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The Compensation Challenge

There is a science to compensation — learn it.

A primary dealership management challenge is to create a work environment which attracts and retains highly skilled employees, and great compensation plans can help.

The following are some of my preferences and biases regarding dealership compensation. As you read, try to avoid inserting figures and percentages. Instead, try to absorb the concept and be willing to think about it a bit more. This is less about changing how you pay and more about how you develop an effective sales culture in a dealership. Often, when you do this you’ll create a way for these concepts to work for you.

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Performance Based Selling

Let’s start with motorcycle sales people in block number one. In this example motorcycle sales people would be paid a percentage of the gross profit of the motorcycle sale. That’s the selling price minus the wholesale cost of the bike. Simple is best. In this example there are no considerations for freight and set up, holdback or advertising pack.

The table below represents an example of a synergistic compensation concept. Synergy means working together to create greater results. Synergistic compensation is our term for creating pay plans which facilitate those ends.

Compensation Strategies and Tactics


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What I like about this approach versus other methods (e.g., hourly wages or flat-fee compensation where a salesperson earns a predetermined fee for a motorcycle sale) is that sales people will work harder to hold margin during the sale. Why? Because the money they give away is their own.

This method is also good for the brand because holding price as much as possible during a recession contributes to customers’ positive impression of a product or service. It’s good for the store because you have higher profit margins. It’s good for the salesperson because they will earn higher commission, and, ultimately, it’s good for the customer by protecting the resale value of the vehicle. Also, when the store makes a profit that means they’ll be in business to service the customer later on.

In salesperson block number two we see salespeople being compensated a percentage (albeit smaller) of finance and insurance gross profit. Why would we compensate the motorcycle salesperson on F&I gross profit? Because the motorcycle salesperson plays a significant role in your dealership’s finance and insurance success. Here’s how:

  • Salespeople need to effectively handle inquires about rates and monthly payments
  • Salespeople need to surface the need (not sell) for back-end protections
  • They need to ferret out a payment method
  • They need to do effective pre-turnovers to the business manager
  • They need to do effective turnovers to the business manager

 

All of this is facilitated much more effectively by incentivizing them, even in a small way, on the effective result of the F&I exchange.

You’ll notice in the above sales line we don’t compensate the salepeople for selling accessories or gear. I’ve had people almost come to fisticuffs with me over this point, but here’s my take:

Simply, I’ve got professionals selling accessories and gear. There is little chance your motorcycle salespeople are going to be experts in your bikes and your competitor bikes and be an expert in performance upgrades, exhaust systems, billet aluminum, the Snell helmet rating system, drum-dyed leather and welt-constructed boots.

So, it’s a bit of a disservice to the customer to not get them the very best guidance available. Last, but perhaps most important, unless your dealership is sold out of motorcycles, there are bikes to be sold.

Now let’s look at boxes three and four for your accessories and gear salespeople, respectively. Here you’ll notice that we altered the compensation percentage from gross margin to the retail selling price. Why? It’s typically too hard to get to gross margin in these areas. There are literally thousands of line items and here it’s just easier. So it’s really the same concept as above, just a smaller number.

The business manager line (F&I) on the matrix is interesting and is sure to cause discussion. In box five we see the business manager being paid a small percentage of the gross margin of the motorcycle sale. Why? This is what helps create the synergy between departments.

There are times when the business manager is going to have to work incredibly hard to get the deal done with, perhaps, very limited upside from his perspective (sub-prime customers, unconvertible cash or credit union deals, dealer paid promotions), and we want to keep him in the game. Of course, business managers will earn the majority of their commission from a percentage of the gross margin of the business office (box six).

On the service line in box seven you can see we’ve included a spiff for the service manager or service writer who aids in the selling of extended service plans or pre-paid maintenance offers. Here’s where things can get a bit ambiguous, but I think the idea of folding service into the overall schemes is important enough to wrestle with the dilemma.

Your service department service plan, maintenance plan or SPIF (sales performance incentive fund) can occur as a result of any or all of the following:

  • The service person is introduced to the customer prior to meeting with the business manager. During this time, in addition to introducing the service department, they also review the importance of a service and maintenance plan.
  • The service department should have a running list of recent bike sales and customers who have not yet purchased your extended service or pre-paid maintenance offer. Then, when these customers come in for service, either the service person makes the attempt to sell, or they bring the customer back to the business office for another attempt.
  • The service department helps with the after-the-fact follow up letters and or phone calls about the programs not yet purchased.

 

When service does succeed in selling, it’s important to reward this behavior in a dramatic fashion. Invite them to the sales meeting, pay them in cash, make it an event. You’ll want to set expectations as clearly as possible to avoid interdepartmental misunderstandings, but the struggle to do so is well worth it in terms of getting the entire dealership in "selling" mode. When a dealership has this sort of framework when a customer buys a motorcycle, the store vibrates with excitement because everyone has a role and they are all positioned to work together.

For more on Peak Prospect Attraction go to
www.PeakDealershipPerformance.com
and watch the quick video overview.

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