Car salesmen work hard to sell cars and earn their living through commissions.
Determining how much commission a car salesman makes on a $50,000 car involves various factors such as types of cars, commission structures, profit margins, and more. This article breaks down these components to give you a clearer picture of potential earnings.
Key Takeaways
- Car salesmen primarily earn their income through commissions, which are typically a percentage of the profit made on each car sale.
- Commission rates can vary between dealerships, typically ranging from 20% to 30% of the profit, with some offering tiered structures that increase the commission rate as more cars are sold.
- Factors such as dealership policies, the type of car sold, the salesman’s experience, and the sale of additional products can all affect the commission earned.
- Commissions on used cars are generally higher than on new cars, often around 30-50% due to higher profit margins.
- Luxury car salesmen can earn substantial commissions, sometimes around $2,000 per luxury car sold, but the commission rate for luxury cars tends to be lower due to higher profit margins.
What Is A Car Sales Commission?
A car sales commission is the money a salesman earns from selling a car. It is usually a percentage of the profit made on the sale. The profit is the difference between the price the dealership paid for the car and the price at which it was sold.
Car sales commissions are a key part of a salesman’s income. Unlike a fixed salary, commissions vary based on performance. So, the more cars a salesman sells, the more money they earn. The system motivates salesmen to work hard and sell more cars.
Commissions can be structured in different ways.
Some dealerships offer a flat rate per car sold, while others offer a percentage of the profit. The latter is more common because it aligns the salesman’s interests with the dealership’s. When the dealership makes more profit, the salesman earns more commission.
How Is The Commission Calculated?
The commission is calculated based on the profit made from the sale. For example, if a car is sold for $50,000 and the dealership’s cost was $45,000, the profit is $5,000. The commission is a percentage of this profit.
To calculate the commission, you need to know the profit margin and the commission rate. The profit margin is the difference between the selling price and the cost price. The commission rate is the percentage of the profit that the salesman earns.
For example, if the profit margin is $5,000 and the commission rate is 25%, the commission the salesman earns is $1,250 from a sale.
As it is easy to understand, if the commission rate is higher, the commission will be higher; and if the profit margin is higher, the commission will also be higher.
Typical Commission Rates
The commission rate is an important factor in determining how much a salesman can earn. It can vary between dealerships. However, most dealerships offer a commission rate between 20% and 30% of the profit.
Some dealerships might offer higher rates for experienced salesmen or for selling additional features and upgrades.
To encourage salesmen to sell more cars, some dealerships offer tiered commission rates, which indicates the commission rate increases as the salesman sells more cars.
For example, the commission rate might be 20% for the first five cars sold, 25% for the next five cars, and 30% for any additional cars.
Factors Affecting Commission
Several factors can affect how much commission a car salesman makes. These include:
- Dealership Policies: Different dealerships have different commission structures.
- Type of Car: Commissions on luxury cars might be different from those on regular cars.
- Experience: Experienced salesmen might earn higher commissions.
- Additional Sales: Selling add-ons like warranties can increase the commission.
Dealership policies play a significant role in determining commission rates. Some dealerships offer higher commission rates to attract and retain top sales talent. Others might offer lower rates but provide other incentives, such as bonuses or benefits.
The type of car being sold also affects the commission. Luxury cars often have higher profit margins, leading to higher commissions. However, they might also have lower commission rates. Regular cars might have lower profit margins but higher commission rates.
Experience is another important factor. Experienced salesmen are often more skilled at closing deals and upselling additional products.
As a result, they might earn higher commissions. Some dealerships offer higher commission rates to experienced salesmen as a reward for their skills and experience.
Selling additional products, such as warranties and insurance, can also increase the commission. These products often have high-profit margins, and salesmen can earn commissions on them.
Selling these products requires additional skills, such as understanding the products and being able to explain their benefits to customers.
Front-End and Back-End Commissions
Car salesmen can earn commissions from both the front-end and back-end of a sale. When we talk about the commission a car salesman makes, we usually means the front-end commission.
The back-end commission comes from selling additional products like warranties and insurance. It is an additional source of income and is based on selling additional products.
Back-End Commission
The back-end commission is an additional source of income for car salesmen, but the commission rate for the back-end commission is usually lower than the front-end commission. , around 5%.
For example, if a salesman sells an extended warranty for $1,000 and the commission rate is 5%, the back-end commission is $50.
Flat Rate Commission
Some dealerships pay a flat rate commission per car sold, not based on the profit. For example, a salesman might earn a flat $200 for each car sold.
The flat rate commission can be less motivating than a percentage-based commission because salesmen earn the same amount, regardless of how much profit they make for the dealership. However, it provides a predictable income, which can be beneficial for some salesmen.
Luxury Car Commissions
Luxury cars often have higher profit margins than regular cars as the profit from selling a luxury car is usually higher. As a result, the commission from selling a luxury car can be higher.
However, the commission rate for luxury cars tends to be lower due to the already high profit margins, and dealerships might not want to pay high commission rates. The commission rate for luxury cars is usually around 8-10%.
If a luxury car is sold for $100,000 and the profit is $20,000, a 10% commission rate would earn the salesman $2,000.
Used Car Commissions
Commissions on used cars are often higher than on new cars. This is because the profit margins on used cars are usually higher. The commission rate for used cars can be around 30-50%.
Online Car Sales
The rise of online car sales has changed the commission structure. Many customers now buy cars online, and salesmen can earn commissions from these sales. The commission rates for online sales can be similar to in-person sales.
If a car is sold online for $50,000 with a profit of $5,000, and the commission rate is 25%, the salesman earns $1,250, just like in-person sales.
Conclusion
Car salesmen can make a good living through commissions. The amount they earn depends on various factors, including the type of car, the dealership’s policies, and their own skills and experience. Understanding how commissions work can help salesmen maximize their earnings and succeed in their careers.
