Dale - finished your book in one weekend, and I enjoyed it very much. Any thoughts (I am sure you do!) from you and the readers on what an optimal commission structure would look like at stores with high velocity? It looks like typical % payouts would not be as effective as it really caters to dreaming about the 4k grosses - and not a grabbing what the market value brings with a quick moving inventory. Seems like volume ought to be a primary determinate of pay - with obvious spiffs for desired focus for the day/weekend, etc.
Dave
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Dave,
Thank you for your question. You are quite right. The new market calls for a new approach to variable compensation. The enlightened dealership understands that it is all about total gross rather than average unit gross. I’m not saying that you shouldn’t expect healthy average grosses, but they’re going to be derived by high velocity turn rather than people paying more than they need to. The bottom line is he/she who has the freshest vehicle, purchased right, can sell for less than the guy down the street with an old unit.
This means that variable compensation program should be based on unit volume rather than gross. There is also clear justification for bonuses based on the types of things you referenced in your question.
This last weekend, I was fishing with a very successful dealer buddy and we were talking about his compensation program. He pays his sales people a flat salary between $1,800 and $2,300 per month based on the average unit volume over the last rolling 12 months or 90 days, whichever is better. He then pays approximately $200 per unit up to 7 units, and then an additional $100 per unit 8 and up. He also pays an extra bonus for selling a repeat customer and/or aged units. He also told me that his total variable comp comes in at 28%.
I really appreciate your question and would like to hear from others with their plans and opinions.
-Dale
Dave,
Management should not let the sales force influence it’s pricing because the sales force wants it all. They want the phone to ring, floor traffic and no prices on anything (can ya blame ‘em?).
When sales traffic is low, reps starve and yearn for the phone to ring. Management sweats and deploys spiffs, yet, traffic remains unchanged.
Then, Management then moves to markdowns and mysteriously… traffic improves. This leaves our already starving rep with a sale and an ultra-slim commission.
Management needs to script a marketing and aging plan that looks at all the variables then execute the plan using vAuto’s “mark to market” tools.
Management needs to keep that inventory turning to keep your inventory fresh so that phone keeps ringing. And… that my friend is how you shred the competition and put dinner on the table.
Joe
Dave,
I agree with Joe….but tend to have a softer approach. It is absolutely managements function to control our used vehicle inventory. Proper market pricing keeps the phones ringing and that keeps salespeople busy. The culture change comes in adopting a philosophy that used vehicles are as close to “one price” selling as possible. If you don’t make a habit of discounting cars based on how you own them your salespeople will make more money on the fresh units and you can still have a great inventory turn. One quick pay change we made recently is to move our minimum commision structure to reward 60 day plus units instead of 100 day old units. This helps lessen the blow for salespeople and sets new expectations of what an aged vehicle is. I look forward to moving that mark to 45 days by September. Hope this helps.
Aging inventory is a problem that management needs to police.
PROBLEM: When creating an sales incentive plan to solve an AGE problem, I don’t want reps dwelling on AGE as a basis for the sale. This is a marketing and merchandising need that should ride right along side of the AGEING problem.
Any examples on “how to hide the obvious” out here? Merchandising ideas like Managers Red Tags, Re-detailing and Relocating into HotSpot retailing area, special web page, etc…
thnx,
Joe
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