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Creating the Ultimate F&I Pay Plan

December 2005, F&I and Showroom - Feature

by Ronald J. Reahard - Also by this author

Having trained thousands of F&I managers from dealerships all over the country, one thing I know for a fact: Your pay plan is your job description.

A good F&I pay plan compensates an F&I manager based on productivity. A great F&I pay plan motivates managers to excel, reinforces a dealer’s commitment to customer satisfaction, and ensures continuous improvement in F&I productivity and profits. A poor pay plan guarantees lots of turnover, turmoil and Tums.

Today’s F&I manager is responsible for selling a wide range of products, including dealership financing, vehicle service contracts, GAP and credit insurance, tire & wheel protection, environmental protection and various theft deterrent products. An F&I manager’s pay plan needs to reflect his or her performance in these areas, the total profit generated, as well as customer satisfaction with the financial services process.

There are as many F&I pay plans as there are dealers, but the best pay plans all have three things in common. First, they are simple. If you have to write it out to explain it, your pay plan is too complicated. Second, the more money the F&I manager generates for the dealership, the more money the F&I manager makes. And finally, the pay plan reinforces the dealership commitment to the products being offered in the F&I office and ensures customer satisfaction with the financial services process.

How can a dealer best motivate the F&I manager at the least possible cost? As a rule of thumb, the amount paid in total F&I commissions should not exceed 20 percent of the F&I department’s income from finance reserve and product sales. Included in that 20 percent would be any F&I incentives paid to the sales force and/or the F&I director.

Naturally, this percentage can vary considerably, depending on the size of the dealership. A large, high-volume dealership with multiple managers will usually pay out a lower percentage of F&I income in commission. A small dealership, on the other hand, may need to pay out a higher percentage, especially if the F&I manager has other responsibilities.

No matter how big or small the dealership, an F&I manager’s income should depend primarily on the amount of income he or she generates. The percentage of compensation should always increase or decrease according to performance, and today, that performance must include customer satisfaction with the F&I process. This increase or decrease can be based on the F&I manager’s penetration percentages, income per retail unit, or strictly on total dollars generated in F&I income.

When determining total dollars in F&I income, a dealer must first determine how much emphasis to place on finance reserve, and whether to base compensation on gross income or net income after chargebacks. With subsidized rates by the manufacturer on new vehicles, and interest rates and monthly payments quoted by the desk as part of the sale, F&I managers often have little to no control over finance reserve income.

Avoid Excessive Markups

Since finance reserve is 100 percent profit, an F&I manager should certainly attempt to make reserve income whenever possible. However, since a customer receives no benefit from finance reserve, it is critical the markup be consistent and not excessive. Excessive finance reserve generates excessive chargebacks, and chargebacks reduce net income and adversely affect CSI. Excessive finance reserve can also expose a dealer to potential litigation, especially if it tends to occur within a particular race or ethnic group.

In most dealerships, finance reserve continues to fall, accounting for less than 40 percent of F&I income. In addition, since the desk is often quoting the monthly payment and interest rate during the sales process in an effort to sell the vehicle, any finance reserve income has actually been generated by the sales department, not by the F&I department or the F&I manager.

One way to ensure an F&I manager maximizes product sales versus just marking up the rate is to separate reserve income from other income, and pay a reduced or minimal commission on reserve income. This puts the emphasis where it belongs, on those sources of income the F&I manager does control, F&I product sales, while maintaining an incentive to generate (or retain) as much reserve income as possible.

Some dealers still utilize a basic pay plan that concentrates entirely on total F&I income, not F&I income per retail unit, or a pay plan that varies compensation based on penetration percentages. The F&I manager simply receives a straight percentage of F&I income, say 15 percent. If the department makes $60,000, the F&I manager receives $9,000. While it’s clean and simple, it does not put much of a carrot in front of the F&I manager. Plus, when vehicle sales are up, even the worst F&I manager can make good money with this type of pay plan. Poor performance is actually rewarded if the dealership sells enough units, and outstanding performance is penalized when sales are down.

Many dealers utilize a graduated pay plan, based on total income or F&I income per retail unit. This type of pay plan can increase performance and will help motivate an F&I manager. Typically, F&I income per retail unit tier levels and commission percentages vary depending on the size of the dealership, whether finance reserve is included and whether F&I income is gross or net.

The problem with this pay plan is that the emphasis is still on dollars. With a pay plan like this, F&I managers will tend to concentrate on one area at the expense of all others. “Where can I make the most money the easiest possible way?

Every good F&I manager knows how to work his or her pay plan. Without some restrictions, this type of pay plan is a recipe for disaster. Dealers soon find they have a huge percentage of F&I income from finance reserve, with $2,000 VIN etch policies, $2,500 car alarms and chargebacks off the charts. This type of pay plan also undermines the whole idea behind the use of a menu, which is to offer every product to every customer every time. You should sell products based on the customer’s needs, not on how much money you make.


  1. 1. Vonda Simpson [ November 23, 2012 @ 03:31PM ]

    Thank you, I have been scouring the internet for information on F and I pay plans from the prospective employee position, and this is very insightful. It is the most comprehensive inside information I have found. Knowing how it works from the other side will allow me the advantage of validating what I can offer a company, and why they need to pay me what I am asking for. Thanks!!

  2. 2. Nikolas Tries [ February 12, 2013 @ 07:20AM ]

    My Principle is consinering a payplan that pays out a percentage based on dollar per car. So 1000 PVR 10%. 1200 PVR 12%.

    I believe this is a recipe for disaster. Thoughts???

  3. 3. Jake Ryan [ October 04, 2013 @ 09:51AM ]

    The dealership has offered a base salary of 42k a year plus 48k when I become a notary and .75 percent of the dealerships gross profit each month. Is that good?

  4. 4. Moss [ October 06, 2013 @ 12:13PM ]

    Any good F&I Manager should get at least 16% of what they produce. if not look elsewhere.

  5. 5. Grant Tomlinson [ March 18, 2014 @ 01:16PM ]

    Moss is right. 15% or higher or a product based pay plan is the way to go. I am paid on product penetration percentages and PVR avg. with many other bonus that involve competition. Last month ran 40 deals and made over $9k that month. I am all about my pay plan because you can show great prices to your customer if reserve is there.

  6. 6. CarDog [ October 01, 2014 @ 03:42PM ]

    Percentage based on PVC and product penetration is key. Good rule of thumb is say 1500 over at 2 products per deal pays 15% at 2.5 products 16.5% at 2.75 pays 18% this type of plan encourages high product penetration and rewards a top producer very well say 75 deals at 1500 and 2.5 ppd pays around 18 before chargebacka

  7. 7. Corey [ February 10, 2015 @ 01:36PM ]

    I just started at a used dealership that has mostly cash deals. I get paid on service contract penetration up to 35% of total profit. Might sound good but most deals like I said are cash and at most after running some numbers I would be lucky to hit $20,000 in a month which means at most in this magical perfect world I would make 7 grand that month. Any thoughts?

  8. 8. charles mitchell [ May 23, 2016 @ 06:14AM ]

    what about special finance deals subprime. what is a good pay plan for special finance managers.

  9. 9. Rob Cameron [ July 28, 2016 @ 12:38PM ]

    what about special finance deals subprime. what is a good pay plan for special finance managers.


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