Effective Pay Plan Formulas That Achieve Results

Transcription

1 Effective Pay Plan Formulas That Achieve Results With Jeff Sacks, Jeff Sacks Auto Moderated By Mike Bowers, DealersEdge Jeff Sacks, of Jeff Sacks Auto, is considered one of the premier experts in dealership operations with a 30+ year career that warrants the high regard he's held in. Jeff immigrated to the United States in 1977 and immersed himself in the world of car dealership operations. He gained a degree in accounting and one in business finance, and together with his 'in the seat' practical experience, he carved out an enviably unique insight into dealership operations that has helped many clients across the global automotive industry. After gaining first-hand experience in a variety of dealerships, Jeff established Jeff Sacks & Associates, a consulting company dealing with the specific needs of his automotive clients. Years later, he created and facilitated the General Manager's Bootcamp. In 2009, Jeff returned to his roots as operating President with Jeff Sacks & Associates (Jeff Sacks Auto) in order to provide customized programs to his clients, including the highly respected General Manager Workshop. In 2010, looking to fill a gap in the industry, Jeff created a virtual training series for general managers focusing on dealership parts, service and accounting departments. The quality and practical applicability of this program was validated when NADA University selected Jeff (and his virtual program) as an NADA University Partner, one of only a select few in the country. Jeff's passion and vision in the industry has made him a sought-after speaker, helping to improve dealership functionality relating to process improvement strategies, asset and expense controls, computer utilization, management information systems and more. Anyone who saw Jeff's 'Standing Room Only' workshop sessions at the 2011 NADA Convention will understand his skill and charisma as a speaker, and know exactly why over 850 people attended. Jeff has published many automotive specific articles and was the contributing editor to the Jeff Sacks Newsletter. In February 2011, he published a comprehensive pay plan manual with 100+ pay plan components titled, Dealership Pay Plans That Work. He has been engaged to share his perspectives and best practices with clients in the United States, Canada, Mexico, Brazil, United Kingdom, Australia and South Africa.

2 NEW PAY PLAN FORMULAS THAT FOCUS ON LONG-TERM GROWTH & SUCCESS L E A R N T H E 4 E S S E N T I A L S O F A S U C C E S S F U L PAY P L A N DealersEdge Webinar December 11, 2014 By Jeff Sacks PAY PLAN STRUCTURE Common Approach Base + Commission/Incentive Choose additional components (CSI, Gross per unit, etc.) Then. back into the pay plan: Adjust the base or Adjust the commission structure

3 ACTIVITY BASED PAY PLANS Isolate those activities that drive performance; track them and reward them Examples: Appointment setting Show rates Percentage engaged in two way dialogue with internet leads, etc., etc. Activities are generally task-based, but require a strong tracking and measurement process METRIC BASED PAY PLANS Pay is calculated on the metric achieved/results The metric goal is normally governed by key business drivers: Isolate these financial drivers Create a compensation plan that will encompass these drivers Pay off the combined elements: 1. The result and. 2. The financial drivers

4 THE 4 ESSENTIAL ELEMENTS TO PAY PLAN DESIGN AND STRUCTURE 1. Take home is competitive in the marketplace 2. Pay plan is aligned with the objectives/culture of the dealership 3. Credible data is being used 4. Uncomplicated: easy-to-understand COMPETITIVE IN THE MARKETPLACE Encourages staff retention; but if coupled with modest productivity metrics, could possibly lead to: High and out-of-line compensation as a % of gross Acceptance of lower standards of performance Tough to change to a high performance culture Objective is to first get the productivity metrics in line and then to pay off production Strategy: Transition and evolve into a higher pay for performance model

5 ALIGNED WITH THE OBJECTIVES OF THE DEALERSHIP Production of gross Improving customer retention Raising CSI Varied other measurements, such as: Asset management Expense control Employee satisfaction CREDIBLE DATA Financial data should be easy-to-understand, unambiguous and accessible: Gross Variable expenses Net profit Other metrics to possibly incorporate into a pay plan component: OEM data Internally generated data, such as repeat purchases, service retention, etc.

6 UNCOMPLICATED: EASY-TO-UNDERSTAND Keep it simple not too many components to confuse or conflict with dealership goals and calculations Avoids pay plan management : Most pay plans can be worked Be careful have checks and balances in place to prevent people from trying to game the system for personal gain PRODUCTION OF GROSS - VARIABLE SALESPEOPLE Objective: 12 or more units per salesperson with adequate front and back end gross Challenges: Margin compression has led to many mini deals Consider: Paying off true vehicle gross: It s transparent, avoids having to manage the inflection points, etc. Retroactive pay plans: This month s volume leads to next month s commission percentage Loyalty: Pay additional bonus for sales made to repeat customers

7 PRODUCTION OF GROSS - VARIABLE Consider variable linked pay plans for salespeople Pay off. Front end and back end gross After market accessory sales made at the time of delivery (Pay a % of the sales price) Spiff on the 1 st time show rate in service for their sales customers Appraisal purchase units Make salespeople advocates of F & I PRODUCTION OF GROSS F & I Objective: 75 deals per producer; over $1,100 per unit Close to 2 Products Per Delivery (PPD) Bias toward service inducing products 70% product/30% rate Compensation: 15% of F & I Income Consider Paying Off: Traditional % of gross after charge backs Products per delivery attainment level Penetration levels on ESC; Oil Changes for Life; Service Maintenance Contracts, etc.

8 CONVERSION OF SALES TO SERVICE Objective: SALESPEOPLE Actively set up the first service appointment at the time of sale Improve service retention and then appraisal activity Consider: Spiff if salesperson s customer show rate for first service appointments is above 80% $5 spiff for 1 st service visit; $10 for 2 nd ; $15 for 3 rd Commission on the gross generated by their customer s CP service business Appointments kept spiff Active appraisal activity MANAGING RETENTION

9 Customer Retention Metrics (Best of Regular Imports) 90% 80% 70% 60% 77.6% 71.5% 67.1% 60.2% 50% 40% 30% 54.4% 53.1% 52.5% 48.6% 44.7% 40.6% Service Retention % 20% 10% 0% MAINTENANCE REVENUE PER VEHICLE Dollars Revenue Years

10 SERVICE Objective: SERVICE MANAGER Improve profitability and CSI, and grow the service business. Need to improve customer retention Consider: Pay off total hours produced, NOT hours per RO Bonus if average hours produced per tech per month exceeds 180 hours Data from the OEM that addresses customer retention Is it usable? Any internally generated credible metrics? Gross per service employee % increase in year-over-year customer pay repair orders CSI bonus based on attaining certain performance levels SERVICE Objective: SERVICE ADVISOR Attain monthly productivity hours objective (Ratio of techs to service advisors x 200 hrs.) $30K of CP Labor per month Acceptable mix of daily RO count between CP/W/I Consider: Pay off hours produced Effective retail labor rates achieved Service advisor team bonus for hitting the goal of total labor hours in the shop Net department profit

11 GENERAL MANAGER PAY PLAN Base A percentage of dealership net profit Consider adding a CSI component to it Consider including: Gross per employee Fixed absorption percentage DEALERSHIP PAY PLANS THAT WORK Gain greater productivity, improve CSI and customer retention, and increase bottom line profits by fine tuning your pay plans Compilation includes 100 s of pay plan components on 100+ pages, indexed by department Year-end special: $395* if ordered before December 31, *$100 savings

12 THANK YOU! Any questions?