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What is Draw Against Commissions (Pros, Cons & Tips)

Draw against commissions is a vital part of compensation packages for sales reps. Learn everything you need to know about draw against commissions including its amazing benefits and disadvantages. Also, learn some useful tips to implement this commission structure the right way.


Commissions are one of the common ways to incentivize sales representatives across industries.

Commissions are generally paid out at the end of the commission period based on the sales made and revenue generated. For instance, based on the revenue sales reps generate, they get quarterly or monthly commission payout.

But drawing against commission is a way for sales reps to get a portion of the commission amount they are due in advance.

Read on to learn what is draw against commission, its pros, and cons.

What is a Draw Against Commissions?

Draw against commissions is an assured incentive-based compensation that you pay to salespeople working under a straight commission plan.

A draw amount is a form of advance payment that will be deducted from the total commission payable to the rep.

If at the end of a given period, any commission amount is still outstanding, it must be paid to the sales representative.

However, it should not be confused with salary payment, as a draw is simply a regular payout rather than periodic commission payments.

Draw against commission example:Let’s assume you pay commissions on a quarterly basis. And one of your salespeople gets a draw of $1,000 per week to take care of the financial needs.Now, that employee needs to earn at least $12,000 in the quarter as commissions to take care of the draws. And any amount above $12,000 should be paid to that salesperson.

What are the types of draw against commissions?

There are two types of draws against commission:

Recoverable draw - A recoverable draw must be repaid by the salesperson if the commissions earned do not meet the amount of the draw from the company.

Non-recoverable draw - A non-recoverable draw does not require repayment if the commissions are less than the drawn amount.


Learn more about recoverable and non-recoverable draws here.

Draw against commission pros and cons

Here's a deep dive into the benefits and disadvantages of draw against commissions:

Top three benefits of a commission draw

Here are the amazing benefits that your organization can enjoy with a commission draw:

1. Income stability

Provides financial stability and predictability for employees, helping them manage their personal finances better, especially during slow sales periods.

Draw against commissions ensures a regular payout for your salespersons – allowing them to not worry about their financial needs.

On the other hand, organizations benefit from lower attrition rates, as motivated employees are 87% less likely to leave their jobs.

Additionally, newly hired salespersons who are still in the ramping stage will also get much-needed motivation through a stable source of income.

2. Adds a direct incentive

When you incorporate a recoverable draw in the compensation package, it works as a major incentive for the salespersons.

They have a greater motivation to exceed the assigned sales quota. This ensures that the net commission payout for a given period exceeds the draw.

Moreover, it motivates them to put in their best efforts and close as many accounts as they can. This, in turn, generates more commissions and eliminates the need to pay you any money.

3. Assists with long sales cycles

When the sales processes take several months to complete, sales reps might struggle to meet their financial needs due to lower payouts.

In these situations, a draw system ensures them a stable income at regular intervals – boosting their morale and keeping them going. This strategy is also an excellent exhibition of empathy towards employees that can help with employee retention.

Three major cons of draw against commissions

Some crucial cons of a commission draw include:

Potential for Reduced Motivation'

Employees might become complacent and less driven to achieve higher sales, relying on the security of the draw rather than striving for higher commission earnings.

Complex Accounting

The need to meticulously track draw amounts, commission earnings, and repayments adds significant complexity to payroll and accounting processes, increasing administrative workload.

Strain on Cash Flow

Draws can place a burden on an employer’s cash flow, especially if a large number of employees are receiving advances without corresponding sales increases.

Employee Stress

With recoverable draws, employees may face stress and financial pressure if they fail to meet sales targets, leading to potential morale issues and decreased job satisfaction.

3 Tips for Using Draw Against Commission

Here are some useful tips to help you use draw against commission:

1. Uphold minimum wage

As per the applicable law, commissioned salespersons should make more than their minimum wages. That is why you need to ensure that the draws offered to the reps meet the relevant minimum wage laws of your state.

For example, in the U.S. the federal minimum wage is $7.25/hr. However, it can vary based on the state you’re in.

2. Be mindful of overtime wages

Some employees working on a commission basis should be paid overtime wages based on the number of hours they’ve worked.

Though, there are certain exemptions to these laws for salespersons engaged in outside sales and inside sales.

3. Verify compliance with state laws

When you are drafting a new draw against commission policy, different federal and state laws might be applicable.

In most cases, state laws are stricter than federal laws.

For instance, California’s minimum wage rate is $15.50/hr and New York’s is $14.20/hr. These are greater than the federal minimum wage.

What should you do?

Here, fulfilling state laws shall take care of guidelines under federal laws as well.

But remember to consult an experienced lawyer or consultant to help you create a comprehensive policy that complies with all relevant laws.

Wrapping It Up!

Elevating your compensation strategy to the next level is crucial in ultra-competitive industries.

When you formulate a well-rounded draw against the commission policy, it will be a major motivational factor for your salespersons. They’ll be motivated to deliver their best efforts and ensure full productivity as their financial needs are taken care of.

It’s vital that your compensation packages meet the industry standards, and incentives should be reviewed periodically to drive the salespersons to give their best efforts.

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