Holdback is essentially a hidden profit margin for the dealership. The holdback is intended to help dealerships manage their cash flow and profitability, even if they sell a vehicle at or near invoice price.
Synonyms:
- Dealer Holdback
- Dealership Holdback
- (HB)
Breakdown of the Pay Plan:
- 20-25-30% total deal gross including HB: This means that the commission structure for the sales staff includes a percentage of the total gross profit from the deal, which encompasses both the front-end gross profit (the difference between the vehicle's selling price and its invoice cost) and the holdback.
Example Explanation:
- 20%: Commission rate for initial units sold.
- 25%: Increased commission rate after reaching a certain sales threshold.
- 30%: Highest commission rate for top-tier sales performance.
Application:
If a dealership sells a car and the total deal gross includes the holdback, the sales staff's commission will be a percentage of that total amount. For instance, if the total deal gross (including holdback) is $1,500, and the salesperson is at the 25% tier, their commission would be 25% of $1,500, which equals $375.
Context in the Example Pay Plan:
- Store does 175-200 with 13 of us: This indicates the dealership sells between 175 to 200 units per month with a team of 13 salespeople. The holdback is included in the calculation of total deal gross, which impacts the commission paid to the sales team.
Holdback, commissions, who cares?!
Understanding the role of holdback in the commission structure is crucial as it can significantly affect the overall earnings of the sales staff. Including holdback in the commission calculation can make pay plans more attractive by effectively increasing the base from which commissions are calculated.
