What is a commission draw?
A commission draw is a compensation mechanism where the company pays an advance against a salesperson's future commissions. This ensures that the salesperson has a stable minimum income, even during periods of low sales or during the onboarding period in a new job.
Draw functions as a form of income protection, providing salespeople with financial stability while they build their pipeline or work with longer sales cycles.
Why do companies use commission draws?
Commission draws serve several strategic purposes in sales compensation.
Benefits for companies
- Talent recruitment: Attracts salespeople who might otherwise avoid commission-based roles
- Risk sharing: Shows the company is investing in the salesperson's success
- Onboarding support: Gives new salespeople time to learn the product and build pipeline
- Seasonal smoothing: Helps salespeople through natural slow periods
Benefits for salespeople
- Financial security: Guaranteed minimum income
- Reduced stress: Less pressure during slow periods
- Career opportunity: Ability to take commission roles with lower risk
- Quality focus: Less temptation to force bad deals
Types of commission draws
1. Recoverable Draw
The most common type. The salesperson receives an advance that is later offset against earned commission. If commission exceeds the draw, the difference is paid out. If commission is lower, the salesperson technically "owes" the difference.
Example:
- Monthly draw: $3,000
- Commission earned that month: $4,500
- Payout: $4,500 (draw is covered + $1,500 extra)
Reverse example:
- Monthly draw: $3,000
- Commission earned: $2,000
- Payout: $3,000 (draw)
- Deficit: $1,000 (carried to next period)
2. Non-Recoverable Draw
The salesperson keeps the draw regardless of commission. Functions as a guaranteed minimum salary. Often used during onboarding periods for new salespeople.
Example:
- Monthly non-recoverable draw: $2,500
- Commission earned: $1,800
- Payout: $2,500 (no deficit)
3. Hybrid Draw
Combination of recoverable and non-recoverable. For example, the first 3 months may be non-recoverable, then switch to recoverable.
How draw works in practice
Calculation example over 3 months
Salesperson with $4,000 monthly recoverable draw:
| Month | Commission | Draw | Payout | Cumulative Deficit |
|---|
| January | $2,500 | $4,000 | $4,000 | -$1,500 |
| February | $3,200 | $4,000 | $4,000 | -$2,300 |
| March | $7,000 | $4,000 | $4,700 | $0 |
In March, the salesperson earns $7,000 in commission. First, the accumulated deficit of $2,300 is covered, then the remaining $4,700 is paid out.
Draw vs. other compensation models
- Draw: Advance on commission, can be recoverable or non-recoverable
- Base salary: Fixed salary independent of commission
- Guarantee: Temporary minimum income (often time-limited)
- Commission-only: Only commission, no draw or base salary
When is draw a good idea?
Draw works best when:
- Sales cycle is long (3+ months)
- New salespeople need ramp time
- Market has seasonal fluctuations
- You're recruiting from companies with fixed salaries
Consider alternatives when:
- Sales cycle is short and predictable
- Team has experienced salespeople with established pipelines
- Company has limited funds for advances
Best practices for draw programs
For companies
- Clearly define if draw is recoverable or non-recoverable
- Set realistic draw levels based on expected ramp time
- Communicate clearly how deficits are handled
- Consider time limits on draw periods
- Track draw balances continuously
For salespeople
- Understand contract terms thoroughly
- Ask what happens to deficits upon departure
- Budget conservatively during draw periods
- Focus on building pipeline quickly
Legal considerations
In the United States, draw terms must be clearly specified in the employment contract or commission agreement. Particularly important are:
- Whether draw is recoverable or non-recoverable
- How deficits are handled upon termination
- Time limits on draw arrangements
- Any forfeiture conditions
Related terms
- Ramp Period: Onboarding period for new salespeople
- OTE: On-Target Earnings - expected total earnings
- Base Salary: Fixed salary component
- Commission-only: Pure commission-based compensation
- Guarantee: Temporary minimum income
Manage draw with Prowi
Manual administration of draw programs can be complex, especially when tracking accumulated deficits over time. With Prowi, you can automate draw calculations, give salespeople real-time insight into their draw balance, and ensure correct handling at period close. Book a demo and see how Prowi can simplify your commission administration.