A Pay Plan To Build Transparency and Hold Gross

by dpollak on 01/10/2012 · 4 comments

I’m seeing a new breed of pay plans emerge at dealerships that seek to balance transparency with customers and the store’s need to make a profit on every deal.

Here’s an example from a dealership that has achieved double-digit growth in its used vehicle sales since adopting velocity principles, market-based pricing and a transparency-minded sales approach (e.g., RealDeal) with customers:

  1. shooting dollar sign A Pay Plan To Build Transparency and Hold GrossVolume-based bonuses: At this store, salespeople who sell 20 units will make $1,700 per month (or $85/unit, a figure that’s
    adjusted for lower volume tiers).
  2. Transaction discount bonus: The idea here is to minimize the discounts salespeople give to customers. The scale: $250 for closing a deal at asking price; $225 for deals $100 off asking price; $200 for $200 off; $175 for deals more than $200 off.
  3. Trade-in valuation bonus: The store uses AutoTrader.com’s Trade-In Marketplace (TIM) and a walk-around with customers to value each trade-in. The salesperson receives 15 percent of the difference (if any) between the TIM value and the ACV.
  4. F&I/Other sales bonus: The dealership pays a flat $20 if a customer finances the deal at the dealership, and 10 percent commission on any accessory and service contract sales.

I like this pay plan because it strikes a good balance between meeting customer expectations, ensuring profit margins for the store and providing a respectable wage for salespeople.

Likewise, the third-party validation gives salespeople confidence to stand behind the store’s approach to pricing and trade-in valuations and helps them “hold gross” through all facets of the deal in a manner customers increasingly expect and respond to favorably.

  • Hondamama

    It is too obvious to thoes who have been in the business over 15 years that managers want clerks that are robots. If I had to take home $1700 a mo I would not be out scraping ice off cars at 10 degrees and frying my feet at 95degrees. If I am selling 20 cars a month I better be taking home more than 5k!

  • Hondamama,

    I completely understand your position. I have a brother who’s a cardiologist and specializes in electrophysiology. Every day, several times a day, he has to feed a tube through a patient’s leg and up into their heart to clear blockage. He spent over ½ million dollars obtaining a degree for this specialized skill and he pays over $30,000 a month in malpractice insurance. If he makes a minor mistake, somebody dies.

    When Scott started practicing about 15 years ago, each procedure paid approximately $5,000. Over the intervening years, his insurance reimbursement has gone down steadily to where now each procedure pays approximately $800. Like you and many others in our society, he’s considering hanging it all up because the risk and the investment don’t justify the compensation.

    The tendency is to become angry and resentful at your employer, profession or world. My personal advice is to put it in perspective and ask yourself what you can do to improve your circumstances. I hate to say it because I don’t like it any more than you do, but having the ability to do one thing professionally for 15 years or more seems like a luxury in today’s environment. I think that the generation of kids coming into the workforce today can and should expect to have many more jobs, professions and periodic return to academia for retraining. I guess what I’m saying is that the world is changing faster than ever and if anyone believes that they can maintain gainful employment in a single profession or industry without repurposing themselves, they’re probably in for hardship. Once again, try not to get mad at your employer, industry or world, rather accept the fact that it’s time to adapt, acquire new skills, possibly change professions and/or get new education.

    Dale

  • Margo,

    Thanks so much for your comment, and I completely understand your concern. Although I hate what’s happened to the wonderful retail automobile business that I knew growing up, I am willing to recognize and accept the change that has occurred.

    With respect to sales people, they were once the primary provider of information, availability and pricing for automobile shoppers. In today’s internet age of information, many of the critical functions served by the sales person have been replaced by information and tools on the web. Consequently, much of the value once delivered by the professional sales representative has been replaced by the internet. This phenomenon has in one way or another touched most every profession in our economy, so you are not alone. Certainly the dealer by whom you are employed has seen a dramatic reduction in profit margins and operating profits over the years for exactly the same reason.

    Macro economists would argue that the efficiency of the internet is playing a vital role in the redistribution of capital in the global economy. Another term that is often used for this phenomenon is “creative destruction”. The theory is that as capital shifts and is redeployed in favor of more efficient means of productivity, legacy professions and businesses are destroyed and newer, more efficient means of delivering products and services are created.

    I realize that this explanation does not assuage the pain that you and others are experiencing but perhaps simply puts it into some perspective. I would be most interested in more of your thoughts.

    Thank you,

    Dale

  • Kevin F. Hogan

    Dale,

    I read the negativity..but if you have 1750 as a base and you factor in the additional bonuses you had mentioned using industry ballparks then you would be at 6500-8000 and more
    so depending how good they are at trade in reductions. So unless i am missing something it seems pretty decent.

    Kevin

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