Seeking Advice on Effective Salesman Pay Plans for a Mid-sized Used Car Dealership

[Matteon]

Hello everyone,

I'm the general manager of a used car dealership with an inventory of approximately 85 cars. We're currently revisiting our pay structure for salespeople and exploring different models to enhance performance and profitability.

From my experience, I've noticed that a flat salary often leads to complacency among the sales team, which doesn’t drive the performance we’re aiming for. I am considering a model that leans more heavily towards commissions, possibly with a small base salary or draw.

I would love to hear from fellow dealership managers and industry professionals:

1. What pay structure do you use at your dealership?
2. How do you balance base pay and commissions to ensure high motivation and performance?
3. Have you implemented any unique incentives that have proven effective?
4. What challenges have you faced with your current pay plan, and how have you addressed them?

Any insights or examples of what has worked well (or not) for your dealership would be incredibly helpful as we design our new compensation strategy.

Thanks in advance for your help and sharing your experiences!

Best,

 

[Tallcool1]

Without going into a bunch of questions, I will give you my general feeling about sales pay plans.

Simple is better. If I ask someone to explain their pay plan, and the first thing they do is reach for a pen and something to write on......bad sign. Too complicated.

$500 Pack.
All expenses are added to the unit including fuel.
25% Commission up to 30% based upon tenure.
$200 Minimum Commission per unit.
Annual Guarantee of $52K which is decent money where I am. I have never had to pay anything at year end.
Every once in awhile I will put a Minimum Commission on a unit that is stuck in inventory.

To me, it is very important that everyone have the same overall goal. My goal is Gross Profit. Gross Profit pays the bills. Volume doesn't. I get that we can deep dive into the holding cost and velocity conversation. While I understand these concepts, I choose to care more about Gross Profit.

 

[Matteon]

Without going into a bunch of questions, I will give you my general feeling about sales pay plans.

Simple is better. If I ask someone to explain their pay plan, and the first thing they do is reach for a pen and something to write on......bad sign. Too complicated.

$500 Pack.
All expenses are added to the unit including fuel.
25% Commission up to 30% based upon tenure.
$200 Minimum Commission per unit.
Annual Guarantee of $52K which is decent money where I am. I have never had to pay anything at year end.
Every once in awhile I will put a Minimum Commission on a unit that is stuck in inventory.

To me, it is very important that everyone have the same overall goal. My goal is Gross Profit. Gross Profit pays the bills. Volume doesn't. I get that we can deep dive into the holding cost and velocity conversation. While I understand these concepts, I choose to care more about Gross Profit.

Are you suggesting a commission-only structure without a draw? Would it be better to do a flat number instead of a 25% commission for a used car store?

 

[Tallcool1]

Are you suggesting a commission-only structure without a draw? Would it be better to do a flat number instead of a 25% commission for a used car store?

I am suggesting commission only structure. Draw is still commission only.

I would never do a flat. I want my sales staff fighting for gross, just like me.

I am not suggesting that a flat plus percentage is a bad thing if that is what you are more comfortable with. I am absolutely suggesting that these 4 tiered, retro this and that, comm plus flat are far too counterproductive. They also create a disconnect between ownership and sales. Say you have a 3 or 4 tiered flat plus commission plan, last day of the month, and a salesperson needs one more deal to hit the top tier that will retro back. That single deal will make the salesperson an extra $2,650 for the month. That single deal will cost the owner $2,650 plus the commission on the vehicle being sold. Do you REALLY want that deal?

I am a Used Car Dealer.

 

[Matteon]

I am suggesting commission only structure. Draw is still commission only.

I would never do a flat. I want my sales staff fighting for gross, just like me.

I am not suggesting that a flat plus percentage is a bad thing if that is what you are more comfortable with. I am absolutely suggesting that these 4 tiered, retro this and that, comm plus flat are far too counterproductive. They also create a disconnect between ownership and sales. Say you have a 3 or 4 tiered flat plus commission plan, last day of the month, and a salesperson needs one more deal to hit the top tier that will retro back. That single deal will make the salesperson an extra $2,650 for the month. That single deal will cost the owner $2,650 plus the commission on the vehicle being sold. Do you REALLY want that deal?

I am a Used Car Dealer.

When you offer annual guarantees of 52K, do you provide this as a commission plan or draw? I am seeking something straightforward.

 

[Tallcool1]

When you offer annual guarantees of 52K, do you provide this as a commission plan or draw? I am seeking something straightforward.

Straight Commission.

If the salesperson's Gross Annual Wages have not exceeded $52K on 12/31, they are paid the difference.

 

[DrewAment]

I would never do a flat. I want my sales staff fighting for gross, just like me.

I was always trained, and to this day believe, that it is a salespersons job to "sell" the vehicle and the sales MANAGERS job to control gross.

Salary (min wage) ++ flats that escalate retro with volume or volume bonuses.

 

[Tallcool1]

I was always trained, and to this day believe, that it is a salespersons job to "sell" the vehicle and the sales MANAGERS job to control gross.

Salary (min wage) ++ flats that escalate retro with volume or volume bonuses.

I think that is true in a system in which there is abundant sales management staff. However, in a used only dealership doing modest volume there isn't always a sales manager there to control the gross. It is not uncommon for me to work a deal with my salespeople via text or phone. I can help them with numbers, payment calculations, trade appraisals, but I can't physically walk out and grab ahold of every deal the way a dedicated desk manager can (if they are willing).

This is what I truly love about the car business. There are so many different ways to run a car dealership. They all make it work. I see some things that make me shake my head in disbelief, but the store is extremely efficient and profitable.

 

[Jon Singo]

I'm a huge champion of having the pay plan match the result you are trying to achieve. We currently pay salespeople a % of gross. With margin compression, salaries are all down no fault of the consultant. Keep going down this road and you'll lose good people because you didn't adjust the pay plan to the market. We're a high volume, quick turn used operation. Ideally, I want to prioritize units above all else. As mentioned above, let the manager control the gross. A tiered per unit plan + trade per unit + financing per unit would incentivize a salesperson to burn units, get trades, and financing without having to worry about gross they can't control.

You first need to figure out what you're trying to achieve (margin, volume, etc) then tailor the plan based on what you think it will take to attract and retain top talent in your market. This also means you'll need to adjust to market conditions accordingly as they change.