Car Sales Commission Explained – How It All Works

Many people want to know about car sales commission. This article will clarify some mysteries and cover people’s questions about car sales commissions and how car salespeople get paid. I will cover how to calculate car sales commission. Plus I will show you the percentages and how much the car sales commission is. I will provide some case studies that you can use to see precisely how car salespeople get compensated.

Whether you are a Newbie/Green Pea with questions about their pay plan or contemplating a car sales career, this will help you discover the possibilities for earning a substantial income.

car sales commission

Uncovering Car Sales Commission Concerns

Working on commission is a significant factor when considering selling cars for a living, the mystery of not having the same paycheck every week is more than many people can handle. 

The stress alone keeps them from becoming a car salesperson. Everybody wants to know how much car salespeople get paid; nonetheless, you can see that it is more complex than that. There isn’t an accurate answer to that question.

Choosing a Car Sales Commission or Not

A car sales professional selling cars for a while absolutely would not want to be paid any other way. They understand the benefits of working on commission and have benefited from the rewards of their pay plan. On the other hand, if a person struggles and has difficulty learning the profession, they will leave the car business. I am not trying to scare anyone, I am trying to be upfront and honest about how car sales commission works in the real world. 

Commission Risks and Rewards

This is one of the reasons for a higher-than-normal turnover rate in the business. Indeed, other things can reflect a salesperson’s compensation, such as weather, economy, and vehicle availability ( which we experienced during the COVID-19 epidemic of 2020-2022). 

But in the big picture, attitude, experience, learned skills, techniques, and methods are the major factors in car sales success, not to mention the ability to make a six-figure income selling cars. The question is whether you want to make $50,000 a year and get the same paycheck every Friday or make a six-figure income selling cars. I love getting paid commissions because I am in control of my income.

Some car dealerships pay the salespeople a more dependable salary/commission. They will get a fixed dollar amount per car and possibly a car count bonus, but you won’t earn six figures like that. Right now, we are covering a 100% commission pay structure.

How Do Car Salespeople Get Paid on Commission?

I want to clear the air and say there isn’t a hard and fast rule for commission structures, percentages, or bonuses. Practically every car dealer has a different pay plan. Many pay plans are similar when they pay 100% commission, by comparison, that is where it stops. The differences can make a difference, as seen in the case studies below. We will cover front-end commission and back-end commission and every detail in between.

Car Sales Commission Based on Front-End Profit

The Front-End profit is the amount your car sales commission will be based on. Let’s start with a simple calculation determining the front-end profit of the car you sold. Let’s say you sold a new car for $30,000. It doesn’t matter what the MSRP is; it’s the customer’s price. 

  • Sale Price: $30,000
  • Minus Dealer Invoice: $27,500
  • Equals Front End Profit: $2,500

That is the dollar your front-end commission will be based on. Hold on, it’s not quite that easy; we have more expenses. 

The Pack Before Sales Commission

This is where we start to calculate car sales commission. Every car sold by a car dealership has a charge known as “Pack” or “The Pack.” The dealership management and or owners determine this charge. This charge is to cover dealer overhead and to reduce car salesperson commission. 

Just like the pay plan, the pack is different for every dealership. Some dealers have higher packs on used cars and lower ones on new cars, although some have the same dollar amount for every car sold. I have seen the pack be anywhere from $500.00 to $1,500. $1,500 is extreme, and I have heard of some being even more. However, firsthand, I haven’t witnessed that in person. 

sales commission pay plan

Percentages for Car Sales Commission

Now, we get down to the percentages used to determine car sales commission. Once again, the pay plan determines the percentage on which the commission is based. I have worked with several dealers and witnessed percentages that go from 18% to 35%. 18% percent is rare, and that was only one dealership. 

Some dealers use a fixed percentage for commission, and others use a sliding scale based on the number of units sold per sales consultant. 

  • For example:
    1 to 6 cars: 20% Commission.
    7 to 10 cars: 25% Commission.
    11 to 15 cars: 30% Commission.
    16 or more cars: 35% Commission.

Again, this is just an example. The amount of cars sold can vary along with the commission percentage. This isn’t a rule; it’s about the dealership’s pay plan. Most dealers that use a sliding scale commission percentage make it retroactive to all cars sold for the month. So, for example, the first 6 cars paid 20%, 4 paid 25%, 5 paid 30%, and the rest paid 35%. All sales at 16 units or more in one month would pay 35%. This is a way of rewarding top salespeople every month.

There is an overruling factor when a car is sold below cost or with very little profit, and it is called a “Mini Deal.” The Mini is a flat dollar amount the salesperson gets regardless of profit. The Mini will pay the salesperson anywhere from $100.00 to $300.00. The Mini is a way of being fair to the salesperson when the dealership is willing to sell a car with little or no profit.

Car Sales Commission Back-End:   

Now, we will talk about back-end commission for the car salesperson. Because the salesperson was responsible for selling a vehicle, the customer worked with the Finance Manager to complete their paperwork. At this time, the Finance Manager has the opportunity to sell back-end products. These products include GAP (Guaranteed Asset Protection) Extended Warranties, Wheel and Tire Protection and Service Contracts. 

These are all items that create profit for the dealership when sold. Therefore, the salesperson might receive a profit percentage for the items sold. This percentage can range from 1% to 5%. It’s a little money, but it all adds up when it comes to how much car salespeople get paid.

How To Calculate a Car Sales Commission

Calculate Front-End Commission

In the example above, the salesperson sold a car for $30,000.00, costing $27,500. We said the profit or Front-End gross is $2,500.00. Now, we will start with that number of $2,500 and deduct the pack amount of $500 (for example). Now, our new front-end gross is $2,000. 

We will use a commission rate of 25% to continue calculating the commission. Therefore, we take 25% of the $2,000, which is $500.00. That $500 is the amount of the salesperson’s front-end commission. So, the salesperson earned $500 from that sale. 

Let’s say that the car sold for $27,900 and the cost was $27,500 and ended up with a profit of $400. In this case, the salesperson will earn $150.00 (or whatever this dealership pays for a mini) from a Mini Deal.

More Opportunities for the Car Sales Commission

Once the car salesperson sells a vehicle, most dealerships allow the salesperson to sell their customer extras that can increase their compensation. The extras can be accessories like running boards, splash guards, body side molding, remote starts…etc. There can also be paint protection, fabric protection, rustproofing, and sound deading. All of the items allow the salesperson to earn extra money. These extras can earn the salesperson anywhere from $40 to several hundred dollars. If you sell a car and receive a Mini Deal, the extras could help you make up the difference in your commission. You don’t want to ignore the extras because they have the potential to make a real difference in your earnings.

Car Sales Bonuses Add To Car Sales Income

Now, we have additional ways for a car salesperson to increase their income. Bonuses can greatly increase their income when selling cars for a living. Just like pay plans, bonuses can vary significantly between dealerships. Some dealers have more bonuses than others. Typically, the dealers with the smaller commission percentage rates have more bonuses for the salespeople. These bonuses are above and behind their commissions and designed to reward their salespeople. The more cars you sell, the more commission you make, and the more opportunities you have to receive bonuses. 

Bonuses for Car Salespeople

Car Count Bonus: A monthly bonus to reward their salespeople for selling several vehicles. This is one example of a car count bonus, and this won’t exist at dealers with a sliding-scale commission structure based on units sold.

  • 12 Cars: $300 Bonus.
  • 15 Cars: $600 Bonus.
  • 18 Cars: $900 Bonus.
  • 21 Cars: $1,200 Bonus.
  • 24 Cars: $1,500 Bonus.
  • 27 Cars: $1,800 Bonus.
  • 30 Cars: $2,100 Bonus.
Salesperson of the Month Bonus:

This bonus is for the car salesperson who sold the most cars in a month. You can see this makes salespeople strive to be number one, and now every salesperson is competing with each other for the extra money. This could be anywhere from $100 to a few hundred. Not all dealers have this bonus, but many do. 

Selected Vehicle Bonus:

This bonus is designed to sell aged units and hard-to-sell models and trim levels. I have seen these bonuses for both new and used inventory. Management may select certain vehicles; when a salesperson sells one of these, they get a bonus. These bonuses can range from $50 and up to several hundred. The amount may depend on how badly the dealer needs to move a particular vehicle. It’s a nice extra few bucks when you get paid the commission and the bonus.

Various Car Sales Bonuses:

Sometimes there are bonuses for Saturdays or Holidays. A Hat Trick Bonus: when a salesperson sells three cars in one day, they get a bonus. A First Car Sold for the Day Bonus. A Last Car Sold for the Day Bonus. High gross profit bonus, where the salesperson that sold the car for the day with the highest gross profit gets a bonus. This is a great motivation tool for the professional car salesperson and a way to earn extra income.

Manufacturer Car Sales Bonuses: Many automakers have an incentive plan for the salespeople of their brand. Some manufacturers run a year-round promotion, while others do it at various times. These bonuses are paid directly to the salespeople and not to the dealership. They may include $50 to $150 for a specific model the automaker specifies. It doesn’t sound like much, but I have heard of salespeople earning an extra $10,000 to $20,000 in a calendar year. I have earned thousands of dollars myself in manufacturer bonuses. It’s an excellent addition to car sales income.

car salespeople income

So, How Much Do Car Salespeople Make?

As you can see, there are many variables to calculating a car salesperson’s income; therefore, it takes more work to answer that question. Giving a range is the only way to determine how much car salespeople make. My answer is $42,000 to $500,000 a year. But you still need to answer your question. According to the U.S. Bureau of Labor, it is $18.06 an hour. According to Zip, it’s $38,680 a year.

That doesn’t really answer your question about how much car salespeople make. I wouldn’t sell cars for a living if that were all I made in a year. You should be making six figures as a car sales professional. 

I have had an ongoing survey for just that reason, and you can see for yourself on this page: What do Car Salespeople Make a Year? This survey has been going on for years. Salespeople anonymously provide income sorted by state, brand, years of selling, and used or new. Obviously, all participants are not making a six-figure income, but they are working on it. 

Our case studies below show that it’s only sometimes about the percentage or number of cars sold. It’s about the dealership pay plan—the combination of bonuses, commissions, and other incentives.

Case Studies of Car Sales Commission

I will break down the monthly compensation by source and commission. This will give you a better idea of how salespeople get paid. I will provide you with three different scenarios to help you better understand the compensation structure for different performance and dealership pay plans. These will be for an average sales month. Over the course of a year, some will be higher, and some will be lower. These case studies will give you an idea of the average monthly compensation of a car salesperson. I will illustrate my point using the same number of cars sold and the gross profit.

To start, we deduct the pack for each car sold. The total new car gross was $18,300 less $6,500, which equals $11,800 (that’s 13 new cars at $500 pack for each car, which equals $6,500). The total used car gross was $12,300 less $2,500, which equals $9,800 (that’s 5 used cars at $500 pack for each car, which equals $2,500).

The back-end commission will be based on a gross profit on all 18 cars of $24,000.

Case Study #1: Car Salesperson Angela 

This dealership pays a 20% commission on the front end and has many bonuses (as shown above).

Angela sold 18 cars this month.

  • 13 new cars with a total front-end gross of $11,800 after the pack.
  • 5 used cars with a total front-end gross of $9,800 after the pack.
  • New Sales Commission $11,800 x 20 % = $2,360.00
  • Used Sales Commission $9,800 x 20% = $1,960.00
  • One of the used cars was aged and had a bonus of $250.00
  • Angela received a car count bonus like the one above $900.00
  • She also received a manufacturer bonus on 6 cars of $150 each for a total of $900
  • She received a 2% bonus on the back end of $480.00

Angela’s total gross pay was $6,850 x 12 = $82,800.

Case Study #2: Car Salesperson

This dealership has a sliding commission plan that varies from 20% to 35% but with fewer bonuses.

Joe sold 18 cars this month.

  • 13 new cars with a total front-end gross of $11,800 after the pack.
  • 5 used cars with a total front-end gross of $9,800 after the pack.
  • New Sales Commission $11,800 x 35 % = $4,130
  • Used Sales Commission $9,800 x 35% = $3,430.00
  • He also received a manufacturer bonus on 7 cars of $100 each for a total $700.
  • He received a 3% bonus on the back end of $720.00

Joe’s total gross pay was $8,980 x 12 = $107,760

Case Study #3: Car Salesperson Steve

This dealership has a pay plan, paying a flat 25% regardless of the number of cars sold. However, they do have a few more bonus opportunities.

  • 13 new cars with a total front-end gross of 11,800 after the pack.
  • 5 used cars with a total front-end gross of $9,800 after the pack.
  • New Sales Commission $11,800 x 25 % = $2,950.00
  • Used Sales Commission $9,800 x 25% = $2,450.00
  • One of the used cars was aged and had a bonus of $200.00
  • He also received a manufacturer bonus on 5 cars of $100 each for a total of $500
  • He received a 2% bonus on the back end of $480.00

Steve’s total gross pay was $6,580 x 12 = $78,960.

car sales compensation

Study Summary 

There you have it: three different salespeople who work at three different dealerships. They all work under different pay plans and earn different amounts for selling the same number of cars. It’s not always about the percentage of commission, and it’s not always about the bonuses. Ultimately, it is about the salesperson and the dealership pay plan. I know salespeople earning six figures that work on 20% of gross for their commission. It can come down to skills, experience, closing, attitude, bonuses, incentives, customer base, luck of the draw, and more.

Top salespeople usually close their deals with higher grosses, which makes a big difference. If a couple of the cars sold were “Mini Deals,” but the experienced salesperson sold the same couple of cars with a sizeable gross profit, the commission would improve significantly. It all matters when you sell cars for a living: every detail, every word, and every dollar of gross.

Car Sales Commission Summary

By now, you should have gained a comprehensive understanding of the payment system for car salespeople and the overall structure of a car sales commission. This information has addressed the inquiries from those wondering about the compensation of a car sales consultant and the percentage a salesperson earns on each car sold. It’s crucial to recognize that there are numerous avenues for car sales professionals to achieve significant earnings, presenting lucrative opportunities. Furthermore, it’s worth noting that various other careers in the automotive sales industry offer substantial earning potential.

Author Bio:
Karl Beckham is a seasoned veteran in the realm of automotive sales, bringing over two decades of invaluable experience to the forefront of his insightful articles, several authored books, and his car sales training courses. As a respected figure in the car sales industry, Karl has honed his expertise through years of dedicated service, successfully navigating the ever-evolving landscape of consumer preferences and industry trends. 

Karl’s commitment to excellence extends beyond the confines of traditional sales approaches. Known for his innovative perspectives and commitment to continuous learning, he remains at the forefront of industry developments. Through his engaging and informative writing, Karl Beckham has become a trusted mentor for aspiring and established professionals, offering a roadmap to success in the fast-paced world of automotive sales.

References :
Bureau of Labor Statistics