Introduction Export pricing is the most important factor in for promoting export and facing international trade competition.
A draw is a pay advance against expected earnings or commissions. It can be important to both your sales representative and your company, but for different reasons. Importance to Your Sales Rep Selling high-priced, complex products or services can involve a lengthy sales cycle. From first contact through the Risk management plan week 5 of a sale, months may elapse.
The time needed to develop a fully productive territory can range from as few as three months to a year or more. During this ramp-up period, your sales rep may experience severe personal cash flow shortages.
To help your sales rep get through this initial period, you may pay your rep a draw — an advance against future commissions.
Sales cycles can also be seasonal. In the utility industry, energy demand is highest during the summer and winter months; it is significantly lower during the spring and fall.
As a result, companies that service the power generation equipment for utilities experience a well defined seasonal sales cycle. Sales reps earn much greater commissions in the spring and fall months; summer and winter month commissions can be near zero. The draw provides several benefits to your sales rep: Reassures your sales rep that the company has faith in his or her ability to be successful in the territory.
Smooths cash flow across seasonal earnings. Importance to Your Company As a company, you have two key interests when placing a new sales representative in a territory.
First, you want your sales rep to succeed, developing relationships and driving sales. Second, you do not want to lose the substantial investment your company makes in hiring and training a new sales representative. By paying a draw, you can help promote these interests. Instead of worrying about meeting monthly cash flow obligations like rent or mortgage payments, your sales rep can focus on learning the territory, developing customer relationships and moving customers along the sales cycle.
Without immediate cash flow concerns, your sales rep is also less likely to look for a new job which is less risky from an income perspective. Non-recoverable Draws Draws can be either recoverable or non-recoverable. Recoverable draws are loans against future commissions or bonuses.
Each month during the draw period, you pay your sales rep the draw amount. If your sales rep earns commissions that are less than the draw amount, you pay your rep the commissions. However you only pay enough draw so that the commissions plus the draw total the amount of the full draw.
The outstanding draw amount accumulates from month to month. When earned commissions exceed the draw, use the excess commissions to repay the outstanding draw.
Once the accumulated draw is repaid, all commissions are paid to the sales representative. In the event that a sales representative leaves your company owing an outstanding draw, most companies will write off the outstanding debt.
It is very difficult, if not impossible, to collect monies paid to a departed employee. Some companies will deduct the draw amount the sales rep owes from other amounts the company would normally pay, such as unused vacation, severance, etc.
However, before withholding benefit payments, check with a labor attorney to ensure you meet local regulatory requirements. Non-recoverable draws are also loans against future commissions or bonuses. However, a non-recoverable draw guarantees your sales representative a minimum level of income for each commission period.
If earned commissions are less than the draw amount, your sales rep receives the draw amount. No accumulated draw is carried to the next commission period. Recoverable draws are more advantageous for your company.
Non-recoverable draws are more advantageous to your sales rep.3.
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