Hiring ........and the Law of Diminishing Return

The way dealerships make the decision to bring on more salespeople and how they replace underperforming salespeople has always baffled me. I’ve seen countless formulas, statistical data and seasonal hiring decisions, but very few of these models make any sense. I’ve even had managers tell me they need four salespeople, and when I asked why four, they respond by saying, “That’s how many desks we have open!” Or "That's what we typically run with"

Law of Diminishing Return

The Law of Diminishing Returns in terms of hiring employees at a dealership can be simplified into three stages:

Stage one is the addition of more salespeople, which allows for specialization of job responsibilities and increased production efficiency. The result is a larger output return for each additional unit of input.
Stage two is where inputs equal outputs. Each new salesperson added will continue to increase production but only at the same rate as the increased input of labor.
Stage three is when additional salespeople will start to decrease production efficiency because the work environment is fixed in the short-run. This results in returns that are much less than the labor input.

Do dealers have any idea where that third stage is for their dealership? The ideal outcome at the dealership should be to have as many people as possible buy the dealer’s products and services at the highest possible profit margins and deliver 100 percent customer satisfaction. Dealers can’t achieve that outcome unless they’ve maximized the quantity of quality, properly recruited, screened, interviewed and trained salespeople.

I can hear a dealer or general manager object and say, “I don’t want to flood my floor.” That’s admiral, and I applaud their moral judgment in trying to make sure their salespeople all make a good living. However, how many times has a dealer invested in having a special sale, and they look around on the day of the event and notice that several of their salespeople decided to come in late. How many dealers have invested millions into their store and sales staff just to see them leave for a hot, new store that opened up down the road?

Take a minute to write down how many hours a salesperson is currently scheduled to be at the dealership. Would an additional shift or shifts allow them to work fewer hours and be more effective? Would working fewer hours allow sales professionals to have a better quality of life, if that is what would make them more loyal to the store?

Would a more robust staff scheduling model also help dealers deal with talented sales professionals at the dealership who have occasional “manageritis”; employees who have threatened to leave if they don’t receive a promotion?

Is More Better?

How much time do salespeople have to create more business when they’re at the dealership bell to bell? Did the dealership sell more cars when it had more sales staff?

Some rural dealers are selling 5 to 10 times more cars than dealers in major metro areas. While there are several factors involved in this, the definitive answer is this: Dealers need better recruited and trained salespeople. I want to share my insights on how dealers can achieve world-class results through better recruiting and training.

Judy B. Margolis, writes: “Employees who grow too comfortable and complacent lose their edge. The more they know, or think they know, about how their particular slice of the business world works, the less likely they are to challenge their old tried-and-true methodologies and to innovate. The same holds true for companies that fail to embrace change, and instead have it foisted upon them, often when it is too late.

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Replies to This Discussion

Permalink Reply by Richard Emmons on May 29, 2012 at 11:10am

This is always a question tough to answer at every dealership. I believe the best dealerships to work at and the ones that produce the highest volume of sales double there sales staff by adopting a split shift concept, with a team shift method.

Permalink Reply by Craig Lockerd on May 29, 2012 at 11:17am

Post that by Peters,Bob.....

Bob Gaber said:

Some salient points. An excellent follow up would be, "In Search of Excellence" by Tom Peters. (no plug, but it follows what you are writing about, Craig. ) This make absolute sense.

Permalink Reply by Craig Lockerd on May 29, 2012 at 11:18am

Every store is in fact different,different challenges etc...but very few ever find that tipping point to max out their potential
Richard Emmons said:

This is always a question tough to answer at every dealership. I believe the best dealerships to work at and the ones that produce the highest volume of sales double there sales staff by adopting a split shift concept, with a team shift method.

Permalink Reply by Ernie Kasprowicz on May 29, 2012 at 11:29am

Getting to stage three and knowing you are there might seem a little defeating at first. At the same time though, it would push everyone to find ways to go beyond what seems to be a limit. Hiring and developing people is a daunting task without a well executed plan.

Permalink Reply by Ricardo Rondinelli on May 29, 2012 at 11:53am

Excellent blog Craig. "That's how many desks we have open!" I hear this all the time in Puerto Rico. Yes, more is better. The salesman will take the time to know his customer, make rapport and create confidence. The salesforce will adjust automatically, the weekest link will leave voluntarily.

Permalink Reply by Richard Emmons on May 29, 2012 at 11:55am

Yes must have a plan. Right on Ernie..... Does a dealership set projections for sales? Sales people should be a very important equation with in this goal setting.

Ernie Kasprowicz said:

Getting to stage three and knowing you are there might seem a little defeating at first. At the same time though, it would push everyone to find ways to go beyond what seems to be a limit. Hiring and developing people is a daunting task without a well executed plan.

Permalink Reply by Craig Lockerd on May 29, 2012 at 12:05pm

Correct

Ricardo Rondinelli said:

Excellent blog Craig. "That's how many desks we have open!" I hear this all the time in Puerto Rico. Yes, more is better. The salesman will take the time to know his customer, make rapport and create confidence. The salesforce will adjust automatically, the weekest link will leave voluntarily.

Permalink Reply by Craig Lockerd on May 29, 2012 at 12:07pm

Playing it safe,cutting corners,not pushing the envelope is not the way to achieve all the potential there is available at a dealership.At some point,yes,the "Law" will tell you when to stop,but few dealers in my experience have ever found that point

Ernie Kasprowicz said:

Getting to stage three and knowing you are there might seem a little defeating at first. At the same time though, it would push everyone to find ways to go beyond what seems to be a limit. Hiring and developing people is a daunting task without a well executed plan.

Permalink Reply by JoAnna Weber on May 29, 2012 at 12:10pm

You can never have enough top talent!

Permalink Reply by Jane Schuster on May 29, 2012 at 1:57pm

A good friend of mine recently drove out of a dealership where she DEFINITELY would have bought a car, because she was not approached at all when she got out of her car and began looking at vehicles. The salespeople there were obviously pre-judging and not trained properly! Not a good thing.

Permalink Reply by Joe Lockerd on May 29, 2012 at 2:42pm

Great info Pops! I really like the comment about reducing work load of existing sales force. Finding balance between personal and professional life is something that we ALL struggle with. A smart GM knows that it isnt the number of hours logged by salespeople that matters, what matters is the quality of those hours....Great article. Its very important to both find and then effectively implement the optimal sized sales force.

Permalink Reply by David L Hoier on May 29, 2012 at 3:10pm

I have often wondered how one of the largest and oldest industries in the United States, Automotive, has embraced the least amount of change and progression. More ofton than not, the work schedules and pay plans that I've seen are the same as when I got into the business in the late 70's. These aniquated systems need to be put to rest. Thanks for putting another nail in the coffin, Craig.