Have you ever wondered how car salespeople make money? By selling cars, obviously, but how much and when?
Buying a car is a stressful process, and many times, salespeople can be a bit pushy. They may pressure you into signing a contract, buying more add-ons and paying more than you have budgeted. I’m not saying that salespeople are bad – I’m just saying that some salespeople are really good at selling. That is why knowing how a salesperson gets paid will give you an advantage when negotiating the price of your new car.
Every Dealership is Different, Every Sale is Different
A quality salesperson would opt for commission over salary, because they know that their skills can hit some homeruns every now and then. Therefore, most dealerships pay their salespeople through commission after profit only. However, there are certainly exceptions where salespeople are offered a standard salary.
When it comes to commission percentage, salespeople can make anywhere between 20 to 40 per cent of the front-end profit, depending on their dealership, and approximately five per cent of the back-end profit.
The front-end commission is a fraction of the car’s purchase price. If a car is worth $30,000 with a profit of $1,500, and the commission is 20 per cent of that, the salesperson will receive $300 of the front-end profit (before tax).
Back-end commission is earned through financing and when salespeople sell customers insurance packages, extended services and so forth.
How does commission through financing work? If a customer chooses to finance their car through a dealership, and the dealership makes $1,500 – at a commission rate of five per cent – the salesperson gets $75.
So, the combination of front-end and back-end commissions earned from that one sale is approximately $375. Not bad.
Sliding Scale Percentage and Bonuses:
Some dealerships offer their salespeople sliding scale commission percentages. This allows salespeople to earn more when they sell more. It works something like this: if a car salesperson sells five cars, they get a 20-per-cent cut; if they sell 10 cars, they get 25 per cent; if they sell 15 cars, they get 30 per cent – and so on.
Depending on the dealership, bonuses are also offered to motivate salespeople. Such bonuses include weekly sales bonuses (most sales made in a week), weekend bonuses (most sales made on a weekend), holiday bonuses (most sales made on a holiday) – and so on.
Only Gets Paid if They Sell A Car
When you put yourself in a salesperson’s shoes, you can see how exciting and frightening it can be. Unlike jobs that pay a fixed salary, where if the worker does their job they’ll get paid, salespeople only make money if they sell a car. Needless to say, it’s not a job for everybody.
There will undoubtedly be good days and bad days. While there is no limit to how many cars a salesperson can sell, their job is ultimately affected by uncontrollable circumstances such as weather, day of week, time of year and consumer demand.
Not surprisingly, there are better times than others to buy a vehicle, such as at the near-end of the day or at the end of a year, when a car salesperson is more inclined to make one last sale – perhaps to earn a bonus or because they are not meeting their target.
How Many Cars Do Average Salesperson Sell?
Not many salespeople will be able to sell more than 25 cars per month. Nevertheless, some salespeople do make six figures annually. If a salesperson moves 20 to 25 cars in a month, they “hold gross” (make a profit).
The thing is, most salespeople aren’t able to move 25 cars per month these days. The average in Canada is about 10 to 12 cars per month. And sometimes, new cars sold don’t even make a profit. What happens to the salesperson’s paycheque then?
Because of the nature of selling cars nowadays, dealerships offer their salespeople minimum commissions or mini deals. This is when the dealership pays the dealer for selling a car, even if there isn’t a profit to earn a commission from.
Minimum commission varies from dealership to dealership, but a common rate for a mini deal is $125.
Selling cars, like most jobs, has its ups and downs, good days and bad. There’s a luck and skill aspect to the job as well, making every day of work feel like a little gamble. So, consider that the next time you walk into a dealership to buy a new car. You are not necessarily betting against the salesperson, but you need to understand their circumstances – they only make money if they make a sale (i.e. if you buy a car).