A majority of us in the dealership consulting community, together with many client-dealers to whom we provide services, have long recognized a need for changes in salesperson compensation plans. The traditional plans which have been employed over the last several decades no longer effectively match the operating strategies being implemented in many dealerships today, particularly in those stores that are committed to “market-based pricing” their new and used vehicles on the Internet. This message is directed to those dealers who recognize that their current salesperson compensation plans are “broken” (or, at the least, “cracked”) and who are seeking an alternative. I have taken the liberty of “attaching” a sample compensation planning document that, with a combination vehicle sales staff that is evenly balanced between the four performance categories, produces an expense percentage metric that matches the guidelines found on my website, www.garryhouse.com. Prior to proceeding, I must caution you that the “attached” document is for demonstration only. Because there has never been, nor will there ever be, a “one size fits all” pay plan, I have always been very reticent to provide compensation examples. However, in this instance, I think that using an example is the best way for me to describe my concepts and development methods. I begin the planning of this 5-Element Plan by establishing target monthly compensation amounts for each performance level; and I complete the plan with an analysis of how closely the actual plan results match the target compensation. In order to understand the remainder of my discussion, you will need to download and print this “attachment.”

Element #1 – Traditionally, automotive salespeople have been paid on a “straight-commission” or “draw-against-straight-commission” basis. Research tells us that this traditional approach to sales compensation is a recruiting “turn-off,” particularly with the Gen “X” and Gen “Y” target employee. The term “commissioned salesperson” is also a negative with the consumer. That’s why the terminology within this proposal totally avoids the word “commission.” Although this proposal includes a $500 weekly salary, the amount of the salary can be set at any comfortable level, or even eliminated entirely. In this proposal, a salesperson must deliver a minimum of 6½ units in a month in order to receive any incentive or bonus additional to the salary.

Element #2 – If the primary controllable performance goal is volume, then the largest incentive element for top producers should also be based on volume. Volume levels and per-unit-bonus amounts can easily be modified. Note that the per unit bonus amount are retroactive to unit one, so there is a significant incentive to sell and deliver “one more vehicle” as the month-end nears.

Element #3 – This part of the compensation plan is focused on the activities of “value selling” and “defending our pricing,” and like Element #2, it is tied to volume by a per-unit-bonus. Assuming that management has made the decision to price competitively and “hold the line” on minimal discounts, this element continually encourages the salesperson to “get all the money” that we are asking for on the Internet. Average monthly discount ranges and per-unit-bonus amounts can easily be modified. Should it fit your operating culture, an additional subsection of this element incentivizing “trade under-allowances” might also be included.

Element #4 – This segment is intended to incentivize salesperson behavior in two ways: first, by directing their efforts to develop self-generated business through effective prospecting, and second, by inspiring them to acquire skill sets that will reduce their dependency on the BDC (or on appointment coordinators). The self-generated business category needs to be clearly defined by senior management, and it might include repeat business, owner referrals, bird-dog referrals, circle-of-influence prospects, and maybe even “be-backs.” The “assisted-delivery” penalty reduces the impact that the BDC (or appointment coordinators) compensation layer has on the departmental expense structure. The categories on which no bonus or penalty applies are deliveries to walk-in customers, deliveries to customers who originated from a blind inbound phone inquiry handled by the salesperson, and deliveries to customers who originated from an Internet inquiry handled by the salesperson. Per-unit-bonus and penalty amounts can easily be modified.

Element #5 – Although similar elements are common to many traditional salesperson compensation plans, I need to make a few comments. First, some dealers have found it beneficial to pay on two bonus levels…”acceptable” and “exceptional.” Second, the incentive amount should be commensurate with the amount of factory money “at risk” to the dealership. Finally, this element may be reduced in emphasis (or eliminated entirely) if your franchise, as a matter of course, pays Customer Satisfaction Incentives directly to the salespeople.

I hope that your review of my concepts and methodology were eye-opening. Do not hesitate to write or call me if you have any questions. As always, I value and solicit the input of my readers. Please remember this! There is no such thing as a “one size fits all” compensation plan.

If you believe that your salesperson compensation plan(s) could better match your business strategy for 2015, you have three choices:

  1. Do nothing! That’s OK…many dealers will fall into this category.
  2. Address the opportunity yourself! And that’s OK too…if you have the time, energy, internal resources, and experience to effectively do so.
  3. Get outside help from a Subject Matter Expert (SME). That’s what I am! Automotive dealership compensation planning, implementation, and management is my specialty! My clients will tell you that I’m an experienced, trusted advisor who can be counted on to deliver exceptional value. Call me if you would like to discuss compensation needs for your sales, management, or administrative personnel.

Join the conversation! Let me know what you think!

2015_SalespersonCompensation_1.pdf

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Comment by Brian Bennington on February 2, 2015 at 2:18am

Mighty confusing Gary, but I did take time to review your bio and go to your website.  (I'd never feel comfortable commenting without investing time to learn about the author, and I do like the directness and simplicity of your "Gary House and Associates" site, but I was taken aback somewhat by the details and length of your "About Gary House" page.  I'd visited before, but this time I read every link.)  I know I'm a "dinosaur" in my preference of pay plans, especially in this era of trying to entice our "entitled" Gen X and Gen Y to come aboard, but I'd feel uncomfortable working for anything but straight commission.  As to bonuses, i'd never include them in my decision to sell at a dealership as they're too arbitrary to count on.  Really, I'd think most of the real sales pros you'd poll would feel the same way, unless they're looking for a management job, which I never was.

I do understand why dealers like to publish their lowest prices and then sell off of them as it reduces the need for anything over basic negotiating skills in their new hires, thus they're easier to train and inevitably will work for less.  However, stats indicate a skilled sales pro can easily generate considerably more gross, understand how to handle customers more to their satisfaction, and they generally need less supervision.  But the dealer had better have a plan to support that kind of performance.

The upside is if the word gets out about their superior expectations rewarded with a superior pay plan, they'll get experienced strong producers knocking at their door.  The downside, which could be a threat to the dealer's middle management, is that they might find a rep who knows the business and how to manage better than what they have.  By the way, I actually believe in what's becoming a "dinosaur" concept in this age of "My price is lower than yours" marketing.   It's that "Price is a closing tool and not a selling tool."  Do you know how many younger reps have no idea what that means?  Thanks for putting something up that both makes timely sense and explains, to a degree, what you do.  

Comment by Brian Hy on January 31, 2015 at 3:32pm

We have been testing out our most recent new hires with strictly a salary pay plan, no commission. We allow them to participate in the stores monthly volume bonuses and still receive GM's SFE Performance bonus. Tracking Gross to what is paid out, it has been to our benefit. Has been a win - win for both parties involved.

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