, senior managers), a role-based override ensures fair and structured payouts.

4. If you have a small but high-performing team, a tiered override might work better to keep them motivated.
    

3. Sales Cycle and Revenue Predictability

4. Short sales cycles with frequent deals? — A flat-rate override works best for fast-moving industries like retail or travel agencies.

5. Longer, high-value sales cycles? — A tiered or performance-based override ensures sustained effort in high-ticket industries like SaaS, real estate, or financial advisory.
    

4. Managerial Involvement in Sales Success

5. If managers play a hands-on role in closing deals, a higher override percentage might be needed to justify their effort.

6. If managers are more focused on team support, coaching, and training, a lower override percentage might be sufficient.
    

5. Scalability and Long-Term Growth Strategy

Your commission structure should be easy to scale as your business grows:

• Flat-rate overrides are the easiest to manage but might not drive aggressive growth.

• Tiered overrides create a natural incentive structure for managers to scale performance over time.

• Role-based structures work best for companies with clear career progression paths for sales managers.

No matter which model you choose, the best commission structure is the one that aligns incentives with performance ensuring growth, motivation, and long-term success for both managers and the business.

But here’s the real challenge: Tracking and managing commissions manually can quickly become overwhelming. 

That’s where Kademi comes

How Kademi Can Help You Manage Overriding Commissions

Choosing the right overriding commission structure is one thing, managing it efficiently is another. 

If you’ve ever tried to manually track commissions, you know how quickly things can get messy. Spreadsheets break, calculations get misaligned, and disputes arise. 

The result? Frustrated sales teams, demotivated managers, and a compensation model that hurts more than it helps.

With Kademi, all these become a problem of the past. Whether you’re dealing with flat-rate overrides, tiered commissions, or complex multi-level structures, Kademi automates tracking, calculating, and distributing commissions, so you can focus on driving sales, not fixing errors.

Here’s how Kademi simplifies overriding commission management:

Automating Commission Calculations

Kademi automates the entire calculation process, applying pre-set rules based on sales data, team performance, and custom payout structures. 

This means no more manual number-crunching or last-minute adjustments, ensuring error-free, real-time calculations, and eliminating miscalculations, underpayments, and disputes.

Real-Time Sales and Commission Tracking

Without visibility, commissions can feel like a guessing game for managers. Kademi provides real-time tracking, so sales leaders always know how much they’ve earned and where their numbers stand. 

Instead of waiting until the end of the month or quarter, managers can see their commissions accumulate in real-time as their team closes deals. Plus, with Kademi’s detailed performance tracking, leaders can easily identify which reps need more partner training and which sales strategies are working best.

Flexible Customization for Any Commission Model

No two businesses have the same commission structure, which is why Kademi allows for full customization. 

Whether you’re a real estate brokerage, insurance firm, SaaS company, or direct sales business, Kademi adapts to fit your commission model perfectly. You can adjust override percentages, implement tiered incentives, and apply role-based commission structures, ensuring that your payout system aligns with your specific business strategy. 

The platform’s flexibility also means that as your team grows or your commission model evolves, Kademi scales with you, no need for constant system overhauls or manual recalculations.

Faster and More Transparent Payouts

Late commission payments can cause frustration, distrust, and low morale among sales teams. 

Kademi eliminates payout delays by ensuring that override commissions are processed accurately and on time. Businesses can set custom payout cycles, whether weekly, biweekly, or monthly, ensuring that managers and team leads receive their earnings consistently and predictably. 

Data-Driven Insights for Commission Optimization

Kademi provides data-driven insights that help businesses optimize their compensation strategies. 

Sales leaders can see which teams are generating the most revenue, identify trends in high-performing managers, and even forecast commission expenses to ensure financial sustainability. 

Optimize Your Commission Management with Kademi

Overriding commissions can be a powerful tool for driving sales performance and business growth, but only if they’re managed effectively. With Kademi’s commission management platform, you can:

• Eliminate manual errors and inefficiencies;

• Ensure fair and transparent commission payouts;

• Motivate managers and sales teams with real-time tracking;

• Scale your commission structures as your business grows;

• Integrate seamlessly with your existing CRM and sales tools.

Don’t let commission management hold your sales team back. It’s time to streamline your incentive programs, eliminate manual errors, and drive better sales performance.

Try Kademi today and see how effortless commission management can be!