When I found myself reading my first
sales paycheck ... I stared back at it in
confusion.
This dazed look appeared on many
first time field reps on my team over the past three years. Since I started
walking them through how to understand their paychecks, I figured I'd share
that information here.
So, let's say you work at My Culture
Company, where:
- You get paid twice a month -- on the 15th and last day of the month.
- Your commission is only included in the second paycheck of each month.
Your paycheck would likely look like
the example below, which illustrates a sales paycheck from the end of your
first month on the job.
Note: This is simply a mockup with many of the components your
paycheck would likely have, but not an exact replica of various check
formats.
Other sections you might see: Pre-tax Deductions, Post-tax Deductions, Employer Paid
Benefits, Taxable Wages.
The top and bottom section of the
paycheck are self-explanatory. Meanwhile employee taxes vary based on your
location. But there's that middle-left section on "earnings" that
throws people off. So let's define each component of that earnings
statement.
Regular
(Base Salary)
|
Regular refers to your base salary.
Your base salary is a fixed amount of annual income that will be evenly
dispersed across your paychecks. If you are paid bi-monthly, take this number
and divide it by 24 to see how much you’ll receive each pay period. Jill's base
salary is $24,000 annual, or $1,000 per paycheck.
Comm
(Commission)
|
Comm refers to commission. With sales
commission, you’ll have a goal or target, with each sale on that goal
contributing a certain percentage to your paycheck. Commission payouts are
reflective of your performance -- an on target commission is 100% of the goal
set for your position. Jill's first month quota target was $1,000 in
monthly recurring revenue (MRR) sales. Since she achieved that, she reached
100% quota attainment and was paid $500 in commission.
Now what if she didn't hit 100% of
quota? Or what if she overachieved? That's why it's important to
understand commission rate.
Commission rate calculates how much of each sale you make contributes to how
much you get paid.
Total Annual Commission / Annual Sales Goal = Commission
Rate
Jill has an annual base salary of
$24,000 and annual sales goal of $48,000. So for her, this would be:
$24,000 / $48,000 = .50
This means Jill will earn $0.50 for
every dollar of new business she closes.
Draw
|
Now when a field rep's livelihood is
dependent on quota, there may be some fear of lacking a steady flow of income.
That's fortunately why draws exist.
Jill's company provides a new sales
employee ramp up period to help new reps build their sales pipeline. For the
first four months on the job, she's given a much lower sales quota target. In
month one, she's accountable for $1,000 in new recurring sales -- aka 1/4 of
her full quota of $4,000 monthly recurring sales. The rest of her commission is
paid in a draw amount of $1,500.
It's important to note here that
there are two types of draws:
- Recoverable Draw: A recoverable draw is an advance payment to help you cover your monthly expenses when starting a new job. However, this is money you owe the company. Once you're past your first few months on the job and can cover your own expenses, this money will be taken out of a future commission earning. Recoverable draws are mostly used for positions with longer sales cycles to help new field reps earn money upfront.
- Non-Recoverable Draw: A non-recoverable draw is money paid out at certain times to help keep income stable for field reps. This is often used for new employees getting started or to cover times when work is slow, such as vacation periods or seasoned business cycles. This money will act as an add-on to your base salary and won't be paid back to the company. It simply helps stabilize your flow of income over the course of your employment.
If you're still confused ... well,
you were smart enough to get the job, so you'll figure it out :-)
********
No comments:
Post a Comment