Setting up a sales compensation plan for a car dealership is a delicate balancing act. The plan should adequately pay good sales people and incentivize the sales force to make a larger number of more profitable car sales. A dealership owner can take the commonly-used pay elements in the auto sales industry and mix them together to develop a compensation plan that takes care of his employees and also benefits the dealer's business objectives.
Traditional Commission Plan
Although this type of plan is fading out of common usage, the traditional commission structure provides a basis on which to build a more balanced compensation plan. With a full commission plan, a salesman earned a percentage of the gross profit on each car he sold. Commission rates of about 30 percent were common. Also included would be a minimum commission of $75 or $100 when a sale generated little or no gross profit.
Base Salary Plus Commission
A more modern approach to car sales compensation is a base salary plus commission. This plan helps to even out incomes and allow employees to survive periods when their personal sales numbers are down. A salary plus commission model also can be structured to reward sales employees for consistently achieving higher sales numbers. The commission percentage rate for this type of plan will be lower than for a commission-only compensation plan.
A volume bonus is often an added compensation benefit based on gross profit per sale. With a volume bonus, participants get extra money for hitting a certain number of sales each month. For example, the bonus could be $25 per car for between 10 and 20 sales during the month and $40 per car for each additional sale. For a dealership, total profitability depends on both selling as many cars as possible and making money on each sale. A commission-plus-volume-bonus pay plan reflects these two goals.
Additional Pay Features
Car sales pay typically includes some other opportunities for a sales person to earn money. Spiffs are daily or weekly cash payments when specific short term sales goals are hit. An example of a spiff would be $200 to any salesman who sells three cars over the weekend. Other compensation factors can include pay for money made in the finance department and some form of vacation pay. For example, the dealer could set aside $5 for every sale that will be paid out once a year as vacation pay.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.