What does buying a car, house, dishwasher, television, and insurance policy have in common?

Give up?

Commissions…

There is a very good chance that the salesperson who sold you one of these things made a commission from the sale. Commissions are commonly a small percentage of the total sale or a larger percentage of what you pay over the sellers’ cost of the item.

The bottom line is that when you pay more, the salesperson makes more money.

Now I want to describe how Carsala makes their commission. I can’t find anything on the internet like Carsala, so I am going to call it a “reverse commission” and have high hopes that Webster picks up the term some day. In a reverse commission, Carsala makes a better commission when you spend less. If you’re confused like 95% of my friends when I say this, then keep reading.

Start by thinking about how a typical car salesperson makes money. Imagine that you bought a car for $20,000. If the dealer bought the car for $18,000, then the salesperson just made a $2,000 commission from the sale ($20,000-$18,000). If you spend $21,000, then the salesperson made $3,000. When you spend more, the salesperson makes more money. There are even more ways car salespeople make money from you, but that’s for a future blog.

With a reverse commission, Carsala takes a percentage of the savings you get off Blue Book. In Scenario 1 below, the Blue Book is $20,000 and Carsala has negotiated a price of $16,000. The commission is $600 (15% of $4,000). In Scenario 2, the Blue Book is still $20,000 but the negotiated price is $14,000. The commission is $900 (15% of $6,000), which is greater than $600 because Carsala saved you more money. Consider this: it is in Carsala’s best interests to help you save more money because when you save, Carsala’s commission is better. Lucky for us that Carsala’s actual performance as a result of analyzing car listings and using their negotiation tactics results in savings that are closer to Scenario 2!

For fun, let’s imagine what would happen if other industries used reverse commissions.

• Realtors might spend a lot more time finding hidden gem houses instead of asking to you to bid up a house price to make sure you have the winning bid.
• Insurance sales people would really try to only sell you the policy you need instead of a policy loaded with a bunch of features you will never use.
• That television salesperson might convince you to buy a 20 inch TV instead of a 60 inch TV so you will stop watching four hours of TV each day.

What a different world we would live in!