How Car Salesman Get Paid – Commission Sales
How Much Money to Car Salesman Make Selling Cars?
Ever wonder why you’re attacked by a swarm of car salespeople when you drive onto a dealer’s lot? One of the reasons is how a car salesman is paid and how they make money.
When car salespeople work on a commission-only pay plan, the hard and fast rule is – if you don’t sell a car, you don’t get paid. Only the most dedicated and robust survive, and the weak eventually fall to the side.
Table of Contents
- Standard car salesman pay plans
- How much money does a car salesman make?
- How a car salesman’s pay plan work
- How to calculate a car salesman’s commission
- Additional bonuses and cash spiffs
- The bottom line
Standard Car Salesman Pay Plans
There are two major pay plans in retail car sales: 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 of how much commission they will earn.
When a salesperson is on a commission-only pay plan, their check can fluctuate weekly 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.
They will earn the same amount regardless of the sales conditions if they’re on a fixed salary.
By not having a fixed salary, your income limit is endless. The decision is yours; do you want a chance to make six figures a year or a steady income stream at around $30,000-$40,000 yearly?
I know the choice I made.
The Choice is Yours
The dealership sets car salesman pay plans. They can vary by dealer group or individual dealership. Always read and understand your payment plan before agreeing to the terms and conditions.
Often, a dealer will tie certain aspects to a car salesman’s pay plan, such as customer satisfaction scores, online reviews, etc. This means that good scores and reviews net you a little bonus, while bad scores may negatively hit your pay.
I’m sure the laws vary state by state if it’s legal to tie specific goals to a car salesman’s pay plan.
However, you have control if you’re unhappy with the commission structure or how it works. Don’t sit around and gripe about it. Find a dealership that offers more opportunities for your talent.
Fixed or Set Salary Car Sales Pay Plan
This pay plan pays you an hourly or a certain fixed monthly amount. The good thing about this type of pay plan is you have security knowing you will receive a certain amount of money every paycheck.
The bad thing about this pay structure is if you’re good at selling cars, you’re not going to make any more money than what you’ve agreed to within the pay plan.
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 Salesman Pay Plan
Most traditional car dealerships pay their salespeople on a “commission only” pay plan. This means they do not get paid if they do not sell a car. 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 significant factors in such high turnover rates associated with the retail car sales industry. There is no limit to what a car salesperson can make on this payment plan. The more experienced and talented the salesperson is, the more money they can make.
I know several car salespeople who make well over $100,000 a year on these payment 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 kinds of salespeople will stick you in the back every chance they get.
If you’re timid, don’t apply yourself and have no natural sales skills or work habits. You’ll be lucky to make enough money to survive very long with this type of payment plan.
Suppose a car salesman does not sell enough cars in a month on a commission-only plan to meet the state’s guidelines on minimum wage. The dealer will give the salesperson a “draw” against their commission.
This option will not last very long, commonly just a few months. The dealer is looking for producers that make them money, not cost them money.
What is a Draw Check?
A draw check usually is minimum wage at a 40-hour workweek no matter how long or hard a salesman worked for the week. To entice a car salesperson to apply with a dealership, they may up the draw to $2,000 or more.
Previous sales commissions a car salesman earns from the month before are typically paid around the 15th. The dealer will calculate the accumulated total commission, bonuses, and spiff money. The draw amount, taxes, and other deductions are subtracted from the balance.
If a car salesperson 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 book. 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 is usually only available for the first 60 to 90 days of employment.
This allows a new salesperson to get experience, learn the dealership’s system, and not worry about making money to survive.
An example of a guarantee would be something like this:
- 1st month = $2,000
- 2nd month = $1,500
- 3rd month = $1,000
Continuous guarantees are very rare, but there are dealers out there that work this way. However, if a salesman continually collects a draw check or guarantees (not agreed to), they will most likely get “boxed up” (fired).
How Much Money Does a Car Salesman Make Selling Cars?
Many factors determine how much a car salesperson can make in a dealership.
The #1 factor depends on each individual’s attitude, determination, and ability. If a car salesperson goes to work every day with the hopes of car sales falling in their lap, they will ultimately fail.
The salespeople that go to work and apply themselves every day will find selling cars can be a prosperous 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 pay category is considered severely underperforming or just not trying to succeed.
They may have a poor attitude, be scared to talk to customers, or not follow directions very well.
Retail car sales may not be a correct fit for this individual. If a car sales clerk 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 – The car salesman that falls in this pay range comes to work every day and follows directions given by management. They pretty much do what is instructed by management. 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 some success, individuals in this pay range will sometimes believe they’re “smarter” than they are and start cutting corners in the sales process.
This ends up hurting their production more than helping them; if they do not correct the behavior, they will burn out or be let go by the dealership.
Average Car Salesman Pay
$35,000 – $60,000 a year – Salesmen that fall into this pay range typically 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 people-person, and they can handle objections.
These individuals usually sell a car or do something to sell a vehicle while at the dealership with minimal downtime. They set appointments and follow up with their customers; they still rely on walk-in traffic, but not as the first choice.
They have developed techniques they use consistently when talking with customers and rely on their Manager to help close their deals when they have problems.
Above Average Car Salesman Pay
$60,000 – $120,000+ a year – These highly trained professional car salespeople take their profession seriously. These individuals have typically 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 salespeople in this pay range. Typical traits of these individuals are that 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 in several different ways.
For example, making a 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 various other cash spiffs bonuses.
Below I’ve listed the different ways a car salesperson can get paid by a car dealership.
How Car Salesman Commission is Calculated
Depending on the car dealership, a salesman can earn anywhere from 15% to 40% of the front-end gross profit, after pack.
The pack is a set amount between $250 and $750 (or higher) depending on the dealer.
This money is set aside 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.
$1,750 = Commissionable front end gross profit.
25% commission on $1,750 is $437.50 payable to the salesman.
Depending on the pay plan, some dealers will set the front-end commission at a flat 25% no matter how many cars are sold.
Other dealers may set the commission rate to something like this, 15% for the first five cars sold, then bump it to 20% at ten sold, then 25% at 15 sold, 30% at 20, and 40% for 25 cars sold or more.
Significantly 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 tiny percentage.
Car dealers will sometimes sell a car for minimal or “$0” profit to get rid of the vehicle. If a dealer gives the salesman an okay to sell a car for “$0” profit (or a net loss), they will still receive a commission. This type of commission is called a “mini” or “mini-commission.”
This amount can range from $50 to $250 and is very common when selling a new car and is handy for the salesman when a dealer is trying to clear a lot of old inventory.
Additional Production Bonuses and Cash Spiffs
Many dealerships have special bonuses and sales spiffs to help motivate salespeople to sell more cars.
This additional money comes in many forms; some are always in effect, and some are only available when management dictates.
Monthly Unit Bonus
The second part of a car salesman’s pay plan is tied to how many cars the salesperson sells in a month.
This part of the pay plan rewards car salespeople that perform well; they vary from dealer to dealer.
Below is a bonus structure that I implemented in one of my dealerships.
10 cars a month = $250 bonus
12 cars a month = $500 bonus
15 cars a month = $750 bonus
20 cars a month = $1,000 bonus
25 cars a month = $1,500 bonus
Top Salesperson Bonus
Some dealers, including myself, have a special bonus for the top three car sale producers monthly.
This is a bonus to keep up morale and friendly competition between the salespeople.
$350 = Top salesman of the month
$200 = Second place
$100 = Third place
*You must have a minimum of 12 cars sold to qualify.
Some vehicle manufacturers will pay bonuses ranging from $10 to $200 or more for selling a specific type of vehicle.
These bonuses are generally not listed on a car salesman’s pay plan and are not offered by all manufacturers.
Some manufacturers require salespeople to undergo specific training courses and become certified before qualifying for these types of programs.
In-House Cash Spiffs and Bonuses
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.
Early in my career, I started as a salesman at a Ford dealership; I sold a new conversion van that sat on the lot for over a year. That van had a $1,000 bonus, 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.
I did an unwritten cash spiff in all my dealerships: if a car salesman did a “hat trick” (selling three cars in one day), they would be paid $300 cash at the close of business.
This spiff ran every day the dealership was open, and I was glad to pay it.
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 of the day, most interesting down payment, the ugliest picture on driver’s license, and one of my favorites, customer in the trunk.
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 contacting a customer by phone, Internet, or in person.
If car sales are your career path, 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 easy to lose track of how much you still owe and how much you’ve already received.
Accounting office employees are human and make mistakes; you’ll want to be ready if there’s a pay disparity.