Car Sales Compensation: Commission vs. Fixed Salary




Determining Car Salespeople’s Earnings: Understanding Pay Structures

There are two primary payment plans for car salespeople: commission-based and fixed salary. Commission-based plans offer potential for high earnings based on sales performance, while fixed salary plans provide stability but limit earning potential.

Commission-based pay plans offer flexibility but can result in fluctuating income based on various factors such as sales performance and market conditions. On the other hand, fixed salary plans provide a steady income but cap earning potential.

Commission-only plans are common in traditional dealerships, offering unlimited earning potential but requiring sales for compensation. However, they often lead to high turnover rates and may attract aggressive sales tactics.

In instances where sales fail to meet minimum wage requirements, dealerships may provide a draw against future commissions. This temporary advance must be repaid through future sales.

Some dealerships offer guarantees for new hires, providing a minimum income for a set period to ease the transition into the role. These guarantees typically decrease over time as the salesperson gains experience.

An example of a guarantee would be something like this:

  • 1st month = $2,000

  • 2nd month = $1,500

  • 3rd month = $1,000

Exploring Car Salesman Compensation: Understanding Earnings and Pay Plans

Ever wondered how car salespeople make their money? The answer lies in their pay structure, which typically falls into two categories: commission-based and fixed salary.

Commission-based plans offer potential for higher earnings but come with variability based on sales performance and external factors. On the other hand, fixed salary plans provide stability but limit earning potential.

Commission-only plans are common, where salespeople only earn if they make a sale. This setup often leads to high turnover rates but offers unlimited earning potential for skilled salespeople.

Fixed salary plans guarantee a set income but may discourage sales performance and result in termination if targets aren’t met.

Salespeople’s earnings can vary widely based on their performance and experience level. While some struggle to make ends meet, top performers can earn well over six figures annually.

Overall, success in car sales depends on attitude, determination, and sales skills. While the industry offers opportunities for significant earnings, it also demands hard work and dedication.

Here is how it works:

$25,000= Agreed upon sales price.
$23,250 = Dealer invoice + $750 pack.

$1,750 = Commissionable front end gross profit.

Calculating Car Salesman Commissions and Bonuses

When it comes to car salesman earnings, commissions play a significant role. Let’s delve into how these commissions are calculated and explore additional bonuses that can boost a salesperson’s income.

Commission Structures:

  • Typically, commissions range from 15% to 40% of the front-end gross profit per sale.

  • Some dealerships offer a flat 25% commission, regardless of the number of cars sold.

  • Commission rates may vary based on the number of cars sold, with incremental increases as sales targets are met.

Mini-Commissions:

  • Dealerships may offer “mini-commissions” ranging from $50 to $250 for selling cars at minimal or no profit, especially useful for clearing old inventory.

Production Bonuses:

  • Monthly unit bonuses are awarded based on the number of cars sold, incentivizing higher performance.

  • Top salesperson bonuses are often provided to maintain morale and healthy competition among sales staff.

Manufacturer and In-House Bonuses:

  • Manufacturers may offer bonuses for selling specific vehicle types, ranging from $10 to $200 or more.

  • Dealerships may provide in-house cash spiffs and bonuses for selling certain vehicles or achieving sales milestones.

Creative Spiffs and Bonuses:

  • Management may introduce creative spiffs and bonuses to incentivize sales, such as rewards for achieving daily sales goals or unusual sales achievements.

  • Examples include bonuses for selling specific vehicles, completing credit applications, or engaging in fun challenges like “customer in the trunk.”

Tracking Earnings:

  • It’s crucial for salespeople to meticulously track their earnings to ensure accuracy and address any discrepancies promptly.

  • Keeping detailed records helps in managing finances and staying informed about owed and received payments.

In essence, earning potential as a car salesman extends beyond basic commissions, with various bonuses and incentives available for high performers. By staying organized and continuously improving sales skills, salespeople can maximize their earnings in this dynamic industry.

Career Phases of a Car Salesperson

Embarking on a career as a retail car salesperson can be exhilarating, filled with the allure of new vehicles and the promise of success. However, navigating the journey requires awareness of the challenges ahead. Understanding the stages of a car salesperson’s career is essential for transformation into a seasoned professional.

The Initial Excitement Fades Over Time

In the initial stages of a car sales career, everything feels fresh and exciting as you learn the ropes of selling vehicles. However, as time goes by, the novelty wears off, and the routine can become monotonous.

I’ve observed many talented salespeople succumb to the temptation of social cliques or overconfidence, leading them to quit or switch dealerships prematurely. Success in car sales boils down to two fundamental ingredients, which I’ll reveal below:

“10% Skill 90% Attitude”

Stages of a Car Salesperson’s Career

Entering the realm of retail car sales is an exhilarating endeavor. Initially, everything feels fresh and exciting as you immerse yourself in the dealership environment, surrounded by gleaming new vehicles. The enthusiasm you exude is palpable, akin to the excitement of embarking on any new career.

However, as time passes, the novelty begins to fade, and the routine aspects of the job may start to feel monotonous. It’s not uncommon for talented salespeople to get caught up in social dynamics or become overconfident in their abilities, leading them to prematurely exit or switch dealerships. Yet, success in this field boils down to two essential ingredients: skill and attitude.

“10% Skill 90% Attitude”

While skill undoubtedly plays a crucial role in mastering the art of sales, it’s the right attitude that truly sets successful salespeople apart. Maintaining a positive demeanor and genuine enthusiasm is paramount, as customers quickly gauge their affinity towards a salesperson within moments of interaction.

To help navigate the trajectory of a car sales career, I’ve delineated four distinct stages, each characterized by unique challenges and opportunities for growth.

Stage #1: Introduction to Retail Car Sales

Duration: Approximately 1 – 6 months

During this initial phase, everything feels fresh and exhilarating. You’re eager to absorb knowledge about the products and sales processes, exuding enthusiasm and diligence in your approach. High sales volumes and excitement mark this stage, with a focus on building a strong foundation for future success.

Stage #2: Becoming Knowledgeable About the Car Business

Duration: Approximately 6 – 9 months

As you gain familiarity with the ins and outs of the car business, you may begin to feel more confident in your abilities. However, there’s a risk of complacency creeping in, leading to lower sales volumes and a tendency to blame external factors for shortcomings. It’s crucial to maintain a commitment to ongoing learning and avoid falling into patterns of pre-judging customers or deviating from established sales procedures.

Stage #3: You Have Arrived

Duration: Approximately 9 – 12 months

This stage represents a critical juncture where attitudes and habits can make or break a salesperson’s career. With a heightened sense of confidence, there’s a temptation to cut corners and overlook the importance of maintaining positive relationships with customers. However, this can lead to frustration, diminished energy levels, and a desire for change. It’s imperative to recognize the warning signs and proactively seek support and guidance from mentors or managers.

Stage #4: Continued Growth and Adaptation

Beyond 12 months

For those who successfully navigate the initial stages, continued growth and adaptation become the focus. Embracing a mindset of constant improvement and resilience is key to sustaining long-term success in the dynamic world of retail car sales. By remaining open to learning opportunities and maintaining a positive attitude, salespeople can thrive amidst the challenges and fluctuations inherent in the industry.

Stage #3.5: Transformation or Failure

Around the 9 to 12-month mark in your car sales career, you reach a critical juncture. Stage #3 represents a crossroads where you either undergo a transformative shift towards becoming a professional car salesperson or risk succumbing to burnout and quitting, becoming what’s colloquially known as a “use-to” – someone who previously sold cars but no longer does, typically due to lack of success.

At this stage, your attitude may have deteriorated, and you find yourself seeking justification to quit. Conversations with colleagues from other dealerships may paint a rosier picture of their situations, tempting you to consider jumping ship. However, it’s crucial to recognize that changing dealerships won’t necessarily solve underlying issues, and you may find yourself back at square one if you don’t address your mindset.

Stage #4: Professional Retail Car Salesperson

Upon successfully navigating the challenges of stage #3.5, you emerge as a professional retail car salesperson. You realize that your success ultimately hinges on your own efforts and dedication. You actively engage with successful peers, maintain consistent follow-up with customers, and fully embrace the dealership’s sales system without cutting corners.

With a renewed sense of purpose, you develop disciplined work habits, understanding that every action must contribute to selling cars to ensure financial success. Your attitude returns to the enthusiasm and positivity of stage #1, and you approach your work with total awareness, unencumbered by fear of rejection.

Symptoms of Stage #4 include:

  • Achieving extremely high earnings.

  • Consistently high sales volume.

  • Eagerness to assist others.

  • Organizational and professional demeanor.

  • Growth in customer base, network, and referral system.

  • Strengthening of training and skills.

  • Excitement about work.

  • Opportunities for promotion.

In Conclusion

Navigating the stages of a car salesperson’s career is not a linear progression, and individuals may find themselves moving through these phases at varying speeds. By recognizing the signs and staying focused on growth and improvement, you can navigate the challenges of the profession while enjoying its rewards. Retail car sales offer a fulfilling and lucrative career path for those willing to invest in learning and self-development.