4 Common Commission Methods and How They Stack Up

by | Jan 12, 2022

Gears work spin together, representing the complexity of using commission spreadsheets

Commission plans come in all shapes and sizes. There are as many different ways to structure commissions as there are sales organizations to implement them. Between splits, tiered rates, hierarchy overrides, and all the other ways to calculate commissions, an organization has endless options. After more than 15 years in the business, we’ve seen every combination there is.

Many companies looking to implement commission plans may question where to begin. It can help to know how other sales teams organize commissions before jumping right into it. We figured we’d take a look at our clients as an example and provide our insights to those about to apply new rules to sales compensation.

The methods used to calculate commissions depend entirely on your organization but seeing how other commission plans are structured can help.

Here are a few statistics to give your team a better idea of how to build your commission plan.

20% of commission plans incorporate tiered rates.

By applying tiered rates to commissions, organizations incentivize sales leaders to hit those higher sales thresholds. This method complicates calculations around any commission plan but it could be worth it. With salespeople scrambling to reach higher and higher sales goals to unlock higher rates, your organization will likely bring in higher revenue as a result.

However, you do need to see a return on your investment in tiered rates. It is an investment too. Your commission administrator will be spending more time navigating rates. Additionally, leadership will need to monitor progress to ensure the right quotas and thresholds have been set. It can be a lot to manage. So it’s certainly up to your organization as to whether this method is right for your team.

50% of sales organizations implement hierarchical overrides.

Implementing hierarchical overrides benefits an organization by incentivizing management. If a supervisor earns commission on the performance of their direct reports, they are more likely to drive the team toward success. It can be motivation for the entire team as a whole in combination with other commission methods.

Again, whether hierarchical overrides will work for your company fully depends on the unique structure of your team. If you have several sales teams managed by individuals who don’t generally earn based on their teams’ progress, that extra carrot could make a difference. However, it must be considered carefully before implementation.

40% of organizations rely on bonuses as part of their compensation plans.

Bonuses reward employee successes in a different way than commissions. This type of compensation generally cultivates more teamwork since it must be implemented in combination with a salary. In this scenario, every employee has a guaranteed income and the opportunity to earn a pre-determined amount through the performance of the whole company.

Determining whether to go the bonus route rather than commissions can be a big decision. Some organizations combine the two in a way that keeps all employees motivated. The compensation formula for your team needs to be custom to its unique necessities.

More than two-thirds of commission cycles run on a monthly basis.

How often an organization runs commissions depends entirely on its own unique design. Some organizations pay commissions monthly, others quarterly, still others target a yearly payout. The cycle length may vary depending on the company and the industry. However, it plays out, be sure to communicate that timeline to employees.

The right recipe for commissions fully depends on your organization. If structured well, it will help draw talent, motivate employees, and increase revenue across the board. It can be difficult to determine where to start but whenever you have it figured out, we’ll be happy to help you automate the entire process.

Contact us for more information or schedule a free demo. We’ll walk you through everything Core Commission can do for you and your sales team.

Related Posts

Sometimes it Takes a Sixth Sense to Calculate Commissions

As Halloween approaches it is all too easy to reflect on terrifying topics: scary movies, public speaking, heights, messing up a handshake, ...

What is On-Target Earnings (OTE), and How Does it Apply to Commissions?

Some commission plans refer to a term called OTE, also known as on-target earnings, or on-track earnings. Different versions of commission plans ...

Why Bother Integrating Commission Software with Payroll

Commission management often happens separately from payroll. It requires a different set of numbers and stats to calculate the correct earnings ...
Share This