Compensation is a critical factor in motivating your car sales team and achieving your dealership’s revenue and growth objectives. Various sales commission structures can be implemented, depending on your dealership’s size and sales team organization. One effective approach is using a draw against commission, which can be particularly beneficial in the automotive industry to keep your sales team engaged and driven.
Understanding Draw on Commission in Car Sales
A draw against commission is a form of guaranteed income that car salespeople receive regularly, alongside their commission earnings. This ‘draw’ functions much like an advance on future commissions. The amount is predetermined and provides a financial safety net for sales staff.
Draws are usually intended as a temporary incentive, offering income stability to your car sales team. Whether the draw is recoverable or non-recoverable dictates if the salesperson is required to repay this amount from future commissions (more detail on this below).
When is Draw Against Commission Suitable for Car Dealerships?
It’s crucial to understand that not all commission draw plans are identical. For effective compensation strategies in car sales, plans must be tailored to the specific roles and responsibilities within the dealership. This customization is equally important when considering draw structures. The draw should be reflective of a car salesperson’s role, potential seasonal fluctuations in car sales, and any other factors that might influence their sales performance.
Car dealerships typically implement a commission draw system for several key reasons:
- Ensuring Consistent Income: Draw systems are particularly useful for providing a steady income for newly hired car salespeople or those transitioning to new vehicle lines or customer segments. This is vital in the car industry where product knowledge and sales processes can be specialized.
- Providing Financial Stability: Draws offer stability during periods of economic uncertainty or when the car market is experiencing fluctuations. It also helps maintain salesperson motivation as they build their client base or adapt to selling new car models or technologies.
The time it takes for a car salesperson to become fully productive should be considered. A draw against commission can bridge the income gap during the initial ramp-up and onboarding phase, ensuring they remain financially secure while developing their sales skills and product expertise.
In times of economic shifts, changing consumer preferences in vehicles (like the move to EVs), or unforeseen events, a draw provides income security, guaranteeing salespeople are compensated even when external factors impact car sales figures beyond their direct control.
Different Types of Draw Against Commission in Automotive Sales
There are primarily two types of draws car dealerships can incorporate into their compensation plans: recoverable and non-recoverable. Both types can be implemented on a temporary or more permanent basis. Both recoverable and non-recoverable draws can contribute to improved employee retention and reduced turnover in car sales teams by offering greater income stability.
Recoverable Draw Explained
A recoverable draw is the more traditional understanding of a draw against commission. With a recoverable draw, car salespeople receive an upfront payment, but the dealership will recoup this draw amount from future commission earnings. Essentially, the salesperson is ‘drawing’ against future commissions, which are then used to pay back the draw.
Best Use Cases: Utilize a recoverable draw to provide new car sales hires with a reliable income during their initial training and sales ramp-up period. As they gain experience and close more deals, the draw amount might be reduced until they are fully proficient and earning primarily through commissions.
Non-Recoverable Draw Explained
Non-recoverable draws function more like a bonus or stipend. Car salespeople are paid the guaranteed amount, and they are not obligated to repay it at any point. These are typically short-term incentives designed to support the entire car sales team during periods of market instability or significant change.
Best Use Cases: Implement a non-recoverable draw to offer income stability to your entire car sales force when market conditions change rapidly, industry disruptions occur (like supply chain issues affecting car inventory), or broader economic events negatively impact consumers’ ability or willingness to purchase vehicles.
Enhancing Your Car Sales Compensation Strategy
Developing the right sales compensation plan is vital for driving performance and reaching your car dealership’s financial targets. Using a draw against commission is a valuable tool to motivate your car salespeople as they become fully productive and to provide security during uncertain times. However, it’s just one component of a comprehensive compensation strategy.
To further refine your car sales compensation planning and management, explore resources like guides on sales compensation planning, which can provide deeper insights into building effective and motivating pay structures for your automotive sales team.
