what does a car salesperson make – commission

July 1, 2015

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How much does a car salesperson make? Whenever shopping for a car, I always wondered. Does the salesman gets a commission based on how much the profit?  Do they get paid a salary plus a commission? Perhaps, they get a commission no matter what the sales price is.

A car salesperson makes a living through these means.

• Commission – while there are exceptions where they are paid a regular salary, most car salesperson works off commission, which is a percentage of the gross profit from selling a car. Gross profit comes in 2 stages.

1. Front-End Profit – this is the difference between car sales price and the invoice cost. A car salesperson’s commission could be between 20% – 40% here, depending on the dealership.

a. New car – new car profit is usually slim. There are many sources of new car invoice

b. Used car – used car profit could be $3,000 or higher, because the dealer’s cost is unknown to the buyers.  From trade-in, dealer’s cost is low, usually at the wholesale level. The car is then sold at retail level for a good profit.

2. Back-End Profit – this is profit from selling insurance, extended service contracts, anti-theft device, everything the finance guy tries to sell you, while you are a captive audience sitting in his office waiting for him to finish all the paper works. Commission here could be 5%-10%.

3. “Minis” – you should be wondering by now. Sometimes, cars seem to be sold at the invoice price, if there is no gross profit, does the salesman still get paid?  These are called Mini-deals, where there is not enough gross profit to carve out any meaningful commission. In Minis, the salesperson gets a minimum commission, which is set at $100 – $200.

To get paid, they have to sell cars to earn commissions. Are there any other ways they get paid? We will look at these other ways in a future post.

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