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 NANCY SIMMONS on May 29, 2012 at 7:21pm

Fantastic post....makes sense...I am a true believer in split shifts and job sharing! It is a win, win, win!!! Everyone is always fresh, keeps everyone on their toes, people can enjoy a well balanced life, therefore better quality of people are attracted to the business, and employee morale peaks....with all that profitability sky rockets!

Permalink Reply by Bob Gaber on May 29, 2012 at 8:18pm

Excellent points.

Permalink Reply by Jennifer White on May 30, 2012 at 10:26am

Great information Craig, I have been in many dealerships that seem like a ghost town. I walk into the dealership and had to look for someone to help me. If you want to increase your sales you have to increase your sales team.

Permalink Reply by Ralph Rasmuson on May 30, 2012 at 11:25am

I don't like putting the monkey on the back of the managers, but the fact remains that you should only have the number of sales people that the managers can manage. If you have two managers and twenty sales people you are way overstaffed with sales people. Good sales people need help in managing their time and efforts. They desire that help, to minimize the things they dislike most; i.e. paperwork, etc. Keep as many people as you can manage. That is my take.....

Permalink Reply by Tom Wiegand on May 30, 2012 at 3:02pm

New people, fresh blood can have the same mediocrity results when flushed in with the same "waiter's." The "Doer's" that are tech and social savvy today and want to communicate and relate, then communicate and relate even more will suddenly find themselves collectively working together selling far more than likely all the waiter's combined. Isn't it time to convert every dealership business with any number of "waiters" to 100% "Doer's?" I can only imagine the growth factor soaring through the roof. "Doer's" win, lagers lose! Herein lies AutoMax's most important contribution to dealership businesses over the next generation: to recruit, train, and promote only "Doer's". I'm rooting for you Craig!

Permalink Reply by Jodi Adkins on May 30, 2012 at 3:08pm

If your passionate about the product, you won't have a problem selling. By empowering your salespeople you in turn help them achieve their goals.

Permalink Reply by NANCY SIMMONS on May 30, 2012 at 9:01pm

Really like your comment Tom...Had to read it twice...but I love it!!!

Tom '1TeamSynergy' Wiegand said:

New people, fresh blood can have the same mediocrity results when flushed in with the same "waiter's." The "Doer's" that are tech and social savvy today and want to communicate and relate, then communicate and relate even more will suddenly find themselves collectively working together selling far more than likely all the waiter's combined. Isn't it time to convert every dealership business with any number of "waiters" to 100% "Doer's?" I can only imagine the growth factor soaring through the roof. "Doer's" win, lagers lose! Herein lies AutoMax's most important contribution to dealership businesses over the next generation: to recruit, train, and promote only "Doer's". I'm rooting for you Craig!

Permalink Reply by Paul Hardy on May 31, 2012 at 9:19am

I have a dealer that has a flex schedule if you maintain 15 cars! Then the ball is back in the salespersons court."Each new salesperson added will continue to increase production but only at the same rate as the increased input of labor." This is something I tell people all the time Craig, they have to try harder. If you are not as good as you want to be try harder. Most of the salespeople I see waste too many hours in the day, They do not come to work to work. I know Dave said the pay plans are from the dark ages of the car biz but the work ethics are not! I was told when I started that 12 cars got you your 1st bonus... You got to come back to work next month. What happened to standards and making and motivating the salespeople to increase their labor input??

Permalink Reply by Garrett Osborne on May 31, 2012 at 1:17pm

Great discussion Craig. My question: what metrics would define each stage? The hours at a dealership can be brutal and there should be some sort of "tipping point" metric that defines hours vs. staff. Thanks again for this great discussion.

Permalink Reply by Bobby Compton on June 1, 2012 at 5:25am

Many great topics here my friend.

No doubt about it,- Turnover is a KILLER.

If the only aspect was to stop turnover, that alone is a surefire way to increase sales and profits.