Ever wonder why you're attacked by a swarm of car salesmen (and women) when you drive onto a dealer's lot? Some of it has to do with how car salesmen are paid and how their pay plans work.
When car salesmen work on a commission only pay plan, the hard and fast rule is - if you don't sell, you don't get paid.
Only the most dedicated and strong survive and the weak eventually fall to the side.
Retail car sales can be a great and rewarding career choice, but it's not for everyone. If you're thinking about becoming a car salesman, check out what a day is like for a car salesman at a dealership to see if you have what it takes.
Most Common Types of Car Salesman Pay Plans
There are two major pay plans in the retail car sales world, commission only and fixed/set salary. The professional car salesman on a commission only pay plan would not have it any other way. They understand depending on how hard and smart they work towards selling cars is a direct reflection on how much commission they will earn.
When a salesman is on a commission only pay plan their check can fluctuate week by week or month by month depending on several factors, including the salesperson's attitude, weather, economy, time of year, marketing by the dealership, and other factors. If they're on a fixed salary they will be paid the same amount no matter what the sales conditions are.
By not having a fixed salary your income limit is endless. The decision is yours to make; do you want a chance to make 6 figures a year or do you want to have a steady stream of income at around $30,000 a year? I know the choice I made.
Fixed or Set Salary Car Sales Pay Plan
This type of pay plan pays you an hourly wage or a certain fixed amount a month. The good thing about this type of pay plan is you have security knowing you're going to receive a certain amount of money every paycheck.
The bad thing about this pay structure is if you're really good at selling cars you're not going to make any more money than what you've agreed to. To make matters worse. If you decide to sit back, collect a paycheck, and not produce any car sales. Management will not want to keep paying you and may even begin treating you poorly in an attempt to run you off.
Commission Only Car Sales Pay Plan
Most traditional car dealerships pay their salespeople on a "commission only" pay plan. This means if they do not sell a car, they do not get paid. For some "green peas" (new to car sales), there can be several days between selling a car and getting paid.
Commission only pay plans are also one of the major factors to such high turnover rates associated with the retail car sales industry. There is no limit to what a car salesman can make on this kind of pay plan. The more experienced and talented the salesperson is, the more money they can make.
I know several car salesmen that make well over $100,000 a year on these kinds of pay plans. These salesmen have turned down Management positions several times because they are comfortable where they're at, and they know their skill in sales is providing them well financially.
A commission only pay plan may also fill the car dealer's floor with "sharks," these kind of salespeople will stick you in the back every chance they get. If you're timid, don't apply yourself, and don't have any natural sales skills or work habits. You'll be lucky to make enough money to survive very long with this type of pay plan.
If a car salesman does not sell enough cars in a month on a commission only sales plan to meet the states guidelines on minimum wage. The dealer will give the salesperson a "draw" against their commission. This option will not last very long either. The dealer is looking for producers that make them money, not cost them money.
What is a Car Sales Draw or Draw check?
A draw check is normally minimum wage at a 40-hour workweek no matter how long or hard a salesman worked for the week. To entice a car salesman to apply with a dealership they may up the draw to $2,000 or more.
Previous sales commission a car salesman earns from the month before are normally paid around the 15th of the month. The total commission, bonuses and spiff money is calculated and then the draw amount is deducted from that amount. Taxes and any deductions are then deducted from the balance.
If a car salesman earns a total of $2,800 for the month and the draw was $1,500. The salesman's "settle up" commission check, before taxes, would be $1,300.
If the car salesman earns under the draw amount in total commissions, they will not receive a commission check. This will put a car salesman "in the hole" or "in the bucket" with the dealership.
Let's say the salesman only made $1,200 in total sales and commission; he would start the next sales month in the hole with a $300 draw on the books. This salesman will have to make a minimum of $1,800 before making a commission check and getting out of the hole.
What is a Car Salesman Guarantee?
Some dealerships do not make you pay back a draw towards your commission. This type of pay plan is called a "guarantee" and are usually only available for the first 60 to 90 days of employment. This allows a new salesperson to get some experience under their belt, learn the dealerships system, and not have to worry about making money to survive.
Guarantees that are continuous are very rare but there are dealers out there that work this way. However, if a salesman continues to collect draw checks or guarantee checks on a continual basis they will most likely get "boxed up" (fired).
How Much Money Does a Car Salesman Make?
How much a car salesman can make depends on many factors. The #1 factor depends on each individual's attitude, determination, and ability. If a car salesman goes to work every day with the hopes of car sales falling in their lap they will ultimately fail. The salesmen that go to work and apply themselves each and every day will find selling cars can be a rich and enjoyable career.
Based on my experience in the car business and nationwide statistics, the following are income averages based on below, average, and top performing car salesman.
Consider a Different Career Car Salesman's Pay
$0.00 - $20,000 a year - A car salesman within this category of pay is considered to be severely underperforming or just not trying to succeed. They may have a poor attitude, scared to talk to customers, or does not follow directions very well. Retail car sales may not be a correct fit for this individual. If a car salesman stays in this category too long, the dealership's management will send them packing.
Below Average Car Salesman's Pay
$20,000 - $35,000 a year - Car salesmen that are in this pay range come to work every day and just follow directions given by Management. They pretty much do what they're told, when they're told. They are still trying to figure out if car sales are right for them, and they have not committed themselves fully to this career.
After a little success under their belt, individuals in this pay range will sometimes believe their "smarter" than they really are and start cutting corners in the sales process. This ends up hurting their production more than helping them, and if they do not correct it they will end up burning out.
Average Car Salesman's Pay
$35,000 - $50,000 a year - Salesmen that fall into this pay range usually have retail car sales experience and some natural sales skills. In my opinion there are three things that these salespeople all have in common, the "gift-of-gab," they are a people-person, and they can absolutely handle objections.
These individuals are usually selling a car or doing something to sell a car while at the dealership with very little down time. They set appointments, and follow up with their customers; they still rely on walk-in traffic, but not as a first choice of traffic. They have set techniques they use on a consistent basis when talking with customers and rely on their Manager's to help close their deals when they have problems.
Above Average Car Salesman's Pay
$50,000 - $100,000+ a year - These are your very seasoned professional car salesmen, highly trained, and take car sales very seriously. These individuals have normally been at one dealership for a very long time. They have built a steady flow of repeat and referral business over time, sell by appointment and don't rely on walk-in traffic.
There are very few individual car salesmen in this pay range. They are very organized, stay in touch with their customers and work "smart" not hard.
How a Car Salesman's Pay Plan Works
Salesman pay plans can be very complicated and may allow the car salesman to make money several different ways. For example, making commission from the gross profit of a single car sale, but also from in-house and manufacturer bonuses, how many cars they sell, which cars they sell, and also various other cash spiffs.
Below I've listed the different ways a car salesman can get paid by a car dealership.
How Salesman Commission is Figured on a Car Deal
Depending on the car dealership, a salesman can earn anywhere from 15% to 40% of the front end gross profit after pack. Pack is a set amount between $250 and $750 depending on the dealer to keep the lights on at the dealership. Basically, here is how it works:
|$25,000||=||Agreed Upon Sales Price|
|$23,250||=||Dealer Invoice + $750 Pack|
|$870.00||=||Commissionable Front End Gross Profit|
25% commission on $1,750 is $437.50 payable to the salesman.
Depending on the pay plan, some dealer's will set the front end commission at a flat 25% no matter how many cars are sold. Other dealers may set commission rate to something like this, 15% for the first 5 cars sold, then bump it to 20% at 10 sold, then 25% at 15 sold, 30% at 20 and 40% for 25 cars sold or more.
Very few car dealerships will pay any commission on the back end profit of a car sale. If they do it will most likely be a very small percentage.
Car dealers will sell a car for minimal or "$0" profit sometimes to just get rid of the car. If a salesman sells a car for "$0" profit they will still get a commission. This type of commission is called a "mini" or "mini-commission." This amount can be anywhere from $50 to $200 and is very common when selling a new car.
Car Salesman Bonuses and Sales Spiffs
Many dealerships have special bonuses and sales spiffs to help motivate salespeople to sell more cars. This additional money comes in many different forms, some are always in effect and some are only available when management dictates.
Unit Bonuses for Total Cars Sold - The second part of a car salesman's pay plan is usually tied to how many cars the salesperson sells in a month. This part of the pay plan rewards car salesmen that perform well. These types of bonuses vary from dealer to dealer. Below is a bonus structure that I put in place in one of my dealerships:
|$250.00||=||10 cars a month sold|
|$500.00||=||12 cars a month sold|
|$750.00||=||15 cars a month sold|
|$1,000.00||=||20 cars a month sold|
|$1,500.00||=||25 cars a month sold|
Top Salesperson Bonus - Some dealers, including myself, have a special bonus for the top three car sale producers every month. This is an added bonus to keep up morale and friendly competition between the salespeople.
|$350.00||=||Top car salesman of the month|
|$200.00||=||Second place car salesman|
|$100.00||=||Third place salesman|
*You must have a minimum of 12 cars sold to qualify.
Old Unit Bonuses - From time to time a car dealer may put out "spiffs" or bonuses on certain vehicles they want to get off the lot. These bonuses can range from $50 or higher. When I was a salesman at a Ford dealership, I sold a new conversion van that had been sitting on the lot for over a year. That van had a $1,000 bonus on it, and I got it!
Other Spiffs and Bonuses - Management can get very creative with spiffs and bonuses. These little cash treats help keep the morale and competition flowing on a sales floor. An unwritten spiff I did in all my dealerships was if a car salesman did a "hat trick" (selling 3 cars in one day), they would be paid $300 cash at close of business.
Cash spiffs are used to create car sales. Other fun spiffs include, most car sales in a day, most credit applications filled out, highest - lowest FICO score, most interesting down payment, ugliest picture on driver's license and one of my favorites, customer in the trunk.
Manufacturer Bonuses - Some vehicle manufacturers will pay bonuses ranging from $10 to $200 for selling a certain type of vehicle. These types of bonuses are not normally listed on a car salesman's pay plan and are not offered by all manufacturers'. Some manufacturers require salespeople to go through certain training before qualifying for these programs.
The Bottom Line
As you can see, there are many different ways to earn money as a car salesman. It all starts with a salesman making contact with a customer by phone, Internet, or in person. If car sales is your career, learn everything you can about the "art" and whatever you do, never stop learning!
The one piece of advice I would tell all my salespeople is to write down and track every penny you make, keep it organized, and keep it safe. It's very easy to lose track of how much is still owed to you and how much you've already been paid. Accounting office personnel are human and make mistakes, you will want to be prepared if there is ever a discrepancy in your pay.
Retail car sales is not for everyone, just like any sales career there are obstacles you must overcome. Read my next section to learn the four stages in a car salesman's career so you can recognize, overcome, and avoid some of these common pitfalls most salespeople experience in their career.
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