Why Should We Incentivize Behavior?
In the retail automotive business the traditional sales compensation plans have been developed to incentivize results. But we know that, if our salespeople habitually perform and flawlessly execute all of the activities proscribed within our process documentation, the results will take care of themselves! Why then wouldn’t it be a great idea to find ways to incentivize these folks to continually exhibit the behavior necessary to accomplish those results-producing activities, rather than focusing 100% of our pay plans on the results themselves? Here’s an example of what I’m talking about.
I frequently find myself asking dealers, general managers, and sales managers, “What is your typical closing ratio when you have a face-to-face selling opportunity with a new or used vehicle prospect with whom the dealership or the salesperson has a relationship?” The answers normally range between 60% and 70%, but they are never below 50%! Now let me take you back a step and define what I mean by a relationship. A relationship exists
- If the prospect is doing business with us, or has done business with us,
- If the prospect has been trying to do business with us,
- If the prospect has been referred to us by an existing customer (or a bird-dog),
- Or if the salesperson, or another dealership employee, is acquainted with the prospect.
These prospects fall into the following categories: be-backs; those within our owner database; referrals; service and body shop customers; and those within the circle of influence of our sales people and dealership employee network. And I continue to advise my clients that they should expect at least 50% of their sales productivity to come from these categories of self-generated opportunities to do business (OTDBs). This means that a 12-unit salesperson should deliver a minimum of 6 units per month as a result of self-generated prospecting activities. At a 50% closing rate, this 12-unit salesperson would need to face off with only twelve self-generated appointments per month (or approximately one appointment every other day). Is that setting our behavioral expectations too high? If not, then why not design our sales compensation plan to support that behavior?
There are a number of ways to do this, but before I go any further, please understand that I’m not necessarily suggesting that you add on another layer of sales compensation. Depending on your franchise, you will always want to limit your vehicle sales compensation expense to somewhere between 15% and 19% of “all-in variable gross.” But why not use 25% - 35% of your compensation budget to incentivize salespeople toward the behavior of developing and delivering self-generated prospects? These prospects always produce more transactional gross, require less management involvement, and are more enjoyable to deal with! So as an example, if your overall sales compensation budget equates to $500 per vehicle sold, why not allocate $350 per unit to incentivize volume, gross, and CSI and then allocate the balance ($150 per unit) to incentivize deliveries to self-generated prospects?
Think about how this approach would smooth out your sales process! Think about the predictable revenue you would generate! Would a similar strategy to incentivize behavior be effective at your dealership? Behavior is tough enough to manage! Why not let your compensation plan do some of the heavy lifting? Please share your thoughts with me!
Garry House is an experienced dealership consultant who specializes in compensation planning, implementation, and management. He can be contacted at gha4you@gmail.com or (561) 339-0043. His website is www.garryhouse.com.
Replies to This Discussion
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Permalink Reply by Paul Sansone Jr on
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I agree that our compensation plans need to be used as a means to reward and alter the behavior of our sales staff but I also believe in the KISS (Keep It Simple Stupid) method of management.
The behavior I like to incentivize is the number of customers my salespeople talk to. That is why I pay my salespeople for every up that is logged into my CRM and TO'd by a manager. I don't care if that same person is back 4 times I will pay the sales person 4 times for that customer.
To pay for this I simply eliminated the weekly Salary and converted those $ into the pay by up plan. When I explained it to my salespeople I backed into the agreed upon number of customers you need to talk to each month to deliver 12 units.
Most dealerships are not confident that their up count is accurate but I am because it cost the salesman $ not to enter he up.I did have some salesman's blow back but not much and it has been that way for 10 years.
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Permalink Reply by steven chessin on
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Garry & Paul
This is brilliant stuff that I should chime-in on. --- As a BDC Director I developed what you would call a combination "Save-a-Deal" ( 30% ) &"Make-a-Deal" ( 70% ) process I call Plan-B. It initially failed because salesmen were always "too busy". The concept is to make one last strong run at a "Be-Back" or "Failed Appointment" with a personal video. As quick-and-simple as this seems salesmen NEVER want to do it. HOWEVER when I got permission to add their walk-around videos to the websites that 70% aspect kicked-in and it did become more popular. But still not enough. The real solution is both positive and negative reinforcement of reward of being featured and the punishment of not being featured.
Here's an ancient video from 2007 that follows-up with a be-back and it saved the deal. Without INCENTIVIZING salesmen will not participate voluntarily. In the old-school sales terminology this is both the personal follow-up to the 'A' customer and the prospecting for the 'B' customer (the vehicle presentation) at the same time.
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Permalink Reply by David Ruggles on
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It costs a LOT more to find and attract new customers than to retain the ones you already have. Yet, how many dealers do justice to their orphan owner base? Is there a plan? Usually there isn't.
How many dealerships know how to work the service drive and waiting area? Not many. Yet there are enlightened dealerships who are turning their service drive and waiting area into a new profit center. Without coaching, most sales people are helpless. They don't know what to say to an orphan owner OR a service customer.
You'd be interested in a new one, wouldn't you, if we could get you into one for about what you're paying now?"
Better coordinate with your service director first. He/she might think your sales department is poaching their gross. They'll get the service work anyway when you trade for the customer's vehicle.
Most dealerships don't get accurate log info because of ball busting over closing ratio. We used to use sequentially numbered "guest cards" that also functioned as an appraisal form. Sequentially numbered? Isn't each (OTDB) Opportunity to do Business worth as much as a part inventoried in the parts department? You do use sequentially numbered parts tickets and repair orders, right? And you do a lost document report regularly, right? And you do a lost sales report, right?
I rest my case.
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David - 100% on the money. But yes there are some excellent database mining techniques available. I have one client now that has been in business for 15 years and does not even have a CRM !! I explained a plan to him to build his database into something he can utilize rather than boxes of cold-case files.
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"a 12-unit salesperson should deliver a minimum of 6 units per month as a result of self-generated prospecting activities.
Gary - If a store has a professional prospecting process that salesmen can participate in absolutely.I met a rare old-school pro salesman that had a garage full of boxes marked by year for 25 years of sales. What would you have suggested the store should have done with that kind of resource --- keeping in-mind that the salesman did not want his customers to become part of the store's database. Just sending a nice printed piece to that many would have cost over a dollar each.
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Permalink Reply by Garry House on
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Steve...
Thanks for your participation in this discussion!
What gave the veteran salesperson (and the dealer principal) the impression that the database belonged to the salesperson, rather than the dealership? Was it the "possession is 9 points of the law" doctrine? If the store had the records also available, I would have developed a "killer" orphan owner program to hold the hands of those customers involved. If the records weren't available to the store (through paper files, microfiche, or CRM records), I would have found a way to buy them from the retiree.
When I was selling cars back in the mid-60's, I had records like that guy! And when I became GM of that dealership in 1968, every salesperson that worked for me had a similar "box." Today we have incredible CRM technology available, but we rarely see sales managers or salespeople with the knowledge and commitment to effectively prospect to their relationship customers.
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To answer your question - the salesman did own his records from many stores over a 25 year period. He came to me his first week and I had some concepts - primarily a mailed holiday card announcement to his new office.
INCENTIVE is a 2-way street. The dealer could invest in contacting each of these customers - that would not buy the list - just a single contact to more than 5,000 customers. What would you tell the salesman -- as well as the store -- to tap into the potential of these customers -- many of them repeats.
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Permalink Reply by Garry House on
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Steven...
I would have worked with the salesman to compose a letter advising his customers how excited he was to be now at your dealership. I would then have instructed the salesperson to begin mailing 20 letters per day, followed in four days with a telephone follow-up to "update his records." With 5,000 customers, this would have been at least a 6-month project, but he should have sold a lot of vehicles as a result of this process.
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Jay Leno summed-up this issue nicely talking about his 1930's Bugatti. He said it comes from an era when human effort was cheap and technology was expensive so that servicing the car then for hours per week didn't matter. Today, luxury car service is more than two-hundred dollars an hour. Here, as with many discussions in this forum the issue becomes how to apply the proven,sound principles of traditional pro sales with the efficiency of low-cost / hi-tech, And the best solution must always be a blend that does not eliminate the warmth and charm of a human approach but integrated with a more efficient delivery process of doing more in less time. That is why I have devoted my efforts to the video format for sales rather than marketing. So I certainly agree that you surely covered the core principle - but - not the latter.
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