So, you've landed a great job in sales -- congratulations! Chances are your income will be based on some sort of commission plan. Right away, your company may even offer you a draw against your commission.
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.
Getting paid on commission means that your job performance has a direct impact on your paycheck. A draw is a simply a pay advance against expected earnings or commissions. Sales commission structures are usually designed to give an employee some control over how much they earn during a certain time period. It adds a direct incentive to performance: The more you sell, the more money you'll make.
The length of the sales cycle is an important consideration in determining how commissions are paid. A sales cycle is the length of time between making an initial contact with a prospective client and the time that the product or service is exchanged for payment. 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 products, like cars, copiers or computer systems, may have sales cycles that last several months. Other industries, such as heavy equipment or process automation systems, may require several years of planning and engineering to complete the sales cycle. 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.
Fortunately, sales managers consider the length of the sales cycle when putting together your compensation plan. Read on to learn more about different types of sales commission structures.