Category Archives: Compensation Plans

Pay Plans: Back to the Drawing Board?

Are you an Internet Manager, an Internet Sales Director, an eCommerce Director, an Internet Sales Consultant, a Vice President of Marketing? I think this speaks to all of us, but let’s forget about our positions and corporate structures for a moment. Some of you may already have your 2008 pay plan and some might not, but that doesn’t matter right now. Let’s talk about what we think is right and fair. What is fair to you and the person paying you.

I was reading the "Myth of the Dealer Web Site Conversion Ratio" article, by Mitch Turck, and started thinking deeper about Mitch and Joe Pistell ‘s rebuttals to cross-comparing site conversion ratios between industries. When Mitch posted some actions a customer might take after visiting a dealer website (call an untrackable local phone number, visit the store, etc.) it made me think: he’s right and how silly is that! We don’t give credit to some online ventures that are doing exactly what they’re supposed to do – mainly our own website. We do this because it isn’t easily track-able. Of course, we did this to the traditional medias as well, but keep reading….

If your paycheck is directly tied to what can be proved as a clear and concise contact history inside a CRM, is this fair to you? Did you send your customer an email, or a series of emails, with value proposals? Did you leave a voice-mail saying something about the latest deal on the lot? Did that customer ask for you when he or she walked in the door, but an old "Earl" salesperson gave the customer a reason why he or she should deal with him instead? Did Earl say the customer was a "drive by"? These scenarios are also untackable. I wonder if we’re paying our Internet personnel on the wrong principles?

In that same "Myth" article, T.J. posted some advice for Joe on three methods that have helped him boost Internet sales (Instant Chat, Online Coupons, and a trade appraisal). T.J. – please don’t take offense to this, I could be on the totally wrong track here, and we’ve all done it ourselves. This got me thinking about how we are putting our customers through hoops because our pay plans are structured toward "Internet sales". It has been my experience that customers can’t stand trade appraisals – it creates a confrontational environment before they even show up. Online Coupons are an annoying pop-up and most intelligent customers know they could have negotiated that amount off anyway, so all it does is knock another couple hundred dollars off every deal. However, I am a fan of instant chats! Anyway, our pay plans are driven to create more conversion so we have more customers to talk to. They drive us to take advantage of ventures that may upset the customer or not be in the dealer’s best interest because we’re working a pay plan.

Working a pay plan is good if you’re in a traditional position, and can be if you’re in an eCommerce position as well, but I’m not sure we’ve structured these things in everyone’s best interest yet. My point is, we are in positions to influence online advertising ventures for the dealer. The dealer has based our pay plans on track-able "Internet sales". What advertising ventures are we influencing? Are these ventures fair to the dealer? Is your pay plan structure fair to you?
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Written by Alex Snyder. Director of eCommerce at the Checkered Flag Auto Group.

Pay Plans: Back to the Drawing Board?

Are you an Internet Manager, an Internet Sales Director, an eCommerce Director, an Internet Sales Consultant, a Vice President of Marketing? I think this speaks to all of us, but let’s forget about our positions and corporate structures for a moment. Some of you may already have your 2008 pay plan and some might not, but that doesn’t matter right now. Let’s talk about what we think is right and fair. What is fair to you and the person paying you.

I was reading the "Myth of the Dealer Web Site Conversion Ratio" article, by Mitch Turck, ([url:2jz9clra]http://www.salesmeeting.org/forum/viewtopic.php?f=34&t=970[/url:2jz9clra]) and started thinking deeper about Mitch and Joe Pistell ‘s rebuttals to cross-comparing site conversion ratios between industries. When Mitch posted some actions a customer might take after visiting a dealer website (call an untrackable local phone number, visit the store, etc.) it made me think: he’s right and how silly is that! We don’t give credit to some online ventures that are doing exactly what they’re supposed to do – mainly our own website. We do this because it isn’t easily track-able. Of course, we did this to the traditional medias as well, but keep reading….

If your paycheck is directly tied to what can be proved as a clear and concise contact history inside a CRM, is this fair to you? Did you send your customer an email, or a series of emails, with value proposals? Did you leave a voice-mail saying something about the latest deal on the lot? Did that customer ask for you when he or she walked in the door, but an old "Earl" salesperson gave the customer a reason why he or she should deal with him instead? Did Earl say the customer was a "drive by"? These scenarios are also untackable. I wonder if we’re paying our Internet personnel on the wrong principles?

In that same "Myth" article, T.J. posted some advice for Joe on three methods that have helped him boost Internet sales (Instant Chat, Online Coupons, and a trade appraisal). T.J. – please don’t take offense to this, I could be on the totally wrong track here, and we’ve all done it ourselves. This got me thinking about how we are putting our customers through hoops because our pay plans are structured toward "Internet sales". It has been my experience that customers can’t stand trade appraisals – it creates a confrontational environment before they even show up. Online Coupons are an annoying pop-up and most intelligent customers know they could have negotiated that amount off anyway, so all it does is knock another couple hundred dollars off every deal. However, I am a fan of instant chats! Anyway, our pay plans are driven to create more conversion so we have more customers to talk to. They drive us to take advantage of ventures that may upset the customer or not be in the dealer’s best interest because we’re working a pay plan.

Working a pay plan is good if you’re in a traditional position, and can be if you’re in an eCommerce position as well, but I’m not sure we’ve structured these things in everyone’s best interest yet. My point is, we are in positions to influence online advertising ventures for the dealer. The dealer has based our pay plans on track-able "Internet sales". What advertising ventures are we influencing? Are these ventures fair to the dealer? Is your pay plan structure fair to you?
____________________________________________________________________________________________________

Written by Alex Snyder
Director of eCommerce
Checkered Flag Auto Group.

Working Your Pay Plan by Increasing Your Dealer’s ROI

Working Your Pay Plan by Increasing Your Dealer’s ROI on the Internet

Having invested almost thirty years in the retail automotive industry, from salesperson to General Manager to Dealer Principal – I have matured my role as a consultant on automotive advertising – specifically focusing on the internet, related technologies and processes.

I have attended and conducted many seminars in my search for best practices where I have “borrowed” some of the best ideas I ever had. My responsibility is to recognize the ones that will work in my situation and dismiss those that won’t. Easier said than done – but that’s what they pay us the big bucks for!

This article will provide insight into real world problems and solutions that are universal but since the devil is in the details I will leave that part to you.

Not all of the situations I discuss will apply to you so listen to the ones that do and make note of the others for future reference in case they surface in some other form. I will cover common issues that are part of human nature. After all, the key to success in the car business is in the people – not in the franchise or facility – so most problems start and finish with “people.”

The Internet Department – From The Dealer’s Perspective

As a former new car dealer and current consultant on dealer operations, automotive advertising and marketing I am constantly amazed by the disconnect between dealers and their key personnel. I liken the miscommunication of their common goals – to sell more cars/service and make more money – to that of a long marriage. Courting equates to the interview and the first few months are like an extended honeymoon. Once the excitement wears off it is a lot of work to remember why you got married in the first place; but worth the effort!

Dealers are people too! They often indulge their emotions in the hiring process based on the fact that they need you more than you need them! Great interviews get you the job with the dealer’s hope and desire to solve a problem – not make a friend. Their business needs eventually outweigh their emotions and words like “bottom line profits” and “accountability” and the latest buzz words “Verifiable R.O.I.” take over. Auto dealers should always have “Job Descriptions” and “Areas of Responsibility” along with supported “Compensation Plans” based on individual and department “Guidelines and Objectives.” How many of you have those today, let alone during the interview process?

Today’s market losses have forced auto dealers to make difficult decisions that should have been made before your position was even considered. The survival of the fittest must apply! It’s a dirty job but someone has to do it and the Dealer must base his decisions on performance and individually contributed profits or we will all suffer the consequences!

Re-defining your role at the Dealership – C.C.C. vs. B.D.C.

The A, B, C’s of the car business – “Always Be Closing” – go beyond the showroom floor and apply to you as well as your staff and customers. The key to the close, however, is to know the answer before you ask the question – or at least provide a limited response that you can control!

Based on your new found knowledge and understanding of the dealer’s requirements of you and your department I suggest that you ask the hard questions before he does! The more you and your department are involved in the selling process in both vehicle sales and fixed operations the more productive and profitable you will be. The more accountable and verifiable your R.O.I. to the dealer the more secure your income and your job. Sell yourself and your department to your dealer with the leverage of proven performance in a clearly defined position on the team beyond what most dealers envisioned from their Internet Department and be paid accordingly.

I propose that you literally have the tail wag the dog, so to speak, by having the Internet Department become more than a lead generator with limited selling responsibilities. All communications, before, during and after the sale can, should and soon will be handled over the internet and/or on the dealership’s website which is already part of your “area of responsibility.”

Currently, Business Development Centers, or “B.D.C’s.”, coordinate selling opportunities developed on the telephone, showroom floor, service drive, data base marketing and in many cases the Internet. They rely on linked technology like telephony systems, vendors, such as Whos Calling, and onsite data base management systems, “DMS”, such as Reynolds and Reynolds and customer retention management systems, “CRM”, like Higher Gear, that are all now available on the internet. Who is better prepared to coordinate communications and even transactions on the Internet than the Internet Manager? Who has the best understanding of computers, software and integrated links to access and apply information? It better be you!

Customer Communication Centers, or “C.C.C’s.” provide a more integrated and accessible central point of contact at the dealership for your customers. All customer contacts for sales, service/parts and office should be channeled to one location from all sources including telephone, email, mail, internal DMS and CRM, Internet – you name it! The cross-sell opportunities between sales and service/parts by having one contact person suggesting shared opportunities is obvious but unlikely if they are handled by two different people or departments! Less obvious opportunities like customer complaints and key vendor communications provide the ability to turn a problem into a solution but only if channeled properly.

The Internet is hosting telephone, DMS and communications through webinars and emails so take charge and credit with the dealer. Re-define your role at the dealership by increasing your areas of responsibility!

Integrating the Internet into the selling process-Sales and Fixed Ops.

Most auto dealers have been traumatized by software solutions they are still paying for and never used. Usually they require secondary input, are redundant with other more integrated systems to the selling process or just lack real world applications to their deal flow – which is driven by human nature on all levels. “Inspect what you expect” coupled with standards like “you can’t manage what you can’t measure” can be applied to support your “close” for enhanced opportunities for you, your staff and your dealer.

The following areas of responsibility cross over department boundaries and place your “Internet C.C.C.” squarely in the middle of all selling processes. Of course be careful what you ask for since an astute dealer will, and should, hold you accountable. No pain, no gain – so go for it!

As admitted, the “devil is in the details”, and there is no standard application to apply to all situations. Deciding “what to do and what to delegate”, and how to best integrate with your current systems to minimize disruption, is the key. Don’t throw out the baby with the bath water but expecting different results from the same action is a good definition of insanity.

INTERNET C.C.C. MANAGER – AREAS OF RESPONSIBILTY:

1) OUT-BOUND PHONE CALLS / CONTACTS – Sales & showroom follow up: It is the job of the CCC to determine why they didn’t buy and what will get them back in.

Service and Parts – open and closed R.O.’s and Counter Tickets will be followed up daily to solicit the sale, generate referrals and to improve customer satisfaction, (CSI, SSI, FFV etc.)

2) IN-BOUND PHONE CALLS / CONTACTS – Sales Calls: A CCC coordinator will answer all calls for sales and obtain: a phone number, a name and an appointment.

Service and Parts: All special sales and marketing material will use an 800 monitored number which will be answered by a coordinator to set appointments for all departments.

3) INTERNET SALES: Each lead will be answered within 15 minutes and called within 30 minutes, if applicable.

An Internet lead will be given THREE prices on initial response, not Auto responder.
1) A price on what they want, 2) A price on something similar with a little less equipment and 3) On a used similar vehicle.

An Internet vehicle sales lead will be followed up in a specific sequence of emails and phone calls for a period of 90 days (or until they buy, die or say to stop bothering them)

A service appointment or parts order will be either automated on line or replied to within 15 minutes, applied to integrated appointment setting software and/or forwarded to a qualified service/parts writer.

4) LEASE RETENTION: 6 months before the lease termination, the customer will get a letter, followed by a phone call. The purpose of this letter is to inform the person about what is about to transpire, to let the customer know that the bank will try to sell them their vehicle and also about the pre-termination inspection about to come.
Continued, Internet C.C.C. Manager Areas of Responsibility – LEASE RETENTION:

At 4 1/2 months, the customer will get a pre-termination inspection package, including a date for the pre-termination inspection. This will be followed up with a confirmation email and phone call. There is also a confirmation email and phone call the day before the appointment and a visit outcome email and phone call after the visit.

5) GALLEY LISTS: A specific letter and email from the dealership sent to the list followed by a scripted phone call inviting the recipient to the dealership. Expected rate of return: without the follow up phone call .5-1.5% – with the phone call, 5-10%

6) THREE YEAR RETAIL PURCHASE letters followed up by an email and phone call

7) LETTERS – SALES AND SERVICE: Sold and unsold opportunities as developed through the use of the CRM system will be done on a daily basis. Three year cycle touch points: quarterly letters/emails for referrals, first service reminders, birthday and holiday greetings, blast email special events, 11 month time for inspection notifications, follow up call list for parts manager asking if the customer wants to enhance their purchase, etc, etc.

8) INTERNET CLUB EMAILS AND SPECIAL PROMOTIONS

9) BUSINESS LINK: Business to Business Club and all available programs will be utilized.

10) CUSTOMER SATISFACTION: Follow up calls for sales and service/parts to sold, un-sold, open R.O.’s and closed tickets are a natural source for new business and will be called daily to solicit sales, referrals and improved customer satisfaction and customer retention.

GOALS: 4-5 generated appointments per day per person; selling one. This represents 120 + appointments each month, 80 +/- that show up and an additional 20 units per person per month based on a 25% closing ratio.

The sales staff and service writers hate you – JOIN THE TEAM!

The Internet “Geek” of the old days has matured into a key manager in most dealerships and the trend is growing! You can’t possibly expect to cross train on all aspects of operations – but you should try! Evaluate the current communications, customer and deal flow and create a business pro forma in concert with the other department managers to develop a profit and increased R.O.I. for all involved and you will earn your position on the team.

Inter-department squabbles in the car business will always exist but your new job – if introduced correctly – will transcend individual motives to resist your efforts to improve everyone’s bottom line. Taking on the burden of making appointments and providing centralized communications – both internally and externally to the dealership – will free everyone else up to sell more cars, service and parts!

Real time “paperless” reports available online – or in the DMS/CRM – will provide the department managers with the information and tools they need to do their jobs. Your complimentary “secretarial” services, automated and managed follow up systems to recapture lost sales opportunities coupled with your pay plan based on increased appointments, sales and customer satisfaction is not a threat but a blessing!

Establishing goals, accountability – getting paid on the bottom line

Most Internet Managers are involved in search engine optimization plans, “S.E.O.”, and search engine marketing plans, “SEM”, with applications on their website that track leads, conversions and R.O.I. – or they should be! Your goal should start with continuing your efforts to increase traffic to your website rather than the telephone. It represents the most sophisticated tracking software available; now and for the foreseeable future. Your ability to track results is where your “accountability” part gets covered!

Sales goals theoretically start with the dealer’s market share responsibility for the manufacturer, “M.S.R.”, but fixed and semi-variable expenses quickly establish more pressing goals. “Covering the Nut” is a street level goal which must be met or none of the others matter. Have the dealer provide you with what he expects – or needs – and THAT IS YOUR GOAL!

Include areas that you can directly impact and monitor like new and used vehicle sales – units and gross profit, sales and service appointments, customer satisfaction scores and all monthly sales or performance goals. Define the areas of responsibility that you will handle and decide on which ones you will delegate. Compute the budget, staff and facility you will need, online and in concert with your conventional advertising and community networking proposals, to develop the traffic required to achieve the sales and performance goals the dealer has established.

Use industry guidelines as far as closing ratios and conversion ratios specific to your franchise, size of market, staff, inventory and facility to “back into” your sales vs traffic needs. Have your Advertising Agency provide you with local media statistics, like cost per point, “C.P.P.”, to determine the most cost effective media to dominate within your budget AND DOMINATE IT.

On broadcast, for example, a 5 plus frequency and a 50% reach coupled with consistent and coordinated dealer specific “brand-tail” messages, (branding and retail), over a ninety day period with creative directed to your web site as well as a monitored 800 number will ABSOLUTELY DRIVE TRAFFIC.

Of course expenses must be considered based on line item percentage guidelines vs. other expenses to preserve profits. Another common budget tool is to establish a “per unit” cap based on experienced expenses per unit which range from $250-$500 per car but it can double in certain markets.

Pick a basis for your budget, any basis, AND STICK WITH IT!

Monitor shifts within budget based on results and R.O.I. per investment but never increase the budget without a proper risk to reward consideration and an acceptable projected R.O.I. The days of guessing are over; so be right!

Do all of the above, design a pay plan tied to specific performance under your control and you will have deserved a bonus tied to the total dealership bottom line because you have contributed to it. After that ——– WORK YOUR PAY PLAN!
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Written by: Philip Zelinger, Automotive Advertising Consultant,
President – Ad Agency Online, LLC

ISM Compensation Plans – The Right Formula to Maximize Sale

Compensation plans for Internet sales professionals vary widely, but everyone agrees, it’s worth your time and effort to find the perfect model for your dealership. The key is structuring a pay plan that motivates high performers, provides them with a lot of upside, plus, a reason to stick around. And, of course, all this has to benefit your dealership’s bottom line. In preparation for this article, we surveyed our readers last month about their own comp plans. While pay structures varied, survey results showed that most ISMs get a combination of base salary plus commission. We also interviewed some leading dealers and consultants to see how they structure the pay plans for their Internet departments. We got some great feedback that’s worth considering for your own dealership.

Here Are Some Recommendations from the Experts:

Ryan Hanlon, Internet Director
Formerly with Miller Honda of Van Nuys, CA

To begin, Hanlon says, salespeople should be able to sell a minimum number of units per month. When he was at Miller, that number was 15. In addition, he recommends a minimum monthly gross on all sales, for instance $25,000. Compensation should also be partially based on CSI scores. Hanlon required a minimum of 94%+ for Honda dealers. After minimums are met, Hanlon recommends structuring compensation plans as follows: 25% commission on the front; 3% on the back; as well as commission on total monthly gross – front and back. He recommends a bonus plan such as the following:

$20K Gross = $500 Bonus
$30K Gross = $1,000 Bonus
$35K Gross = $1,500 Bonus
$40K Gross = $2,000 Bonus
$45K Gross = $2,500 Bonus
$50K Gross = $3,000 Bonus

For example, a new sales person sells 17 cars in their first month at $33,000 total gross. It’s projected that they’ll make about $6,000 in front, back, and bonus. Hanlon says an average sales person with at least a three-month tenure should make about $60,000-$85,000 a year.

Hanlon claims his pay structure benefits all three areas of a dealership’s business – overall profits, customer satisfaction (the CSI score requirements), and low turnover, which brings stability and profit to the dealership.
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Linda Swiecicki, Internet Sales Manager
Dayton Ford of Dayton, NJ

Swiecicki recommends a comp plan for Internet dealerships where there’s an ISM who handles Internet leads, sending correspondences, setting appointments, etc. but also works with a team of floor sales people to close the sale. Swiecicki recommends a base salary + a set dollar amount bonus per car sold, based on productivity.

For example:

Base salary + 1-19 cars/month sold @ $35 per car
Base salary + 20-29 cars/month sold @ $40 per car
Base salary + 30-39 cars/month sold @ $45 per car

In this case, the salary can be paid weekly, and the per-car bonus paid the following month, on a monthly basis. Weekly salaries at Dayton for Internet sales/appointment setters usually start at $300/week, but can range from $300-$700/week depending on experience.

In cases where ISMs and floor sales people close a deal together, she recommends a split commission structure; while in situations where the ISM works the lead from start to finish, she recommends the full base salary + commission on number of cars sold.
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Scott Jenkins, Internet Sales Manager
Independence Lincoln Mercury Mazda of Independence, MO

Jenkins’ compensation plan at Independence is straightforward and comes close to standard in the industry. Independence pays a $2,000 base for the month + 30% commission on the front end and 1.75% on the back. ISMs are also paid a bonus for gross – $100-$150 on $1,000 gross for new; and 27% commission on used, with a $100 bonus on $2,000 gross.
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Donald Skarzenski, Internet Director
Formerly with Bossier Atkinson Toyota in Bryan, TX

Skarzneksi comes from high tech sales background, but has also worked in a few different dealerships with varying compensation plans. Skarzenski cited a couple of different models that work well, depending on the size and structure of your dealership:

Decreasing Base:

Months 1-2: $7,500 base (for staying two months) + 25% commission on gross
Months 3-4: $5,000 (for staying another two months) + 25%-30% commission on gross
Monthly, thereafter: $2,500 + 25%-30% on gross

Additionally, he recommends 0.5% – 5% of backend gross.

ISMs must sell 20-30 units in their first month, with a goal of growing to 50-60 units. The key, says Skarzenski, is that the compensation model must evolve and continue – there must be a built in incentive for the ISM to stay around, which improves their skill sets and provides more stability for the dealership.

Another model Skarzenksi recommended was a base of $4,000 per month + 1% of the dealership’s entire gross profit. This was similar to his experience working in high tech sales. He says a good ISM should make $8,000-$9,000 per month.

Skarzenski says it’s a mistake for GMs to change a successful ISM’s compensation structure when they start to do well. Too often, he says, really good ISMs make the job look easy and so owners and GMs will put a cap on income potential. The truth is, Skarzenksi says, a great ISM is worth their weight in gold and smart dealerships should make every effort to keep them happy.
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Greg Machado, Automotive Sales Consultant and ISM
Bluebonnet Jeep in New Braunfels, TX

In Machado’s article in the DotComInsider, where he writes a regular column, he shared his own experience with ISM compensation plans.

“Within my dealer group there are two different pay plans. For years I was an advocate of a reasonable base salary and volume bonuses that escalated with increased volume. In fact, I can cite dozens of stores that have incorporated a pay of $1,500-$2,500 base and then pay their ISM a per-unit commission with bonuses at 10, 15, 20, and some massive bonus for the seemingly unreachable 25 and 30 units per month. (I no longer believe this.) The problem with this scenario is that you are now promoting low grosses and if you have any real volume success, your GPC will dramatically decline and you’re F&I people will be looking for a "hit-man" to have your ISM mysteriously disappear.

People that survive solely on a per-unit pay plan alone will find ways to maximize the volume and will begin to find the quickest way to make a deal at the potential demise of your supplemental income streams, namely your F&I. In almost every store I have ever consulted that had this sort of pay plan in place, F&I per-retail took a huge nosedive. Because suddenly Internet customers were showing up with drafts from folks like People First and E Loan.

Why not pay your ISMs like sales people?

I work in a store that pays me a slightly larger minimum than the floor salesperson. Last month I sold 24 units, 3 of my deals were minis (sort of). A flat mini for me is $100 + $75, so let’s call it $175. I also make:

$30.00 when financing with one of our captive lenders
$20.00 if F&I sells an alarm
$20.00 for a service contract
$15.00 for Gap
$20.00 if our aftermarket sells a seals package
$10.00 for A&H

All of our staff is rewarded for keeping the financing here at home. This will usually result in much larger GPF deals. So, potentially, a full boat mini could pay me $290. On those rare occasions that I am paid a mini, I normally make about $240. Typically, I do much better than that because I can almost always hold on the trade. According to our documentation, I’m holding an average of $850 on my trades, of which I’m paid 25% after pack, up to a $1,000 commissionable gross. Above $1,000 gross, we are paid 33% commission.

My normal commission works out to be about $393/unit. Last year, I averaged 22.31 units per month. 21.31 X $383.00 = $8,768.

Then, my volume bonuses work like this:

10 Deliveries ….$250
14 Deliveries ….$300
18 Deliveries ….$350
21 Deliveries ….$450
25 Deliveries ….$600
30 Deliveries ….$1,000

Last year, I produced over 30 units, four times.

We also have a number of Fast Start Bonuses that change from month to month, where I can earn an additional $800 – $2,000 in income.

A commission structure like this can be extremely beneficial to the store’s bottom line and can keep your ISMs happy, content, and never looking other jobs. It breaks my heart to see a good ISM get promoted to SM or F&I. If we would just let them develop and improve, everyone could make so much more money. If you’re wondering why the math doesn’t quite work out it is because I split 6-8 deals a month. I will not wait on more than one guest at a time. Perhaps that’s why I have a 99.67 SSI. Often, I have to give away half my deals, so in actuality, my average should be closer to 26.25/month.

I suggest you pay your Internet sales people like the sales pros that they are, then stand back and watch the improvement."

Greg Machado can be reached at 888.384.8641 or on the Web at http://www.gMACgroup.com.
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Written by Kristen M. Stanton

ISM Pay Plans

Today, the Internet Sales Manager is one of the most important and emerging positions in your dealership. Here is some direction to creating a pay plan that will fairly compensate an ISM and insure the success of your dealership’s web efforts.

1. The pay plan should focus the ISM on their responsibilities:

The objective of your pay plan is to align your employees’ job with your dealership objectives, so the employee is compensated for achieving what the store needs in way that generates fair pay in your market. Thus, the very first step to creating your pay plan is to review your written job description to see the expectations you are asking the ISM to meet. If you, like most people, do not have a written job description then your fist step is to create one. Here are the most popular “Roles” ISMs have in dealerships.

Various ISM roles:

Sales ISM: This ISM is directly responsible to take customers through your process and deliver units. They are similar to a floor sales person, but rather than take ups they work with Internet leads.

Manager ISM: Similar to sales ISM except in this scenario the store has grown beyond a one man Internet department and has added a team of “Sales ISMs.” The Manager ISM is given the responsibility to lead the crew. This person may also desk deals for their team.

Director ISM: In this position the ISM branches out to manage multi rooftops in a dealer group or to oversee multiple dealership departments, such as the web efforts for parts and service.

BDC ISM: Business Development Centers typically handles the leads, make the calls and sets appointments for the sales team. The BDC typically does not walk the customer through the sales process and close the deal, but is usually responsible to achieve specific metrics for lead response, appointment setting and revenue generated from their appointments.

Marketing ISM: This type of ISM manages the website, the lead purchasing, the SEM and SEO efforts, email marketing, data base segmentation, publishes the online vehicle data, does the social media marketing and handles the vendor relations.

2. Use various pay structures to align with your ISMs Role:

Not all methods of compensation were created equal. Every employee deserves to know how their success will be measured and the range of unacceptable, acceptable and outstanding metrics they will be judged by. This improves the leaders ability to manage and provides your employee with a roadmap to success. Different compensation methods will better align with the most important metrics that you will use to measure success. Such as:

Commissions – the most standard pay method can be based off of gross or volume generated. Commissions should be a part of the pay plan for all ISMs responsible to deliver units and revenue. Be carful thought, the pay plan should rarely be 100% commission based.

Activity pay – For those ISMs who dont focus on selling cars themselves, but rather are responsible for the activities that lead to the sales process, should be paid on those activities. The most common “activity pay” in the market is paying for appointments showed or leads generated. Activity pay is usually best suited for Marketing and BDC type ISMs that control specific metrics that lead to the sale, but in the end pass the customer off to a sales team.

Salary or Base pay, since the ISM’s job, particularly when they are a director, marketing or BDC type role, is very fluid and changing daily, a base pay of some sort is good to cover all the little things these roles do that do not directly result in a measured activity or a sale. Often times the base is simply a base guarantee, or a minimum monthly total guaranteed to the employee.

3. Putting it all together and finding balance in “Role” and “Pay.”

Look at your written job description and decide realistically how much time and focus should be given towards each objective, back this into the value your market places on this role. For example, if your role is 100% to sell cars to Internet leads, than a 100% commission structure should be fine.

However, most ISM roles are a hybrid of roles. For example, 20% lead generation, 20% site management/vendor relations and 60% sales. In this situation your ISM role should receive 20% of their pay in SALARY to cover their misc management, 20% of their check in ACTIVITY PAY for the leads they generate and 60% of their pay in COMMISSIONS from to the deals they close. All totaled, with average results, they should earn average pay for your market. If they under perform the commissions will naturally lower their pay and when they over perform the compensation will likely naturally rise. This same theory can match any pay plan to any ISM job description. Just simply outline what percent of their job should be focused on what activities and match the pay plan accordingly.

4. A couple tips:

Increase performance through EOM reporting.
At the end of each month you do not want to just hand your ISM a check, especially if their pay comes from multiple roles. Rather, break out the performance of each pay type and let them see how much was salary, how much was commissions and how much was “Activity Pay”. To go the extra mile, off to the right of their totals, display what the pay would have been had they hit their goals. If they over achieved, they will know it and receive the proper recognition. If they underperformed they will have a clear depiction of where, and can see exactly what to focus on next month to improve their performance and thus their pay.

Where do I bill the ISM on my statement?
Another pitfall is many dealers feel their percentages of pay on their financial statement will not support a properly paid ISM. However, usually they are lumping the entire pay into one account and then complain that the account is over the “20 group” guideline and needs to be cut back.

Depending on the ISM role, it is usually best to split their pay up into multiple accounts to keep things accurate. For an ISM that is 30% sales, 30% management and 30% marketing, I recommend splitting their pay up into those three accounts to accurately reflect your stores spending. Accurate decision making starts with accurate data. Your ISM plays multiple roles across multiple accounts and often against multiple departments, be sure to account for the job properly.

Keep it simple.
The work should be in creating the pay plan, not in calulating it each month. If your employee needs an oracle database and a super computer to calculate their pay, i guarantee you have an ineffective pay plan when it comes to employee motivation. Simple and trackable is best.

The ISM has a role that is different from your other sales people and from your other department managers; their pay should be structured differently too. It is not best practice to pay the ISM like someone they are not. The best practice is to start with a blank slate, clearly define their responsibilities, the metrics they will be graded on and then to construct a pay plan that meets the dealerships needs while paying a fair wage for your market. Don’t be afraid to break the mold and have active communication with your ISM, in the end everyone will benefit.
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Written by Jaren Hamilton

Pay Plans for the Internet Manager

An Internet manager recently sent me an e-mail that he was quitting. He didn’t understand how he was paid and he told me that he made less than minimum wage last month. Turnover is one of the hardest expenses to quantify on your financial statement, but as a guideline, it costs a dealership three months’ salary in loss of productivity each time you lose an employee. The most successful pay plans use the tri-method to pay employees. Part of the pay is a fixed salary. This helps you keep good people in bad times. Another element is commission. This is a performance reward. The final element is a bonus if the employee reaches your objectives. That’s the most important element of a pay plan. If a pay plan doesn’t get the results that you wanted from that department, then you need to change it.

Creating a pay plan that works is a four-step process starting with determining a low and high salary range. I’ll use my friend, Paul, as an example. I agreed to work with his dealer and come up with a better pay plan and hopefully salvage Paul’s job. Paul wanted to make between $3,500 to $5,000 a month. The next step was to determine what percentage of his pay would be salary, commission and bonus. I asked his dealer to start listing everything he wanted from his Internet manager and put a value between one to 10 on each item with 10 being the highest.

Here are some of the results and I’ve grouped them in the tri-method:

Salary:
Stability (no turnover) 5
Complete paperwork 6
Conforming with regulations 10
Teamwork with the sales department 10
Keeping the web site current 9
Quick responses to e-mails 8

Commissions:
Total Internet gross 8
Total Internet selling gross (gross less commissions, advertising, lead expense) 9
Internet department net profit 5
Total F&I from Internet sales 3
Total aftermarket from Internet sales 3

Bonus:
CSI scores 9
Total units 10
Gross profit average 8
Sales per Internet salesperson 5

When I added this up it came to 41 percent for salary – or about $2,000, 27 percent for commissions and 31 percent for bonuses. His old pay plan had over 80 percent of his income determined by gross profit and F&I income less direct expenses and based on a percentage determined on how many units they hit (a matrix plan). He was quitting because the previous month had high lead costs (that were actually two months’ worth) and low gross profit (due to a special program) and low volume (due to a lack of inventory).

If he had been on a smoother tri-method, those ups and downs would not have affected him so much. In addition, in his position as Internet manager, he complained about having to do clerical work that he wasn’t paid for like updating the web site and managing the other two Internet salespeople. The next step was to take these objectives and come up with a pay plan that was not only easy to calculate, but would let the employee know exactly how much he was making.

Using the percentages above as the budget and the values from the dealer, I completed the final two steps and came up with commissions and bonuses. For example, the dealer didn’t put much value on F&I and aftermarket since he felt that was controlled by the F&I department. I made the percentage of commission on this amount very small (it had been as high as vehicle gross before). The dealer also didn’t think the manager had much control over the department’s net profit, but lots of control over selling gross so he wanted a high reward for keeping Internet advertising, commissions, and lead costs down.

Finally, the dealer wanted the Internet department to put out lots of units to reach other stairstep dealer cash for the dealership, so he set a high bonus for reaching a certain amount of units each month. The rest of the bonus was for the CSI scores and gross profit averages. If you want to see how this came out, just send me an e-mail and I’ll send you the results as it’s too big to print in the space we have allowed. I’ll also be going over this tri-method at my NADA workshop in Orlando, “How to Create a Super Controller.”

A lot of you have created matrix plans over the years and although they are popular, I don’t know many employees that like them and the office hates them since it’s hard to accrue commissions. What is a matrix plan? Here’s an example: “If an Internet manager reaches 10 units, he is paid 25 percent, 15 units pays 30 percent.” The matrix concept makes it hard for the employee to know what he will earn on the current sale. It’s easier for employees to understand and easier for the store to budget its pay expense if the dealership puts objectives into bonuses and keep commissions simple.

Internet managers should try to make their pay plans with the tri-method, which will help prevent good employees from leaving over pay plans. What happened to Paul? He completed his first month on the new plan and reached all the dealer’s objectives, and with the new base salary both he and his mortgage company are happy.
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Sandi Jerome is a former controller, CFO, system administrator, F&I, assistant GM, and fixed operations manager with over 20 years experience in the automotive industry. She is the owner of Sandi Jerome Computer Consulting.

Pay Plans to Keep your ISM Honest

Ever get the feeling that your ISM’s pay plan has you handcuffed as a GM or owner? If you’re paying out on closing ratio, how do you know the ISM isn’t cooking the books… and what’s a 12 percent closing ratio mean to your pocket anyway? If instead you’re paying out on unit volume, you might assume everything’s kosher there because more units for the ISM means more profit for you. But what if your marketing dollars are being poorly spent, and your ISM is only hitting the unit bonus because you’re overspending on advertising?

My favorite pay plan resolves these issues, and also gives the GM a better way to compare successors versus predecessors in the ISM role. It’s based on cost-per-sale, and here’s why it works.

Both closing ratio and generic unit volume metrics are easy to manipulate. What’s more, they’ve become near-opposite statistics due to the typical dealer advertising opportunities online. Buy nothing but third-party new car leads, and you’ll have a ton of opportunity resulting in plenty of volume. Stick with used car classified sites and your dealership web site, and you’ll have fewer sales but a much higher closing ratio. If I were an ISM, I could just move the budget around in these ways to suit my bonus structure.

Another issue with the aforementioned payout structures is that they’re only indicators of performance, not declarations of success. You’re selling cars at a 12 percent closing ratio… is that good? You’re selling 20 units a month… is that good? It’s good if you’re spending $5,000 in marketing to get to 20 units. If you’re spending $15,000, it’s a problem.

Basing the pay plan on cost-per-sale takes care of a lot of this grief, because it’s much closer to an all-encompassing stat. First off, it omits the closing ratio stat because that stat is a highly inaccurate metric. I know two dealers closing at 11 percent right now… one is an all-star, and the other is a joke. It’s all about the kinds of leads you’re working and your proficiency in measuring all your Internet traffic that gets you to those figures.

The second thing cost-per-sale resolves is the question of whether or not your delivered unit volume meshes with your ad expense. After all, that’s exactly what cost-per-sale is: the ratio of sold units to ad expense. Regardless of what your ad budget is for the month, you’ll know that the lower your cost-per-sale was, the better your store performed. This also makes personnel analysis much easier: if your ISM walking out the door was hitting an average cost-per-sale of $400, and the new guy coming in is hitting $300, he’s doing a better job. Doesn’t matter whether you cut his spend by $5,000 or raised it – he’s selling more cars on a dollar of your money than his predecessor was.

The question most dealers would ask at this point is, “what’s a good cost-per-sale?” The specific figure is subjective, but it’s often true that cost-per-sale for Internet units is roughly a third of traditional units. So take your traditional ad budget and divide it by the number of traditional units you typically roll… that’s your traditional cost-per-sale. Then take a third of that and you’ve got a general idea of expected Internet cost-per-sale. You can then set the bonus levels, which of course coincide with more units being delivered. Let’s take an example ad budget of $10,000. If the first level bonus is $350 cost-per-sale (which would mean you delivered 29 units), you might set the next level at $275 per sale (36 units), and the next level at $225 (44 units).

The beauty is that you don’t have to tweak this pay plan every month based on your ad budget… you agree on fair cost-per-sale numbers once, and after that it doesn’t matter how much you spend on Internet marketing – the pay plan will still pay out appropriately. A plan like this helps get everyone involved in monitoring the Internet budget and the department’s overall efficiency… it’s a great way to put GMs and owners back in the driver’s seat of this crazy vehicle we call Internet sales.
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Mitch Turck operates as an independent e-commerce consultant.

How to Create an Effective Internet Sales Pay Plan

When setting up an internet department, one of the major questions you’ll have to answer is how to compensate your new team. You simply can’t apply the same pay plan that’s used on the showroom floor. The Internets longer sales cycle combined with a traditional showroom pay plan that rewards a quick close could leave your salespeople discouraged and looking for other opportunities. Whatever route you take, though, the most important point is to ensure the pay plan aligns with the store’s overall business goals, according to Cory Mosley, president of Mosley Automotive Group, a dealership consulting firm.

“Everyone needs to be on the same page, particularly regarding the reality of what it takes to develop the business,” Mosley says. “Part of that is driven by how the department is set up. If the department’s mission is to move a high volume of cars and the salespeople are being compensated based on achieving profitability goals with each deal, it’s not going to work. Your people will become unhappy very quickly.”

In the business development center (BDC) model, where a call center is used to bring shoppers in and turn them over to floor salespeople, Mosley says key metrics in determining a salary structure should include: salary, the number of appointments set, the number of appointments kept and, perhaps, an additional payment if a vehicle is sold. You can also introduce an additional bonus if a certain volume of sales is achieved.

For the beginning-to-end sales model, in which salespeople answer internet queries and take customers all the way through the sale, Mosley says considerations should include: salary, which is higher than floor sales due to the longer sales cycle, percentage of profit, bonus structure for gross sales and an incentive for high customer satisfaction index ratings.

Mosley also offers a few other suggestions:

[list:qjbvk40u] * Focus on the core makeup of the store first, the core dos and don’ts. You can get creative later, especially in a larger store or group. But you first have to make sure staff members understand their roles, as well as what they’re supposed to do and how they’re supposed to do it.

* Keep tabs on what’s happening throughout the store and make as-needed adjustments. “Suppose you’re in the BDC, and you’re being compensated based on the number of vehicles sold,” Mosley says. “You do your part by getting a high-interest prospect in the store. But when you turn the lead over to a particular salesperson, he keeps blowing the sale. Now, you’re frustrated. A good manager will adjust the compensation to front-load it based on securing appointments and making sure people keep them.”

* Consider creating more of a team environment. Floor sales tend to emphasize individual achievements but an internet department can reward team accomplishments through group awards, such as pooling incentives. Encouraging teamwork often creates a better customer experience by allowing one person’s strengths to compensate for another’s weaknesses and vice versa.

* Review pay plans on a regular basis. “It’s important, especially if the goals of the department change,” says Mosley. “Don’t do it with the intention of chopping everyone’s pay but rather to make sure goals and compensation are still in alignment. For example, if the dealership has a manufacturer incentive for a group of vehicles, management is going to want to secure every possible sale no matter what. But if your pay plan is based on gross profit, you’re fighting yourself. A quick review will make sure everyone is on the same page, and working toward the same goals.”[/list:u:qjbvk40u]
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Written by Cars.com