Is 100% commission still the norm?

[Ryan Thompson]

I started my professional sales career at the age of 23 working at a Ford dealership. I had zero responsibilities (lived at home, drove a hand me down car from my grandfather) and the idea of UNLIMITED earning potential sounded great. (This was 2003)

My my first few months I was on a "guarantee". I learned a little be later that draw and guarantee were not the same thing. Why would I have assumed you would be guaranteed a living while trying to learn the product, systems, and process?

After 6 months I was making a decent living for myself (compared to my 23 year old friends) and I can proudly say that I never had to dip into the dreaded "draw". Things were pretty good.

Fast forward to today. I'm managing a large sales team (vendor side) and offer a very competitive compensation plan that is roughly 60% base + 40% commission (can over deliver on commission).

I can't imagine being able to hire quality, educated, problem solving, and professional 25-30 year olds on a 100% commission plan.

Many of my clients (car dealers) complain that retention is still a major problem and the revolving door/bottom end of their sales team is horrible to work with. They cheat , steal, and lie.

"No one wants to sell cars anymore" - sales manager

Maybe it's because they have a mortgage payment and kids? Maybe they are not all 23 year olds that live with their parents?

A Majority of the big volume "Internet" dealers around Toronto are on a one price / no haggle model. Does 100% commission really make sense when you don't need slicksters to hammer customers into a deal?

What are some alternatives to 100% commission? I just can't see it being the way to attract high quality (no baggage) automotive professionals. Maybe this is why customers are still afraid to buy a car.

Chime in.

 

[ErikJonker]

I think it is the "norm" in my market but there are definitely some more progressive payplans in my area. We are straight 25% commission no packs. Some of the more progressive payplans that I have seen involve flat rate amounts per vehicle regardless of whether its a new Honda Fit or a new Honda Pilot.

 

[Sachin Raja]

Ryan, right now it still is the norm. At our dealership (Pre-owned, independent) we currently we pay a flat rate per retail vehicle with volume incentives. For most of the guys it averages out around $500/vehicle with some of the staff up around $600/vehicle. My goal is to eventually transition the store to an Apple Store type of environment. Have entire sales/customer service team paid on salary/hourly with overall company performance bonus. Regardless of who sells the vehicle, everyone gets paid the same. It eliminates all of the split deals, investigating which salesperson the customer spoke to the first time they called etc. I think it would also encourage team work and create peace of mind for the customer. In addition, create specialists for each type of vehicle or segment, customers get the best info then as well.

The obvious potential issues are that you have low performers who drag down the top performers (who may leave). Unfortunately, the only way to know if it works is to try it out!

 

[ddavis]

You pay peanuts and you get monkeys. There are more ways to make money than front end gross. You need a pay plan that focuses on that.

With the average customer shopping just over 1 store before purchasing, you better have some people that can close their eyes. If you are still going by the old NADA closing percentage of 30%, your store is missing opportunities.

 

[Ryan Thompson]

You pay peanuts and you get monkeys. There are more ways to make money than front end gross. You need a pay plan that focuses on that.

With the average customer shopping just over 1 store before purchasing, you better have some people that can close their eyes. If you are still going by the old NADA closing percentage of 30%, your store is missing opportunities.

Doug - Thanks for chiming in. You are a wealth of knowledge man!!

Knowing what you know now..............

What would be the dream compensation plan for automotive retailers if didn't have to answer to your DP? Basically wipe the board clean and go to work. How would it look?

 

[ddavis]

Ryan, With market-based pricing you still have an opportunity to make money by under-allowing on the trade. I would offer 30% on the front. Your biggest opportunity for profit is on the back-end where I would start at 10%. I would have that increase with volume. We also would pay a separate bonus for lease deals. Getting the customer off price and on payments improves the front-end gross. I would also pay 30% on accessories and have the showroom set up for that.

 

[DrewAment]

I have always been a believer that the salesperson controls the "sale" and the manager controls the gross. So why should a salesperson get paid off gross?

IMO - pay your salespeople a flat per unit with a stepped volume bonus, and pay your managers off gross. If the salesperson focuses on the sale - don't you think you might sell more cars? No more "skinny passing".

I will agree that it does not work for all dealers. But the ones I have seen implement this type of plan have sold more cars with almost no drop in gross per vehicle (think the salespeople work the desk better now!), which translates to an overall increase in sales net!

 

[Jlewis74]

I have always had an issue with payplans based only on gross, I would much rather pay them on units with a salary also. We also paid based on CSI if you were above region you got 110% of your pay if below you got 90%. If you were below 3 months in a row then we had to make a decission. You job is your pay plan I want sales people moving units, keeping customers happy and knowing their products. We also paid a monthly bonus if you had all your product knowledge stuff done. Our average comp was inline with the 20 group that paid on gross and our units and CSI scores were higher.

 

[ddavis]

I will agree that it does not work for all dealers. But the ones I have seen implement this type of plan have sold more cars with almost no drop in gross per vehicle (think the salespeople work the desk better now!), which translates to an overall increase in sales net!

I have always been an advocate for good salespeople. At my my last store, we were doing 170+ internet deals, 2/3 new cars using very aggressive pricing and out grossing the floor (front and back).

While I was on vacation, they cut the pay plan, and told the ISMs that they would have to work bell to bell the last two weeks of the month. More than half quit. I never returned to the store. It's been three years and markets change but they are doing less than half of that.