Until dealers move to a non-negotiation system and consumers start buying 100% of their cars online, there is still an opportunity for anyone to make an above average income in the car business. Even a service advisor with smart pitch can earn a better living up-selling recommended service, than just about anyone walking around with a degree in ethics.
Having incentive-based pay is a great way to drive employee performance, because someone motivated by money is usually going to find ways to make more of it. But unless you hire those ethics majors, if you aren’t monitoring your compensation plans closely, you end up with employees focused on working their pay-plan not working to make the store more profitable.
Here are three examples of how dealers end up overpaying their employees, without even realizing it:
- You don’t have a cap on spiffs for “mini” deals.Not every deal can be a $3,500 Front End-Gross head-knocker, but when you’ve got sales people who consistently hit “mini” deals, you’re motivating your people to take the easy way out. If your top salesperson also has the most “mini” deals, they probably figured out they can make more money with a $150 spiff on 20 loser deals and a volume bonus than they can missing the bonus on 10 profitable deals.
- F&I manager comp is based on bad reporting.If your F&I manager walks into your controller’s office at the end of a pay-period with a list of charge-backs and says, “You didn’t take out these corrections and charge-backs from my pay-check,” you might have hired the most honest person on Earth. When dealers pay their F&I managers based on reports from their F&I systems, not based on net income from Accounting, they’re leaving the door open for simple (even unintentional) manipulation.
- Service advisor comp isn’t impacted by discounts/policy.This one seems to be less frequent than the previous two, but believe it or not it still happens. When you make it easier for your advisors to ask their manager for a discount rather than holding strong on the price, if it doesn’t affect their wallet, you’re going to have a discounting problem. Not only are you overpaying this person, they’re giving away services and costing you bottom-line net income.
What is a spiff on a loser deal really? That spiff isn’t compensation for a job well done; sure, they sold a car, but the store paid for part of it! A spiff is an investment in that person, with expectation that the next car they sell will be so profitable, it will cover the spiff and then some.
Unfortunately, for most pay-plan related issues, the root problem is poor reporting and a focus on metrics that drive performance but do little to improve profitability. You don’t want to drive off your best people, but it’s critical now, more than ever, that dealers manage their compensation effectively. The only way to do this is to make employment decisions based on the ROI of each of your customer-focused employees.
You need to stop thinking about your employees as your biggest expense, and start thinking about them as your biggest asset. If you don’t make compensation and employment decisions based on the ROI for your revenue-generating employees, you’ll chase more bad investments without growing your income.
Just like picking the right stocks, calculating employee ROI is all about having the right data and knowing what to do with it. Dealers who use employee ROI to evaluate their employees aren’t just looking for the ones at the top today, they want consistent performers with reliable returns. As they invest more in these people, they watch that investment grow.
During my session at the Digital Dealer 23 Conference & Expo (this Sept. 18-20th in Las Vegas), you will learn how measuring employee ROI will improve employee retention and, more importantly, improve your dealership’s bottom line.
Jim Douglas is an Automotive Consultant with Reynolds and Reynolds. Previously, Jim was Director, Cold-Blooded Analytics, at FrogData and developer/founder of SelfieTestDrive: an auto app which leveraged Facebook’s iOS API to gather/analyze buyer data. Having spent so much time with sales managers, his wife bought her last car without him as he was “too hard” on their salesman. Today, Jim works with David Spisak integrating ReverseRisk with Reynolds products.