Car Salesman Confidential: How We Get Paid

I am a commissioned salesperson.

I get paid a commission every time I sell a car. My commission is a percentage of the profit. At the dealership where I work, I get paid 25 percent of the "front-end" profit and 5 percent of the "back end." The front-end profit is made on the purchase price of the car. The back-end profit is found in financing and anything else we sell you, such as extended service contracts or GAP insurance.

For example, if I sell a car for $25,000 and there is a $1000 profit, or "gross" on the front end, I'm paid a $250 commission. If the customer finances through the dealership and we make $1000 on the back end, I get another 5 percent, or $50. Total commission before taxes: $300.

I think most people understand this, to some degree. What they don't understand is that I only get paid if I sell a car. If I don't sell a car, I don't get paid. I make nothing. So if you come in and ask me to test drive a few cars, and I work numbers with you, and you take up three or four hours of my time, but you leave and don't buy a car . . . I have made nothing. I am not compensated in any way for the time I just spent with you. I just poured three hours down the drain.

Prior to getting into car sales I had always been paid a salary or on an hourly basis. If I worked 40 hours a week, I was paid whatever the hourly wage was, times 40 hours. When I was salaried, I was getting a fixed amount each month, as long as I did my job. But after my first week in sales I realized I had just given up 50 hours of my life and hadn't made one red cent. Because I hadn't sold a car that week.

Let me tell you, that is a strange and sobering thought. And it changes your perspective completely. The following is a slight exaggeration: Imagine that one day civilization collapses, and all the grocery stores close, and you suddenly realize that if you want something to eat, you're going to have to go out and hunt it down and kill it. Otherwise you'll starve. That is what commissioned sales is like.

If you pull into my lot and get out to look and I don't greet you, I might have missed out on the only chance at a paycheck I'll have that day. Do you think a lion sitting there in the veldt, who hasn't eaten in days, looks up and spots an antelope grazing in the grass a few hundred years away and says to himself, "Naaah, I'll let that guy go, and get the next one?" A hungry lion doesn't care if the antelope is "just looking." He's going to run it down and eat it. It's a matter of survival.

This is what motivates the salesman. Hunger. This is what makes us put up with the long hours and the obstacles and the delays the average customer throws our way. We don't eat -- or get paid-- unless you buy.

And how much are we paid? Theoretically, the sky's the limit. If you can sell 20 or 25 cars a month, and "hold gross" (make a big profit) on each of them, you can make more than six figures annually. And there are salesmen out there who have done even better than that. There are the Joe Girards -- who once sold 18 cars in one day -- and sales expert Grant Cardones, and people like them who make more than some CEOs. But by and large these people are the exception. Not everyone can be a Michael Jordan or a LeBron James, no matter what they say in sales meetings.

Most salespeople do not sell 25 cars per month, and holding gross on a new cars is virtually impossible these days. So at every dealership there's what's known as a minimum commission, or "mini deal." That's the minimum the dealership will pay you when a car deal makes no money. At my dealership, a mini deal is worth $125. Now think about that.

How many cars would you need to sell at $125 a pop to make a decent living? Do you think you could sell 3 cars a week? That's about 12 a month -- not too bad. That works out to $1500 a month. Or $18,000 a year before taxes. Hardly rolling in dough.

At my dealership the average commission is around $550 a car. That's new and used combined. So if you're an average salesman and you sell 10-12 cars a month, which is the national average, and each car you sell is a $550 commission, what have you made? $6600. Or $79,200 a year before taxes. Not bad, depending on where you live . . . but hardly the life of Donald Trump. When you consider the hours needed to make those sales, it's even less impressive.

So what keeps people in car sales, if the money isn't spectacular? Well, it's a matter of perception and personality, in my opinion. One day you may sell nothing -- and make nothing. The next day you may hit a home run and make $1000. Then you make another $100, and later on get a bonus from the manufacturer and make another hundred, for $1200 for a few hours work. Not too bad. That's what keeps the car salesman going: the hope that next time, he or she is going to hit one out of the park. It's a gambler's mentality. But if you're in commissioned sales, you have to have a bit of the gambler in you.

I once sold a car to a man in his early 20s. He came in with a buddy of his and wanted to test drive an older Mustang we had, a Mustang that had been on our lot for quite some time. But he didn't buy that day. He came back a few days later with the same friend, but I was busy with another customer at the time, so a friend of mine who is my "floor partner" helped him.

At that moment the deal became what is known a "split deal," which means that my friend and I would have to split the commission 50/50. Well, this young man was a tough negotiator, and it took us something like four hours total to close him. And we lost our butts on the deal. We sold the car for less than we had in it, because it had been on the lot for nearly 60 days and we were just about to send it to auction, which would have meant taking an even bigger loss.

After it was all over, the young man asked us "How much did you guys make on this deal?" I asked him if he really wanted to know. He said yes. "How much do you think we made?" I asked. "Oh, probably 2 or 3 grand each," he replied. He honestly thought that my partner and I had pocketed $6000 in commission on a $14,000 car. The truth was, it was a mini deal, and split two ways we had each made a whopping $62.50. When I told him that, a big smile grew across his face, like we were pulling his leg, and he said "Oh, no way! No way, man! You couldn't make a living like that!!"

Tell me about it.

More from Car Salesman Confidential:

• Knowing the Process, Part 3
• Knowing the Process, Part 2
• Know the Process