Do you Know how you’ll be Paid Yet?
So, you’ve landed a great job in sales — congratulations! Chances are your income will be based on some sort of commission plan. Getting paid on commission means that your job performance has a direct impact on your paycheck. Before you buy a new television or take your friends out for burgers with your new windfall, however, let’s take a closer look at what commissions are all about and how a draw against commission works. Right away, your company may even offer you a draw against your commission.
Draw against commission. Salespeople receive regular advances against future commissions, with a limit on the total advance. This commission structure is often used when salespeople have to plan on a long sales cycle and can have an inconsistent cash flow if they’re working for straight commission. This differs from a draw in that the guarantee doesn’t have to be repaid. Guarantee against commission. The salesperson receives a minimum income even if commissions don’t reach that level.
For some products or services, like retail clothing, shoes, cosmetics and electronics, the sales cycle is short, immediate and often customer-driven. Some products or services require a single cold call, like cutlery or magazine subscriptions. Other industries, such as heavy equipment or process automation systems, may require several years of planning and engineering to complete the sales cycle. Other products, like cars, copiers or computer systems, may have sales cycles that last several months. And in some fields, such as financial services or pharmaceuticals, sales are based on relationships built with customers over even longer periods of time. Because it can take a while to earn a commission when the sales cycle lasts for months or years at a time, some companies will offer salespeople a draw on their commission to tide them over until actual commissions are paid out.
On the other hand, the employer may lose the draw if the employee quits. Your employer will usually have a good idea about your projected income or what you can reasonably expect to earn, based on the territory, sales rep experience and market expectations. The draw is based on a percentage of that figure, and the amount of the percentage varies depending on the industry, the territory, reasonable living expenses and the sales representative’s experience.
Straight commission. Industries with immediate sales, one-call closes or a closing cycle of less than a month often use a straight commission structure. This commission structure works well in any field that relies on long-term relationship building or an accumulated expertise, such as national sales for a sportswear manufacturer or an applications specialist for a technology company. A salesperson receives a regular salary plus performance-based commissions under this structure. As an employee, this type of compensation can be risky, unless you’re confident in your sales skills or are certain the product will sell. Base salary plus commissions. Sometimes, companies will increase the base salary and decrease commissions over time, or decrease base salary and increase commissions until the salesperson is on straight commission. Some retail clothing, cosmetics, office products and even residential real estate, are based on straight commission sales.
