In the context of automotive sales, a "pack" is an internal accounting mechanism used by dealerships. It refers to a predetermined amount that is deducted from the gross profit of a vehicle sale before calculating a salesperson's commission. This deduction is meant to cover the dealership's overhead costs, such as advertising, utilities, salaries for non-sales staff, and other fixed expenses. Some dealers have both soft and hard packs.
How Packs Work:
- Fixed Amount: The pack is usually a fixed amount per vehicle, though it can vary based on the dealership or the type of vehicle being sold.
- Gross Profit Calculation: When a car is sold, the dealership first deducts the pack amount from the gross profit before determining the commissionable gross profit.
- Commission Calculation: Salesperson commissions are then calculated based on this adjusted gross profit, not the original gross profit.
Synonyms:
- Dealer Add-On
- Dealer Fee
- Overhead Charge
Types of Packs:
- Hard Pack: A fixed amount added to every vehicle, regardless of its price or type. This amount is typically non-negotiable and non-commissionable.
- Example: A dealership might add a $500 hard pack to each vehicle to cover administrative and advertising costs.
- Soft Pack: This type of pack is more flexible and can vary based on the vehicle or specific deals. Soft packs may sometimes be negotiable.
- Example: A dealership might add a $300 soft pack to less popular models to cover additional advertising efforts.
Real-Life Example:
Consider a dealership that sells a vehicle with an invoice price of $20,000. They add a $500 hard pack to cover overhead costs. The salesperson sells the car for $25,000, but their commission is calculated based on $24,500, excluding the $500 pack.
Benefits of Packs:
- Cost Recovery: Packs help dealerships ensure that a portion of the overhead costs is covered with each vehicle sold.
- Profit Management: They allow for more accurate financial planning and profit management.
- Consistency: Provides a consistent method to account for fixed costs across all sales.
Considerations:
- Transparency: It's important for salespeople to understand how packs work, as it affects their earnings. Clear communication from management can help avoid misunderstandings.
- Fairness: The amount set for the pack should be reasonable and justifiable, ensuring it covers necessary expenses without excessively diminishing salespeople's commissions.
Pack, commissions, who cares?!
Understanding packs and their impact on commissions is crucial for both dealership management and sales teams to ensure fair and transparent compensation practices.
