From The Field: What’s The Best Way To Bonus For Appraisals?

 

I received the following question from a dealer looking for insights to provide incentives for managers that would put more “on the money” appraisals on the books and feed more trade-ins to his used vehicle inventory:

Hi Dale, I hope that all is well. We want to bonus our sales managers on “Look to Book.” We have vAuto, Auto trader TIM’s and eLead. Is there a fool proof way to make sure that every appraisal goes in so that the “book” #’s are accurate? We are trying to get people away from gaming the system in order to hit their bonus. Also, in order to qualify, the used car inventory has to be at 60 days with only a 10 percent leeway.

Thoughts? Thanks a ton!

Jay

And my response:

Jay:

I really commend you on modifying your compensation program to reward managers for meaningful conditions that underpin success. As you know, traditional compensation programs almost always reward managers solely on the outcome, which completely ignores the creation and maintenance of the rational conditions that are necessary for favorable outcomes. Great work!

With respect to ‘gaming the system,’ I would instruct your billing office and/or F&I office not to process or commission a deal unless and until there is a completed, printed appraisal in the deal jacket. If the appraisal isn’t complete, it should not be calculated into the Look to Book ratio.

I would also recommend that you measure the average Cost to Market for each appraiser. In other words, would you rather have an appraiser obtain 55 percent “look to book” with an 85 percent cost to market, or one that achieves 33 percent with a 79 percent Cost to Market? I would recommend a minimum threshold on both the Look to Book and Cost to Market metrics to qualify for the bonus.

As I often say to dealers, if I could go to work for you and promise you a 100 percent Look to Book, would you like to hire me? Please note that I will appraise every car for $1 million. I think you get the idea.

Again, good work on providing your team incentives to create the conditions that yield a positive outcome. If I can be of any further assistance, don’t hesitate to ask.

Dale