Car Sales and Income: The Low-Down on How Car Salespeople Make Money

How Do Car Salesmen Make Money

Car shopping can be a stressful experience, between picking out a model that's the right fit for you, getting a good deal, and comparing offers across the market. If you head to a car dealership, there's the additional stress of negotiating with a car salesperson and potentially getting talked into a deal that might not be the best for you.

So, what makes car salespeople so seemingly ruthless when it comes to trying to strike a deal and getting you to leave the lot with the keys to a new car? While part of that might just come down to personality, it's also easy to contribute this behavior to how the pay system works for anyone in the car sales business. So how do car salesmen make money?

Commissions

While it's possible for a car salesperson to get a guaranteed salary for their income, this isn't always likely the case. For one, not all dealerships provide this kind of offer to their employees. And if they do, that doesn't mean that a salesperson will take it. While having a guaranteed income may seem appealing, the alternative to this system is receiving a commission rate.

With the commission system of payment in place, a salesperson will make a certain amount of money per vehicle they sell. It's a double-edged sword; if they sell more cars, the higher their income, yet they run the risk of barely bringing in any money at all when they can't make a sale. Since their financial wellbeing depends on the number of cars they sell, it's no wonder that you can become swarmed once you step on the lot.

Average Commission Rates

Another aspect that plays into car sales is that the commission rate isn't incredibly high for salespeople, either. The amount they earn on anyone purchase depends on the profit the dealership makes during the sale. For many dealerships, the average commission rate is around twenty-five percent, with potential ranges between fifteen and forty percent.

Take note that the percentage only applies to the front-end profit, rather than any of the back-end income brought in through loan payments. Though it depends on the dealership, most salespeople never see their revenue come from the back-end prices, which makes it in their best interest to gain a substantial profit upfront to increase their commission prices.

While it will depend on the car and many other factors, most car sales equate to about $250 in profit for the salesperson—with higher values coming into play when there is a substantial front-end profit. Even selling at new car prices isn’t a guarantee of a higher profit.

Mini Commissions

When you do the math on how much a salesperson would make on a car, some sales may not amount to much when it comes to the front-end profits. This system could potentially cause a substantial amount of work to end in a small amount of income. Almost all dealerships enforce a minimum commission price for their employees to ensure that salespeople can still make a living.

Any sale that ends in earning less than the minimum income is a "mini commission." Usually, these types of sales occur on newer models of cars, especially when sold for under the sticker price. In general, salespeople want to avoid minis, since they won't make as much money as they would on a better deal. Even so, this system means there is a way to make money if other sales are difficult.

The amount paid to a salesperson for a mini commission is entirely dependent on the dealership where they work. Most mini amounts range from seventy-five to two-hundred dollars.

Car Sales Quotas

Aside from needing to sell enough units at a price that will support them for a month, salespeople also need to meet the quotas set by their dealership. On average, this number is a monthly amount, averaging between eight and twelve vehicles in that period. However, depending on where a dealership is and what its market looks like, these numbers can vary.

One of the biggest influences of quota on a salesperson is that it usually determines whether or not a salesperson will be able to keep their job; most dealerships don't keep people who can't move a set number of units over time since it's not good business. However, quota can also influence how much a car salesperson makes.

Whenever a salesperson exceeds quota, a dealership may award a higher commission rate for the cars sold. This value can vary, sometimes allowing salespeople to earn up to thirty or even thirty-five percent on the front-end profits. The inverse can also hold. If a salesperson falls behind quota, they may need to make up their numbers the next month to see a profit.

Other Sources of Income

Aside from commission fees and quota achievement, salespeople can also bring in money by meeting specific bonus requirements, which sometimes involve selling a certain number of vehicles. They can also potentially get cash by selling add-ons, which usually have markup prices that allow the salesperson to make a sizable profit in addition to their commission prices.

With so many factors playing into a business where there are little guarantees, working in car sales can be a gamble, especially for those just starting in the field.

Using This Information to Get a Better Car Deal

While understanding the process of how car salespeople make money seems like it would only matter to them, knowing about this information can actually help you when you step on the lot to purchase your vehicle. It's just a matter of understanding the right way to go about it. Here are some tips to consider:

·        Shop at multiple dealerships. The same vehicle can have a different price depending on what lot you visit. Since a salesperson doesn't get paid unless they sell you the car, they'll want to give you the best possible deal so that you choose them. Don't be afraid to mention the offers you've gotten at other places.

·        Pick the right timing. Individual quota deadlines for salespeople usually fall at the end of the month, and dealerships may also be trying to meet a quota for a manufacturer bonus at the end of the quarter or year, such as selling a certain number of Ram trucks or GMC cars.. Shopping close to this time can make it more likely to get a better price so that the salesperson can meet their quotas.

·        Don't talk about financing until necessary. It's a smart strategy to have a pre-approved loan before you go in to shop, but you don't need to bring it up right away. A dealer will make a profit if they get you to take their financing, and you may be able to get a better price on the vehicle if they think they can make up the money with a loan.

·        Be ready to walk away if necessary. Again, a salesperson won't make any money if they can't sell you the car, no matter how much time they spend on you. If you can't get to a deal that's satisfactory for you, you may take a strategic exit where you ask them to contact you if they can make the price lower. Make your departure cordial, and not a heated one.

While none of these strategies is a guarantee, they can help give you the upper hand in a negotiation session. If you can make the deal work for both you and the salesperson, you can pay a much better price for your vehicle, and they can have a better chunk of cash as income.

AMO Page View Count Pixel