As always, it was immediately assumed the markets were at fault. We all read the newspapers. China’s growth has slowed in comparative terms and we hear things are harder in the market.
We discussed the tougher market but he said that he thought this was not the reason for the change. He believed it was because they changed the way of paying people.
Incentive drives behaviour. So it’s fair to say if we aren’t happy with the outcome, we should try to change the behaviour.
Changing the incentive is a definitive way of achieving that.
In this Two Part Workshop I have focused on the things we’d like to change and possibly a change in incentive might help achieve that.
How do we pay and why do we pay that way?
The answer is pretty simple: we pay on outcomes.
Why? It works. Here’s the reason:
- It’s simple to implement and administer.
- It’s based on outcomes (sell a car earn a commission, service a car earn a commission).
- The system works it out. DMS suppliers have done a great job of measuring and recording the financial data (as opposed to non-financial data) in dealerships. Linking compensation to numbers is easy and irrefutable.
- People get it. When you are hiring someone they can compare packages, slip straight into the system and get productive fast.
The problem is, as time goes on, the pressure on the returns from individual transactions is becoming greater. Something has to give.
For example, each new model is getting better and cheaper and more add-ons are becoming standard (remember when air conditioning was an option?). Cost of ownership is now a key marketing tool resulting in greater service intervals and cap-priced servicing. F&I commissions are under attack and real estate is getting more expensive.
Again, something has to give. And that something is the biggest expense in every dealership: the team.
One of the greatest people I ever met and one of my mentors, Michael Tynan, who unfortunately we recently lost, said to me back in the mid 90’s, “Wayne, remember the service stops when the profit finishes. This in the end hurts the families that work for you”.
In the mid 1990’s these words didn’t mean as much to me as they do today because, as we have watched it play out over the last 20 years, because the more pressure the transactional part of our business comes under (lower gross), the lower our ability to service our customers.
In any given week I will run into someone who has an opinion on the quality of today’s salespeople and the impact this is having on customers. Their service departments are full of apprentices and all the good technicians have left the industry. The quality of their managers means they need to do more themselves.
This is not a generational issue, it’s a financial issue.
Being a car salesperson in the past was respected and a highly paid position. The sacrifice of working weekends meant you drove a nice car and had a big pay packet.
Sales people prospected and kept their customers (albeit in a black book). They made sure their customers went to the service department because they were savvy business people and wanted to keep their customers close to avoid losing them. They knew their customers meant good commissions.
A good salesperson in the 1980’s earnt $100,000 per annum. A good salesperson in 2016 earns $100,000 per annum. As time-value-of-money doubles every 10 years, on that basis the 1980’s salesperson was earning the equivalent of $300,000 per annum in today’s dollars.
That’s why you got great service.
Service technicians spend four years studying after school and have continual post qualification training. Today’s technicians are some of the lowest paid people in dealerships, but are responsible for 100 per cent of post sales CSI (see what loose wheel nuts will do for CSI).
As a result many technicians may need to travel long distances per day just to get to work in capital cities. It is no surprise that they are getting younger and leave the industry when they start a family.
So what can we change?
The first thing to remember is that you need to get good at the basics. The problem is that the basics are hard.
You also need to dare to be different; and that is hard when you are the only one doing it.
This takes me back to China. In my early days in China, salespeople were paid on “cost of business’ which is the inverse of gross profit.
The dealerships would target a two per cent cost of business, meaning the most a salesperson could discount to a customer was two per cent of RRP.
If a deal was done with a discount greater than two per cent then no or little commission was paid or the deal not taken.
This meant the salesperson was continually focused on price, not gross.
Rather than bust the sales manager, they had to focus their attention to adding value to the price, which meant they had to sell the customer the features and benefits, not just the price.
It reinforced following the road to a sale; you need to get the first E right (emotion) or you would not get the second E (economics).
Remember, everyone wants a win; they don’t need a cheap car.
Next Week: Wayne Pearson tells you how to change your structures to mirror your customers’ actions and highlights some unconventional ways of rewarding staff to drive better results.
By Wayne Pearson