Car salesman typically earn between 20% and 40% of the dealership's gross profit on each vehicle they sell. However, this is rarely a simple flat percentage. Their income is primarily commission-based, structured around a "pay plan" that includes a base commission rate, bonuses for hitting volume targets, and sometimes a small base salary or "draw" against future commissions. For a salesperson, understanding their specific pay plan is more critical than knowing a single percentage.
Most pay plans use a tiered system. The commission percentage often increases as the salesman sells more cars per month. For example, a plan might start at 20% of the gross profit for the first 10 cars, then jump to 25% for cars 11-15, and 30% for anything over 15. This incentivizes high volume. The gross profit is the difference between the vehicle's selling price and the dealership's invoice cost (the price the dealer paid). This means a salesman makes more money on a car sold with little discount than on one heavily discounted to make a quick sale.
Beyond the core commission, salespeople earn bonuses. These can include unit bonuses (e.g., an extra $100 for every car sold after reaching 12 units), manufacturer spiffs (cash incentives from the car maker for selling specific models), and finance bonuses (a percentage of the profit from selling financing or insurance products). A small base salary, sometimes called a "draw," may be guaranteed but is usually deducted from future commissions.
Here’s a simplified look at how a pay plan might work for a salesman selling a car with a $3,000 gross profit:
| Sales Tier (Cars Sold per Month) | Commission Rate | Gross Profit per Car | Commission per Car | Monthly Bonus (e.g., for 15+ cars) |
|---|
| Tier 1 (1-10 cars) | 20% | $3,000 | $600 | $0 |
| Tier 2 (11-15 cars) | 25% | $3,000 | $750 | $0 |
| Tier 3 (16+ cars) | 30% | $3,000 | $900 | $150 per car |
Therefore, a salesman's total earnings are a combination of their commission rate, their sales volume, the profitability of each deal, and various bonuses. It's a high-risk, high-reward profession where income can fluctuate significantly.
