Compensation plays a key role in your ability to drive sales behaviors and hit your revenue and growth targets. Depending on your sales force structure and size, there are different sales commission structures that can be used in your incentive plan. One of the most common is a draw against commission, which can be a useful approach to keep your team engaged and motivated to succeed.
What is Draw Against Commission?
A draw against commission is a type of incentive compensation that functions as guaranteed pay that sellers receive with every paycheck. The draw amount is typically pre-determined and acts similar to a cash advance for reps.
Draws are typically a short-term incentive and a way to provide your team with income stability. Depending on whether the draw is recoverable or non-recoverable, reps may be required to repay the draw in the next pay period (more on that later).
When to use a Draw Against Commission
Not all commission draws function the same. For compensation plans as a whole, it's important to tailor plans to fit each sales roles' unique responsibilities. This is also true for draws. The draws should reflect the sales reps' responsibilities and seasonal fluctuations for their territory or any other factors that could impact sales performance.
Generally, companies implement a commission draw for one of two reasons: (1) to provide consistent compensation for newly-hired, ramping sellers, and (2) to maintain stability during times of uncertainty (e.g., decreased cash flow due to inexperience within a particular territory or product as they ramp up).
Research shows that on average, sales reps ramp up to full productivity in 9.1 months. A draw against commission offsets the lack of incentive payments during a sales rep's ramp and onboarding.
During times of economic uncertainty, changing selling conditions, or even disruptions like the COVID-19 pandemic, a draw provides income stability to ensure reps are still earning pay when sales are fluctuating for reasons out of their control.
Draw Against Commission Examples
There are two types of draws that you can use in your compensation plans— recoverable and non-recoverable.
A Recoverable Draw pays reps up front, but the company will recover the draw payments from earned commissions over time.
When to Use it: Use a recoverable draw to provide newly-hired sales reps with sustainable earnings during their training and sales ramp-up period. As they gain experience, this amount may decrease until they are fully ramped.
Non-recoverable draws operate like a stipend. Reps are paid the guaranteed amount, but they are not required to pay it back at any point in time. These are almost always short-term incentives to help the entire sales team in times of uncertainty.
When to Use it: Use a non-recoverable draw to provide income stability to your entire sales force when selling circumstances change, industry disruptions hit, or other economic events hinder reps’ ability to sell at their normal capacity.
Elevating Your Sales Compensation Strategy
Getting sales compensation right is essential to drive performance and achieve your revenue goals. Using a draw against commission can be a great way to motivate your sellers as they ramp to full productivity and also provide stability when disruptions occur. But it is only one of the many elements you can use in your compensation planning to drive performance.
Learn more ways you can improve your compensation planning and management in our guide “The 2021 Guide to Successfully Managing Sales Compensation.”