A commission draw is a compensation structure often used in sales roles, providing a guaranteed base income before commissions are earned. This system helps salespeople manage their finances while offering a performance-based incentive. The draw amount is typically paid upfront and deducted from future commissions once they exceed the guaranteed threshold.

Key Features of a Commission Draw:

  • Guaranteed minimum income for sales representatives.
  • Commission earned above the draw amount is paid out in full.
  • Draws are deducted from future commissions, not additional compensation.

Commission draws provide financial stability during periods of low sales, ensuring salespeople have a steady income while motivating them to perform at higher levels.

Types of Commission Draws:

  1. Recoverable Draw: The draw is paid upfront, but if the salesperson's commissions do not exceed the draw, the company recovers the difference from future earnings.
  2. Non-Recoverable Draw: The salesperson does not have to repay the draw, even if their commissions do not reach the draw amount.

Example of Commission Draw Calculation:

Draw Amount Commissions Earned Total Pay
$2,000 $3,500 $3,500
$2,000 $1,500 $2,000