A commission draw is an advance against future commissions — think of it like paycheck protection.
There are two main types of commission draws:
Recoverable draw: A recoverable draw means the rep will repay their advance. If the commission is more than the initial draw, the rep gets the overage. If it’s less than the draw, the employee is guaranteed the original advance.
Non-recoverable draw: Non-recoverable draws are when the rep’s commissions don’t cover the draw amount. In this case, the rep does not have to pay the difference. However, it may reduce the chance that the rep is able to take another non-recoverable draw int he future.
When should you use a sales commission draw?
There are several scenarios that might make sense to ask for or offer sales compensation before a commission is due. Helping out when times are tough can shield reps during changes within the company and prevent quality employees from leaving.
New hires: It can take new hires significant ramp up time to hit quotas consistently. Some experts say it can take two to three years, even. To help them stay motivated and have a shot at their full on-target earnings, we recommend offering a sales commission draw.
A large deal slows down sales cycle: The deal is greenlit to come through but it’s getting held up on the future customer’s side over net 30 payment terms. And until that goes through, the rep, who has spent a year nurturing it, doesn’t receive a penny. You could use a sales commission draw to help see the fruits of the labor.
A territory redesign: When a rep takes on a new territory, there is often a short dip in commissions as they get acclimated to their new accounts. A draw helps ease angst.
Outside influences slow sales down: Economic factors, client bankruptcies, a product launch with a ton of risk can cause real strains on a seller’s ability to close. If that’s the case, consider a draw to help them through this stress period.
Can you use sales commission software for a commission draw?
Yes, you can use sales commission software to automate the payouts and tracking of a commission draw.