Category Archives: Pay Plans

Working Your Pay Plan By Increasing Your Dealer’s R.O.I.

Assuming that we all "work our pay plan" to maximize our own ROI in our chosen careers in the automotive industry, I thought I would share some of my "best practices" with my fellow professionals.

Not all of the situations I discuss will apply to you so take note of ones that do and save 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 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. 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 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 ADP 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 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.

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.

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!

APPOINTMENT 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.

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!

Written by Philip Zelinger

Cutting Your Throat

One of the temptations of sales and general managers is to look at the commissions of their salespeople as a great place to cut into their operating budget. After all, a great salesman might out earn the vast majority of sales managers. Many companies will cut commissions or earned bonuses to increase their bottom line thinking that this is the smart and clever thing to do. However there are four factors that come into play when you undertake such a strategic move:

[list:m1byiemb]• Results
• Motivation
• Risk
• Retaliation[/list:u:m1byiemb]

Sales is a results driven profession. Salespeople are naturally competitive and will compete with other salespeople as well as themselves to increase their performance and the results they can produce. There is no bigger high for a salesperson as getting a new sale. It makes their day. They live and die by the results they produce. It’s feast or famine since they have no fall back on a salary or the luxury of just showing up to be paid. They must produce results.

Results are produced by a motivated individual. You either pay or fire a salesperson. There is no middle ground. When you reduce a commission rate or tinker with bonuses, you have taken the wind out of their sails. Some sales managers will tell them to work harder to make up the difference, but the trust has been broken. Without that trust between the salesperson and the company, the motivation will quickly deteriorate.

Salespeople are natural risk takers. Being paid a commission is a natural risk in their profession. However risk takers expect to be compensated for the risk when it pays off. You as a sales manager benefit from the risk by not paying when the results haven’t been produced. It is suicide to tinker with the salesperson once they have reached the level of success which is both beneficial to both the dealership and the individual. It doesn’t undermine the relationship, it destroys it.

Once the dealership breaks the trust with the salespeople by tinkering with commissions and bonuses, it can expect some form of retaliation. In a demoralized and demotivated sales force, there will be a notion of why even bother. Results will drop. This is the least of your problems. In many instances salespeople will actively voice their discontent with customers causing long-term problems. Salespeople are your company to the customer and people buy from people they like. This could cause a backlash. In many instances salespeople have left the dealership and taken a loyal following with them to their new employer. This is often difficult to counter and recover.

The risks that a dealership undertakes when they attempt to alter the compensation structure of their salespeople can be tremendous, well in excess of any earnings they might wish to recoup. Before you consider such a move, it is wise to explore all the possible implications and consequences such a move could cost your business. The short-term gain may not be worth the long-term loss.

Pay For Performance: Change Is Necessary – Sometimes

All your sales team should be on performance-driven pay plans. That includes salespeople, closers and sales managers—if you want them to perform, that is. But what constitutes a good, well-rounded performance-driven pay plan? And what kind of uproar is going to happen if you start changing pay plans?

The last thing I want to advocate is messing with your employees’ pay plans. If ever there were words that didn’t sit well together, those words would be “change” and “pay plan.” Sure, you could easily bring valuable employees in to your office to give them a pay increase. However, if you sat them down and said you were going to change their pay plan, they would only think negatively about it no matter how good it may be, so be very careful with this.

After selling cars in England for five years, in the early 80s I started selling cars at an Atlanta dealership that was only selling 40 units a month. After a month or two, I became salesman of the month and held on to that title for the next 11 months straight. I was promoted to sales manager for my efforts, but my pay plan left a little to be desired. After two months, I asked to go back on the floor because I had been making a whole lot more as a salesman. A few months later, I was offered the sales manager position again, but this time I negotiated a pay plan that was a percentage of the gross profit of the sales department. Over the next four years, we grew the sales so much that we built a new facility to cater to all the new business. We then hired a new F&I manager, who really changed the way we did business in that department. I imagine you have heard of him; it was the one and only Mr. Jim Ziegler.

Jim and I really rocked and rolled, as we continued to build the dealership to a record month. We sold 256 vehicles and averaged over $3,000 per copy! Both of us were on performance-driven pay plans, so the more the dealership made, the more we both made. We were ecstatic about this incredible month, especially as we would both benefit personally just as the dealership benefited.

A few days into the next month, I was called in to the dealer’s office, where the dealer and GM congratulated me on the terrific month, then asked the question: “Do you realize how much money you made last month?”

Well, of course I did because I kept impeccable records and always knew how much I was making. They informed me that they thought I had made too much!! Remember, this was a strictly performance based plan, but now we had apparently over performed!! Then came those words I mentioned earlier: “We are going to change your pay plan!”

Ziegler had the exact same meeting with the dealer and GM, and that was the last day either of us worked in that dealership. The dealership lost two of their best managers that day because they didn’t want to continue to pay for overachievers.

My point with this story is that you need to be prepared for extraordinary performance. In fact, you should want to pay big commissions (if you have your people on the right pay plans).

If you want to get the most out of your sales team, you have to motivate them with compensation. I do not have a perfect pay plan that works for everyone because every dealership is different and you need to look after your people accordingly. You cannot have the same pay plan for a sales manager whose team sells 300 vehicles a month as a sales manager whose team sells 50 a month.

To determine whether a review of your pay plans may be needed, consider the following criteria:

[list:25keswx7]1. Your people should earn more as the dealership earns more.

2. Their earnings should be commensurate with the amount of money they earn for the dealership. A set amount per vehicle sold matches the first criteria, but not necessarily the second.

3. If they are selling 18 or more vehicles a month, every month, they should not be able to do the same elsewhere and make more money.

4. If your managers look after a team of quality salespeople who consistently perform, they should not be able to do the same elsewhere and make more money.

5. You should have bonus programs for overachievers, not for the average.[/list:u:25keswx7]
To finish, here are just a couple of examples of effective performance-driven pay plans:

Salespeople should make a percentage of the gross profit (both front and back) that increases as the volume increases. For example:

[list:25keswx7]0-15 units 10 percent
10-14 units 15 percent
15-18 units 20 percent
18-25 units 25 percent
25+ unts 30 percent [/list:u:25keswx7]
These percentages need to be retroactive. This means that in order for the big volume salesperson to make real money, he/she has to gross more for the dealership.

Sales managers and F&I managers should make a percentage of the gross profit (both front and back) that increases as volume increases. This will vary a great deal according to the size of your dealership. Figure out how much the job is worth; then work out what percentage of the gross profit you are currently doing that figure equates to. Then, as your dealership makes more, the manager is compensated accordingly. This percentage will normally range from 3 percent to 10 percent.

If you feel you need to re-vamp some, or all, of your pay plans, spend time to make sure you get it right for all parties. Do your calculations, using “what if” scenarios. You need to be comfortable with pay plans that could make your employees more than they have ever made before as long as that means your dealership makes more.

Written by Michael Rees, CEO
DealerPro Sales and F&I Solutions

Pay Plan for Losers

Why is the car business so prone to this?

I was talking to my friend at a dealership in the south and she recently left the store. I asked her why, after all it made no sense to me. She is smart, knows her stuff, very successful, the dealership values her and she makes a great living. Why would she leave?

You guessed it, the GM cut her pay because she was making too much. Can you believe that? Unfortunately I can, I’ve seen it so many times. The dealership decides that someone is doing so well, and making more than they should, so they cut the pay back to what they believe is realistic. One of two things usually happens: the person quits (as in this case) or their performance drops. Rarely does the performance increase. So if probability says you will fail with this approach, why do we do it?

I believe we do it for two main reasons; (a) The pay plan was wrong to begin with or (b) We are simply not thinking straight as a manager. Let me explain.

Fixed pay plans represent the most upfront risk to a dealership. If an employee has a 5k salary, and brings in 10k of gross, they effectively are taking home 50% of Gross. Its easy to see it would be tough for the dealer to be happy about that situation. But what’s wrong with the situation its not necessarily the pay plan, it’s the employee performance. After all if the employee was on a 5k salary but brought in 100k of gross any dealer would be happy.

At the end of the day fixed pay plans like that where there is a large base to cover are the most risky, but offer the most potential reward for a dealer (from an expense structure.) A variable pay plan, is the hallmark of the auto industry; it represents little risk to the dealer and the employee is rewarded for growth. Meaning, for example, 25% of gross is just that… the dealer only pays out if he receives and he only pays out the 25% weather its a lot or a little.

A dealer should never cut anyone’s pay, on a commission only plan, just because they are making too much money. There are plenty of other reasons, legitimately unless the dealer offered an inappropriate and balance pay keeping the market in mind.

Now like the title says, “Loser pay plans”. A dealership is loosing money and they advertise for a manager. Now their pay plan is geared towards a loosing department & loser manager. They are willing to offer unreasonably high % of commission based on their previous performance in the department. Now a smart manager takes up the challenge knowing the potential and rewards and takes the department to the next level. Now the pay becomes a problem for the dealership and they can’t imagine paying this losers pay plan to a winner. Now they cut this manager’s pay to make sure winner is not on a loser pay plan he will make too much money.

I see this way too many times, dealer principles and General Managers need to drill down and have a balance pay plan that is not a loser pay plan. Is this really that big of a deal. Do you really like to start with new manager every quarter? I would love to hear what you guys think of winner on a loser pay plan?

Written by Rafi Hamid
Director of e-Commerce
Napleton Automotive Group

Take the Long-View for Long-Term Success

It’s very easy to get caught up in the short term: the end of the day, the end of the week, the end of the month, even the end of this quarter. But this short term focus is just that– short term. Do you want your business to exist just until the end of the week, the month or the quarter? Of course not! Then why would you focus and direct your time and resources over such a short period of time? Short term focus creates l`ong term difficulties in all areas.

For example, let’s think about compensation plans. Do they offer any long term benefit to help motivate your employees to stay, or are they merely one time, at the time of sale compensation? A good sales person can probably make as much, if not more, money at a dealership other than your own, at any time. And we all know that employee turn-over is a big issue in our industry. Why not structure a pay plan with a long term component in the compensation? Certainly the sales person should receive the majority of their compensation at the time of sale, but you can also tie a portion of to annual or semi-annual milestones. What if they receive, for example:

1. 5% of their total sales commissions at the end of their first year? Let’s say that their total commission for the year was $50,000, then they would have a check for $2,500.00 waiting for them at the end of the year. Assuming you don’t have a really terrible work environment, a check like that is enough to help motivate most folks to stick around.

2. Let’s say your regular sales commission is 25%. I would start the commission at 22.5 % and allocate an additional 2.50 % towards the sales person’s longevity pool, with the condition that sales person completes his 12th month of service at the dealership. Then he will receive that additional 2.50 % on the 13th month’s commission check. And once he has achieved that 13th month, on the 14th month sales person will receive his 2nd month’s longevity 2.5% and so forth. Once a sales person achieves that every month, he or she will be receiving the additional 2.5 % carrying over from 12 months ago. This should be understood that at anytime salesperson leaves the organization there is no money accrued for him and that this was simply a bonus for the current 12th month’s cycle.

Smart dealers (or any successful business people) take the long view and let it guide their short term decisions and activities. Take time to think about your dealership and the industry a year from now, two years from now, even five years from now. Resist the temptation to fall into the trap of policies that address only next week, next month or next quarter. This is especially important for employee retention. You lose so much money each time you lose an employee and it’s easy enough to establish compensation plans that help keep good employees at your dealership. You just need to take a little time to determine the best policies for your dealership’s needs.

Written by Rafi Hamid

Are Your Pay Plans Correct?

Times are tough but there are some great opportunities to be had right now. The traditional media advertising channels are dead and most dealers are feeling the drive to the web. The web is at a stage where skill, not sheer dollars, are winning. Meaning the big dealer up the road with a seemingly unlimited budget can spend all he wants, but if they don’t have the skill to execute online they wont get anywhere. The web has leveled the playing field!

With the slow economy all dealers are being forced to the web 2 main reasons: 1st its completely traceable, no more guess work in computing ROI on an ad. 2nd most internet advertising options are scalable, meaning they are pay for performance. Take PPC for example, you don’t pay unless you get a click; 3rd party leads, you only pay if you get a lead. The newspaper on the other hand, will take all your money up front regardless of results. IE: you pay for your ad and pray for results… more on that later.

The point I want to bring up today is that if you are trying to focus your team on web marketing, but haven’t adjusted your pay plans you most likely wont get great results. Typically GMs or GSMs are paid to manage the traditional media spend. Who is paid to manage the results of your web campaigning. Most ISMs are paid a variation of a sales person pay plan… that might be a mistake for your store. If your ISM is paid a per deal, or commission only pay plan, they may stay focused on closing the lack of traffic that is out there rather than generating leads. The market is shifting so much today you have to have someone actively managing the "virtual lot." If the ISMs are paid on deals how motivated are they, for example to keep fresh content via specials on the site? Static content is the death of a website, your content needs to be updated daily, as do your SEM campaigns, who’s driving links to your site, updating pictures, pricing etc etc…

Now in theory if you pay them on deals you would think they will focus on all the indicators along the path to a deal right? Wrong. This is the real world and I’m sorry, it hardly ever works out like that. (How many commission only sales people manage their walk-in, demo, write up and closing rates? Few without the help of a competent manager) Motivate your team to stay focused on the activities that drive results to keep them focused on the positive wins along the road to a sale. If you would spiff a sales person for Demo, spiff your ISM for fresh content, a higher placement in the SERP or an increase in conversion on your site. If you are wondering if your store might need some additional focus in these areas simply Google your name, calculate your conversion rate or simply look and see the last time someone updated the specials page on your site. If you are less than happy with the performance on any of those indicators, ask yourself who is in charge and are they compensated so their goals align with yours?

The market is tough, lets not make it tougher than it needs to be. Keep your team focused on the activities that lead to results and celebrate the little wins along the way! There is so much business up for grabs right now! Seriously, I know it sounds out of touch but I’m telling you, most stores could gain so much business because their competitors are asleep at the internet wheel. If your team is talented, and focused on the right things you have a great opportunity right now despite the horrible market.

Written by Jared Hamilton