How Much Should You Pay Your Salespeople?

PaycheckThe days of a one-size-fits-all pay plans for top sales people are rapidly fading away. In the past, the automotive industry thrived on commission-based pay plans. Sales people were happy to accept low base rates because they understood that with commissions, they could soar to great heights. Their destiny was in their own hands, and their success and income were directly related to their own skills and abilities.

The younger generations, however, look at the world in a very different way.

For better or for worse, starting with Generation X and going on from there, the salespeople entering the workforce are interested in stability and predictability as well as the idea of working hard to gain greater income. They want to know their base income level is enough to pay the bills, and anything over that is a bonus, rather than viewing the base pay as the starting point with the rest left up to them.

In fact, the younger generations of salespeople seek more than just money as the rewards of hard work.

They don’t like being surprised when they get their paycheck. A rockstar automotive salesperson will be excited to see more in their check, but they aren’t willing to accept it dipping below a certain level. And if it does, they will leave the dealership — or the automotive industry altogether — to chase a job that doesn’t revolve as heavily around commission.

So where does that leave the dealership?

Eliminating commissions altogether isn’t necessary to court younger salespeople, but it is worth taking a hard look at the pay plans that you already have in place. If you’re finding it hard to recruit or retain anyone under the age of 55, it might be time to reevaluate the structure.

One thing to keep in mind is that pay plans are a moving target. What works for one city or state isn’t going to work as well for another. The place to start when looking at pay plan revisions is within the ranks of your current team. Talk to your salespeople and ask for their honest feedback — would they be more interested in a higher base rate if it meant trading off on commission rates? What trade-offs would they feel are acceptable?  Other than financial compensation, what other benefits would they be willing to work hard for?  If you worry they won’t give you a straight answer, allow them to do it anonymously. Another source of information would be recruiting firms that work in your area. Find out what their candidates are looking for, and what makes a pay plan attractive to them. Recruiters can provide a wealth of information beyond simply placing warm bodies in the dealership.

So what does a modern pay plan look like? Here’s one example:

 

BASE SALARY: $625 per week

COMMISSION: Unit Bonus paid per month

6th Unit                  $100

7th Unit                  $100

8th Unit                  $150

9th Unit                  $175

10th Unit                $200

With 10 cars sold, the new salesperson would earn $3,225 for the month. Now, if they sell beyond that, the commission continues to rise:

11th Unit                $200

12th Unit                $250

Which brings the cars sold for the month to 12 and the salary to $3,675. If the salesperson is a rockstar and continues to sell, they can earn even more:

13th Unit                $250

14th Unit                $300

15th Unit                $300

16th Unit                $750

This brings the total monthly pay to a maximum $5,275 for the month. In this pay plan, any cars sold over 16 units would be rolled into their next month.

This is a fairly standard commission structure, where someone who is willing to hustle and sell more cars sees increasing returns. But for younger salespeople, the prospect of bringing home just $2,500 if they struggle to move units as they learn the process and the rhythm of car sales can be what makes them walk away, looking for something with a more steady paycheck.

Here is one alternative, that relies less on commission, but still rewards those who are willing to work hard.

BASE SALARY:
$750 per week

The employee under this plan has a guarantee of $3,000 per month in salary to start. Commission in this hypothetical plan, however, doesn’t kick in until a higher threshold of sales have been met.

COMMISSION: Unit Bonus paid per month

10th Unit                               $100

11th Unit                               $100

12th Unit                               $150

With this plan, salespeople don’t begin to earn commission until they’ve reached 10 cars sold in a month. If they hit 12 sold, they’ll bring home $3,350.

13th Unit                $175

14th Unit                $200

15th Unit                $300

16th Unit               $750

Again, the commission rates will continue to rise as they sell more, and if they reach the 16-car limit for the plan — the same as on the more commission-reliant version — they’ll bring home a bonus and will net $4,775.

Notice, in the second pay plan, the amount a new salesperson can earn in total is actually less than with a more commission-reliant plan. But the base rate is higher, offering more security to a younger generation who wants to make sure they have a certain stable income before they do anything else.

This structure might not be exactly right for your dealership, and the exact amounts for base rate and commissions will fluctuate based on your market. The key takeaway is that while commission-heavy plans offer new salespeople the opportunity to earn more, the reality is that many will accept a lower ceiling for higher security.

When it comes to the next generation of rockstars, it might be time to rethink the model. They will work hard to earn what is perceived as a bonus, but they will work elsewhere to earn what is perceived as a living wage.

The Manus Group Rick Williams About the Author

Rick has more than three decades of business experience, including serving as President and General Manager of a multi-brand dealership that retailed over 3000 units per year. He has also owned and operated a multi-franchise employment agency. When you marry Rick’s executive experience and knowledge, the result is a dynamic sales and management talent search firm and leadership and development training company.

Copyright © 2017, Rick Williams All rights reserved.

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