At the end of the day, what’s most important to nearly everyone on this planet (after health, family, etc.), is money. Maslow’s hierarchy of needs tells use that after our psychological needs are met (food, water, shelter, etc.) we move on to our safety needs (personal security, employment, resources). Without a doubt, that means earning an income is a top priority. That begs the question, how much can a car salesman make?
In any given year, I managed salespeople that have well out-earned me (earning multiple hundreds of thousands of dollars). I’ve also managed salespeople that barely made a living at all.
In sales, it’s pay for performance, and for the car salesman, it’s no different.
Here’s how much a car salesman can make.
A car salesman’s income is tied to their effort and skill level
A car salesman’s income is tied directly to their effort and their skill level. For example, someone new to the business who is just starting to learn their craft might find themselves on a salary based pay plan for the first 90 days. This fixed pay plans would guarantee monthly earnings of $3,000 or so for the first three months on the job. After 90 days, pay plans for car salespeople generally go to commission only, although more and more dealerships today are developing hybrid compensation plans that include a salary plus commission, with the hope of encouraging more college educated people to consider a career in the retail automobile business.
How hard the salesperson works on developing their skills (either through available training or through practice talking with customers) will directly correlate to how much they make. Sales professionals are like athletes (bear with me here), in that they have to practice to continually improve. There’s a saying that amateurs practice to get it right, while professionals practice so that they’ll never get it wrong. Top car sales professionals always practice and rehearse so that they can make sure they “never get it wrong.”
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What does a bad car salesman make?
Those who don’t practice or work on their skills (or those who sit aimlessly at their desk waiting for a customer to come in — the sad reality is that this represents the work ethic of a lot of car salespeople nowadays) as opposed to proactively seeking out customers, will usually find themselves at the very low end of the pay scale. This means they could be earning between $2,000 to $3,000 a month. I hate to categorize them as “bad” salespeople, rather they’re unmotivated salespeople, but the fact still remains, they’ll only be earning a few thousand dollars each month. Any aspiration of earning six figures or more each year is hard to come by for this group of salespeople, they’re lucky to make more than $40,000 annually.
What does an average car salesman make?
An average salesperson, and by average I mean someone who sells around 8 cars a month, will make between $3,000 to $4,000 a month. Above average sales people, those selling between 10 to 12 cars a month, will earn somewhere between $4,000 to $6,000 a month. Selling 8 to 12 cars a month certainly isn’t going to make you rich, but it can provide a steady income stream. Plus, the jump from “above average” salesperson to “superstar” can represent a huge increase in earnings, one that almost certainly will cross the six figure threshold.
What does a great car salesman make?
Top producers (of which there are very few), who are capable of selling between 25 to 50 cars a month will generally find themselves earning $150,000 to upwards of $500,000 or more annually. As someone once said, “that’s not chicken feed, that is some heavy duty money.”
Oh, and you don’t need a college degree in order to earn it, you just need to work on your craft (take advantage of training, never believe that there is nothing left to learn, utilize social media to create your own brand, and always practice and rehearse your sales techniques), and put forth the correct effort. The “correct” effort is staying in contact with your existing customer base and always remembering that all of your contacts with them are about them and not about you.
The most successful automobile sales people I know understand that nothing happens without first connecting on a human level with your customer and always maintaining that type of connection into the future. Building relationships (ie trust) takes time, and in sales it’s easy to lose sight of this. A lot of new salespeople like to focus their energy on the next sale. The salespeople I worked with that earned over $500,000 per year liked to focus on building lasting relationships (and getting referrals from) their existing customers. If you want to make more than six figures as a car salesman, this is one path to do it.
So there you have it, car salespeople’s earnings can range from not much, all the way to “you’ve got to shitting me, I didn’t know that you could make that type of money.” That is what makes the car business so great!
Types of pay plans for car salespeople
Over my 42+ years in the retail car business, I’ve seen too many different types of salesperson compensation plans. At each stop in my career, each pay plan had one thing in common — they were structured to keep the total salesperson’s compensation within the industry benchmark of 18 to 22% of expenses (more on that here).
Most comp plans (98%) fall within those industry benchmarks. So whether a salesman earned 35% of gross profit or 15% of gross profit on a deal, because of other factors involved, the compensation never really exceeded the 18 to 22% benchmark.
How could that be? Easy, every comp plan has things baked into it that lower what part of a sale’s gross profit is commissionable. For instance, most pay plans have a thing called “pack.”
Pack is a predetermined dollar amount that will be subtracted from the deal’s gross profit before the commission is calculated. Pack is utilized to cover such dealership expenses as advertising, inventory management software, utilities and non-revenue producing employees, such as administrative and accounting staff.
The greater the stores expenses are, the larger the pack will be.
As an example, in a store where the salesperson’s commission is set at 35%, the pack might be $1,500. That means that $1,500 is subtracted from the gross profit every time the salesperson closes a deal before the commission is calculated.
In a store where the commission is set at 20%, the pack might only be $500, but when everything is all said and done, each of those store’s sales comp would end up falling within the industry benchmarks of 18 to 22%.
What is truly interesting is that when everything is calculated into a salesperson’s commission (percentage of gross profit, unit bonuses, bonuses from the manufacturer for selling certain models, or hitting individual goals), the average commission for selling a car usually ends up being between $400 to $500. I don’t know why that is, I just know that over 42 years that’s what it would end up being for most of my salespeople.
Does a car salesman make more selling luxury cars?
The other interesting kicker is that most luxury brands tend to produce slightly higher commissions. This is simply because the gross profits tend to be higher as compared to volume brands like, Chevy or Toyota and say, Honda.
I remember working in a Pontiac store (yes, Pontiac was a brand) in the mid 1990’s, where I had two salesmen who each earned in excess of $150,000 a year (selling Pontiacs), while I, as their Sales Manager, was earning considerably less! I have also worked with sales people who represented high end luxury brands like BMW and Porsche who consistently were earning $400,000 to $500,000 annually. Those salespeople would even hire their own 1099 “staff” to help them with all the customer follow up, and relationship building.
If your goal is to make more than six figures selling cars, then getting into a luxury store may be beneficial for you. However, the barrier to entry at a luxury store may also be higher (ie they won’t hire just anybody).
Regardless, as you can see, there is a lot of money to be made in the retail automobile industry.