Understanding the Car Salesman Commission Structure

The Basic System

The car salesman commission system is fairly straightforward. Typically a salesman receives a portion of the profit made from each car sale. The rate varies significantly across dealerships and brands, some paying a direct percentage of the total sale price, while others pay a percentage of the profit. This commission is usually between 20% and 30% of the gross profit of the car. For a vehicle that sells for $30,000, with a $1,000 profit margin, a sales associate may make about $200 to $300. However, the overhead costs of running a dealership, such as rent, utilities, and salaries, significantly cut into this figure, so the actual take-home can be quite less.

Bonuses and Spiffs

One of the reasons that the profit margin for car salespeople can be so wildly inconsistent is because they often earn additional income from bonuses and spiffs. Some dealerships might reward their staff with extra cash for selling old models or for moving a certain number of vehicles in a month. For instance, a salesman could receive a few hundred dollars upon selling a specific model. A salesperson might also earn a bonus for delivering excellent customer service. However, reaching these goals can be challenging, and quotas may shift from month to month.

Manufacturer Incentives

A less common, but noteworthy aspect of a car salesperson's commission is the manufacturer incentives. Sometimes car manufacturers will offer incentives to those who sell their cars. These incentives usually come in the form of bonuses or awards and can be quite substantial, ranging from hundreds to thousands of dollars. They are typically reserved for high-selling employees and are offered on top of the regular commission. Therefore, a very successful or productive salesperson could be earning significantly more than the average salesperson.

Filling the Gap with Fixed Salaries

Draw Against Commission

Because car sales can be an unstable job, many dealerships offer a system called "draw against commission." In this system, a salesman earns a fixed salary, but this amount is deducted from the commission he or she earns. The aim is to guarantee a certain level of earnings, which can make the job more appealing to potential employees and reduce turnover.

Base Salary Plus Commission

Sometimes, car dealerships offer a base salary plus a commission. This structure provides a guaranteed income and an opportunity for more earnings if the individual performs well. However, the base salary is typically lower than the average wage in other industries, reflecting the potential for substantial earnings from commission.

Flat Rate Per Car

Finally, some dealerships offer a flat rate per car sold, regardless of the sale price. This payment method can be advantageous for a salesperson, especially if he or she typically sells inexpensive or low-margin vehicles. The downside is that this method can lead to lower overall earnings if the salesman is good at selling high-priced cars.

Factors Influencing a Car Salesman's Commission

Your Ability To Sell

A salesperson's ability to sell cars significantly affects the commission they earn. Those who can consistently sell cars, particularly high-value or high-margin vehicles, will earn significantly more than those who can't. This factor explains why top sellers regularly earn six figures, while average salespersons might only take home the equivalent of a modest salary.

The Economics of The Dealership

Profit margins on new cars are often slim, thanks to the global increase in competition and the transparent pricing provided by online resources. Thus, the profits, and therefore the commissions that a salesman can make from selling new cars, are often lower than they would be from selling used cars.

The Specific Dealer's Commission Structure

The specific dealer's commission structure will also greatly influence a salesperson's commission. Some dealers may offer a flat fee for each car sold, while others may offer a percentage of the sale price or profit. Therefore, when considering a job at a dealership, it's important to understand the payment system.