What is Draw Against Commission?

What is “Draw Against Commission”?

In a nutshell, this is what “Draw Against a Commission” means, according to Chris Joseph in one of his articles on smallbusiness.chron.com, “Small business owners who decide to employ a sales force to generate revenue face the dilemma of choosing the most effective compensation program. Choices range from a straight salary plan where all income is guaranteed, to a heavily performance-based commission-only program. A draw program is an alternative that combines elements of both of these methods.”.

It helps business owners especially if they set a predetermined amount that they can advance to a salesperson against future sales commissions. The idea here is for the sales person to make enough sales to equal the draw amount within a given timeframe. If they earn anything in excess of the draw amount, then it is normally for the salesperson to keep, or incentives/commissions are given.

But what happens if the salesperson does not make enough sales? If that happens, the remaining balance is carried over to the next month.

Draw Against Commission Pitfalls & Downsides

One of the biggest downsides of Draws to a business, is when a salesperson is consistent in not being able to meet the Draw amount in terms of his or her sales production. This means that the business is not earning back the money that it is shelling out. If this is not closely monitored and is allowed to go on for a long period, the loss to the business then becomes serious. It is then essential for businesses to closely monitor sales performance in order to avoid future loss.

Draw Against Commission Benefits

One of the biggest benefits of having the “Draw Against Commission” program, is that it may help in attracting salespersons who have the potential to excel, but are just avoiding a pure commission sales compensation program. Being able to draw against their commissions would provide a form of stable income which can help them in terms of mobility and in handling their personal finances better.