Hidden fees, last-minute charges and deceptive sales techniques—the automotive industry isn’t exactly known for transparency. Car salesman commission is no exception, despite hundreds of thousands of salespeople in the United States working in 45,000 used car stores and 18,000 franchised dealers.
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Depending on how your local dealer structures things, the person selling you your next car could be in a low-leverage salaried position, a competitive commissioned environment or somewhere in between. Read on for a deep dive into the world of car sales economics.
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How do car salesmen get paid?
Far and away, the majority of car salespeople are paid based on their efforts to sell cars by receiving a portion of the sales as commission. What that looks like depends on the dealership. There are actually several ways for salespeople to get paid for selling cars.
Some dealerships opt to hire salespeople strictly in salaried positions. In fact, it’s an increasingly common way to pay sales staff, although it’s not the standard yet. For salespeople on salary only, there’s security in knowing exactly how much you’ll collect on your paycheck every two weeks, and it takes the pressure off making the next sale to put bread on your table.
For customers, a salesman on salary rather than commission often results in a lower-pressure experience and higher satisfaction. The salesman isn’t focused on selling the vehicle that will earn them the most but on finding the right fit for the shopper. In theory, that can translate to more net sales for the dealership.
On the other side, a car salesperson on salary could be less inclined to fight for every sale since their income doesn’t directly depend on it. If they’re found to be taking it easy or they have prolonged stretches without selling anything, management could put pressure on them to shape up or ship out.
On fixed salary, salespeople have guaranteed pay that’s rather modest. They’re often referred to as “product advisors” rather than “salespeople” since there’s no hassle. An average salaried salesperson may earn around $3,000 per month—a far cry from the potential earnings on car salesman commission rates.
Around half of all car salespeople are paid based on productivity, commonly called “commission.” When a customer buys a car from them, a portion of the gross profit is paid to the salesman at the end of the month.
Unlike a salary, there’s no promise that someone will earn a substantial income at the start of any month. Dealerships are required to provide a guarantee—typically equal to minimum wage—if a salesman doesn’t make enough commission to exceed that amount. It’s common for salespeople to take a “draw” mid-month—that is, collect their guarantee or a portion of it mid-month to help pay the bills.
Although car salesman commission has its peaks and valleys, the earning potential with commission is technically unlimited. The more vehicles they sell, the more their month’s income will be. An entry-level, beginner commission-based salesperson will earn around $2,000 per month while an exceptional salesman can earn more than $10,000 per month on commission. Commission may have to be returned if a customer returns a vehicle in some cases.
Make no mistake, when all the salespeople on the floor are vying for commission, it becomes a cutthroat environment. If you aren’t aggressive, other sales staff could try to scoop your customers. It’s no surprise that more than half of all new salespeople last fewer than three years in the role.
A relatively new type of pay structure is emerging in car sales, hybridizing the salary and average car salesman commission structures. Many new salespeople, particularly millennials, don’t gravitate toward a fully rewards-based pay plan but also want an incentive for a job well done. Some dealers have begun to offer that type of pay plan.
It starts with a modest base salary or living wage. From there, salespeople earn extra incentives based on how many cars they sell. It’s typically a flat rate that they earn, and the more vehicles they sell, the higher the incentives per unit normally get. Other incentives can be offered by some employers for finance and insurance products and extended warranties, for example.
How much commission do car salesmen get?
To understand how much commission car salesmen get, you have to know the basics of how dealerships make money selling cars.
Whether new or used, each vehicle has a predetermined cost. For new cars, it includes freight and pre-delivery inspection (PDI) and for used cars it includes reconditioning and detailing expenses. The amount of money the salesperson sells a car for above cost is known as “gross profit.”
There’s one other expense that’s taken out of gross profit that most car buyers don’t know about: a “pack” fee. Essentially, the pack fee is set aside in a fund guaranteeing that the dealership gets paid at least something on the car regardless of what the salesperson actually sells it for. It’s guaranteed profit for management and ownership.
Commission is calculated based on a percentage of the selling price minus the cost and the pack fee.
How much commission does a car salesman make per vehicle? That depends on the commission structure at the dealership, and it’s usually calculated based on volume ranging from 20% to 40% of gross profit. For example:
- A salesperson who sells one to seven cars per month can earn around 25% of the gross on each vehicle.
- A salesperson who sells eight to 10 cars per month earns 30% commission per car.
- From 11 to 14 cars per month, the commission earned is 35%.
- For 15 cars and over, the car salesman commission rate is 40% per car.
Taking into consideration an average car deal with $1,200 gross profit, selling seven cars per month would earn the salesperson just $2,100 for the month. But if they sell 10 cars, they earn $3,600 for the month—$360 for each car, not just the eighth, ninth and tenth units. If the same salesperson sells an impressive 20 cars, their commission check would be $9,600 for the month.
The more you sell, the more you earn incrementally.
How much do car salesmen make?
At Les Stanford Chevrolet Cadillac in Dearborn, Michigan, Ali Reda earned the record for most cars sold in a year at an astounding 1,582 cars. The kind of mid-six-figure income that would earn you is the stuff salespeople dream about. According to CareerExplorer, entry-level car salesmen can expect to earn around $28,000 per year. Mid-level car salespeople will average around $35,000 annually while senior-level car sellers earn around $46,000 per year. Fewer than 10% of car salesmen will earn $65,000 annually or more. But for those who are great at it, the sky’s the limit.
Per vehicle, there’s isn’t much difference between new and used cars for average gross profit—around $2,400 for used and $1,900 for new. But in the U.S., used cars outsell new annually 2 to 1. There’s more opportunity for used car salesmen commission checks to be higher on volume alone.
Luxury cars have more gross profit potential but there are fewer opportunities to sell a car. So, how much commission does a car salesman get when they sell more expensive cars but fewer of them? Typically, it averages out to very much the same.
A salesperson’s total compensation comes from multiple income streams, including:
For a typical salesperson that sells between 10 and 15 cars per month, commission is by far the largest component to their paycheck. Annually, a salesman selling a mass-market brand in a thriving city can expect to make around $60,000 in commission per year. That’s roughly the same as a luxury-brand salesperson who might sell six to eight cars per month with higher gross profit.
Aside from commission or salary, some pay structures include achievement bonuses. For example, a salesperson might get an extra $500 for reaching 10 vehicles sold in a month, regardless of the gross profit per vehicle, or $1,000 as a bonus for hitting 14 vehicles in the month. It all depends on the commission structure in the individual dealership, but many stores have this type of a component.
If a salesperson has ever shown you a vehicle that doesn’t quite fit your needs but they seem super excited about it, odds are that the vehicle has a special incentive, or “spiff,” for selling it. The dealer sets a spiff for certain models—cars that have been on the lot for too long or overstock on a certain model, for example—to encourage salespeople to get them sold first. Spiffs might be $50 up to $500, and it’s in addition to the commission on the unit.
Other spiffs include competitions for the month or a certain day aimed at creating a buzz on the sales floor with an incentive attached to it. That could be for selling multiple cars in a day or for selling the first car of the day. It really depends on the manager’s creativity.
A salesperson can add $10,000 to their annual earnings from spiffs alone if they’re keen to take advantage when they’re available.
A salesperson who drives a demonstrator, or demo, may not pay for it out of pocket but it’s usually accounted for as taxable income on their check. Salespeople get use of a dealer plate that covers the insurance and all they need to do in return is pay for fuel and keep it clean. Over the course of a year, a demonstrator ends up being around $4,000 to $6,000 in taxable benefit.