Is it Time to End the Draw?

Jun 10, 2016
2 min read
A draw against commission is a common sales compensation strategy. Hear what incentive expert Erik Charles has to say about whether this tactic is outdated.

Let’s start with the first problem: You need to be constantly on the lookout for new sales team members. You could be building your operation, or you could be dealing with poaching by competitors, or just managing out those who never fully performed. Turnover will happen, and then you have to start over with a new rep.

Xactly Insights™ research shows that the annual turnover of sales reps can range from 7% to as high as 51% depending on the industry. Note that is just the average, Insights percentile data analysis shows companies with an even higher rate of spin on the revolving door. Open headcount is a fact of life in almost every company and a standard process must be part of the revenue plan.

Once you get someone in the door, you are faced with the next problem: Sales ramp up, or time to productivity. This can range from a few weeks for a new Sales Development Rep to several months for someone selling big-ticket items into the B2B space.

On top of that, experience counts. Some research (once again done by my friend Alan Benson at the Carlson School of Management) has shown that the value of experience kicks in starting around 6 months in some industries, and can keep climbing, based on productivity increases, for 1-2 years depending on the sector.

So with all of that – we know that we need to hire–you need sales reps to sell, after all. We know that it will also take time before they can produce; we can measure that timeline on a per company basis, or look at analysis from larger data sets . That brings up the question of the draw.

That payment that comes every pay period for a new hire while they come up to speed. Or, as a one sales VP said to me, “payment for just showing up and fogging a mirror.” I want to change the sales cultural expectation of the draw payment, and instead convert it to activity-based payments.

Those activities should be the known training, analysis and pipeline building steps that a company has already identified as part of their proven sales on-boarding process.

Pay the Draw Over time for Various Activities:

  • Attend sales boot camp (with full participation). Show that they know the company history.
  • Take product classes and pass a knowledge test. Show that the have the appropriate level of product knowledge to handle typical customer questions.
  • Shadow other reps on a number of meetings and deals. Be able to repeat the opening pitch and handle the typical objections.
  • Show understanding of the various personas involved in a deal, including how your product serves their needs.
  • Get trained on the various systems the company uses (CRM, CPQ, etc.)
  • Learn to analyze the assigned territory, including identifying top prospects.
  • Develop enough sales cycles to statistically be able to hit their ramp quota numbers. (Another number you should already know from your funnel analysis).

The new system would need to be designed with a cap for activity based payments, but if structured properly could serve to both cover the loss in income as the rep is trained while also recognizing them for taking the necessary steps to ramp up. This builds the culture of pay-for-performance for sales reps, and if you have identified the needed steps it should result in reps hitting their numbers with better predictability. If you have NOT identified the needed steps, you have some work to do.

  • Incentive Compensation
  • Sales Planning
Erik Charles
Erik W. Charles
VP, Solutions Evangelist

Erik W. Charles is an accomplished professional with more than two decades of experience in Marketing, Consulting, and Product Evangelization.