Salary, Commission, and Bonus: Car Dealership Compensation Strategies

Salary, Commission, and Bonus: Car Dealership Compensation Strategies

In this era of millennial-focused recruiting and retention strategies, it has become clear that the way companies attract talent is becoming more competitive. While most car dealerships are still steeped in traditional, tried-and-true standards of compensation, there has been more momentum in the past decade to innovate. Heavily commissioned pay plans have dominated the car dealership scene since the beginning, and for good reason: good salespeople want to be paid what they’re worth. However, in a world of office gyms, work-from-home options, and free lunches, it’s important to weigh exactly what will motivate incoming sales reps the most. More dealerships are establishing fixed salaries and adding bonuses to give their reps more sense of security. How do you keep everyone motivated and still maximize your margins? Three options stand out, but keep in mind they can be combined or adapted based on different ownership considerations.

1) 100% Commission

Most dealerships offer their salespeople between 20% to 40% commission on their sales, but that goes well beyond the original car sale. Offering commission on financing, maintenance plans, warranties, and other perks are also typical. For those sales that have margins too small for the salesperson to see much incentive, offering a minimum commission is highly encouraged. This method is most popular among those who love being in control of their own income, and will normally appeal most to the veteran salesforce. It gives reps a sense of ownership in every transaction, and their success is the dealership’s reward. The only drawback is the way the method can discourage new salespeople if they cannot catch on right away. Most dealerships also include a “Draw” or an automatic advance should a salesperson not earn above a certain threshold.

2) Salary Plus Commission

Offering a base salary will give the younger generation of eager reps the security they crave, and an added commission will motivate performance. The salary won’t be much, but the knowledge the rep will never go home with nothing is a huge comfort. In addition, the commission can be manipulated to reward the top earners, for example, a sliding scale of 20% for the first ten cars sold in a given month, 25% for the next five, and so on. This will help negate any apathy to achieve goals created by the salary guarantee.

3) Salary Plus Bonus

Two things can be said with confidence about the younger generation of job-seekers: they want security and they want to feel engaged in the work they do. The Base Plus Bonus plan ensures both of these needs are met. The salary will be much higher than the “salary plus commission” strategy, but will most likely stay at the $30,000-$40,000/yr. range. That might not sound like very much, especially with the prospect of a relatively poor work/life balance, but the real attraction of this plan comes with the bonuses. This is where the owner has the creative freedom to construct a plan where bonuses can be found in a myriad of ways, always enabling the sales reps to discover more ways to earn the business money. After establishing (or not) a minimum amount of sales, here are just a few other examples of incentives that, over time, could add up to, say, an additional $10,000 a year for the highly motivated:

·      Most sales in a day/week/month

·      Most sales of a certain category (brand, hard-to-sell, premium)

·      Top earner for the day/week/month

·      Top enlister of in-house financing, warranties, maintenance packages, etc.

·      Rep who received the highest/most positive reviews in media

This plan also has the most opportunity to include other perks like 401k matching, insurance, and paid time off: all earnestly-sought-for benefits. It also gives eager new-hires the freedom to learn the trade at a pace that doesn’t demand perfect performance right away.

Nimble Compensation is a cloud-based software solution designed specifically for car dealerships to make compensation calculations the easiest part of payroll.