One of the biggest challenges dealerships face today is finding employees who have the skillset necessary to help move the dealership forward. That’s why it’s important to keep your employees that are knowledgeable and have good customer skills, but also be attractive to potential employees looking for opportunities that you may be able to offer.
As an owner or manager, it’s important to understand the value of your employees and how they help you generate profits and ensure that your customers are well cared for and have a positive experience. It is more important than ever to look at how you compensate your employees so that you can both retain them and improve their performance.
What you pay your parts people may not seem like a pressing concern, but changing the way that parts people make money can have a significant impact on your parts sales and net profit. However, before you begin to rethink compensation for any department, there are some basics that need to be in place to guarantee success.
Hiring the Right Parts Employees
I encourage every dealership I work with to make sure that they have a job description and expectation outlined for each position. You want to be clear that the people at the parts counter do more than handle parts, they are sales professionals responsible for managing potentially hundreds of thousands of dollars’ worth of parts inventory.
They are charged with accurately accounting for each of the parts that they oversee; maintaining a predetermined gross profit margin; increasing the sales of those parts each year; and, finally, ensuring your customers have a good experience.
Not just any retail sales person will make a good parts sales person any more than a person who likes to tinker on his or her car will make a small engine technician. There is a blending of skills, desire and personality type that will give you the best possible employee. That’s why you have to spend time evaluating what you can and will need to offer in terms of total compensation.
Your company already has a reputation as an employer in your marketplace. That reputation will have a lot to do with the level of employee you will be able to attract and retain. Taking time to think through what you will be able to offer in terms of salaries, bonuses, healthcare and lifestyle benefits will go a long way in defining who would be willing to work for you.
Determining Your Compensation Plan
As you begin thinking about your compensation program, you have to decide what you want to accomplish and then set departmental goals. If you want to grow parts by 10% each year while maintaining a 45% gross profit margin, then your compensation package needs to reinforce those goals.
A key first step is to make sure that you determine the minimum level of performance the parts department has to reach before any bonuses are paid outside of the normal salary or hourly wage. For instance, if you just set up a program based upon increasing parts sales 10% over the previous year without regard to maintaining a certain level of profits, your sales may go up but your profits go down because the department was able to increase sales by lowering margins and attracting more business. Your goal is to work to maintain a balance between growth and profits.
The more you link performance with pay increases and bonus opportunities, the more your highest performers will be motivated to excel which is the goal of your compensation program. I am told over and over again that some people are not money-motivated, but I have yet to find people who don’t want to be paid more for what they do. Sure, some people have no desire to have great amounts of wealth, but they all have things they like to do that money will help support. Your goal is to create a program that will let them make both you and them more money, while keeping customers happy.
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How to Get Your People on Board
I suggest building a program that is a combination of an hourly rate and an incentive based upon performance. It can be challenging to create a performance bonus that will still encourage the parts staff to function as a team instead of a collection of “lone wolves,” who are only interested in getting sales to make more money.
We do want the parts people to sell more parts at higher margins, however, there needs to be a balance so that all the duties that happen in the parts department are taken care of equally by everyone. If you do the program wrong, you may end up with a parts person who won’t answer the phone or who won’t put up parts or wait on customers who look like they won’t buy much. They race to grab the “good customers” who buy a lot and then leave everyone and everything else to their team. A compensation program that doesn’t take into account everything that must happen to make a parts department successful and only focuses on “the sale” will end up demoralizing the team, turning employees against each other and negatively impact the overall customer experience.
Your goal is to build a compensation program that looks at both individual and group performance. In the parts department, an employee’s hourly pay or salary should represent the compensation for individual performance. If an employee wants to make more per hour or more per pay period, it is dependent upon them to show you as an owner or manager that they are worth more money. Most employees are given individual pay increases for no reason other than the fact that they asked for it or have simply done what their job required them to do for one more year. To give any employee a raise based upon nothing other than showing up makes no sense to me at all.
Customers do not just come into your dealership because you try to have what they need and try to be available to them. They come to your dealership because they believe, based upon experience, you are providing services and products that your competitors either don’t or can’t provide.
If you want to make more money as an owner every year, do you just ask your customers to pay more for the same thing or do your customers expect you to do more if you want to be paid more? You and I both know that if you want to make more, you have to provide more and help the customer have a positive experience so they will come back and tell their friends how good you are.
That is how performance-based compensation plans should be designed for your employees. Base their hourly rate or salary on their level of expertise, their attitude, their willingness to learn and to take on new tasks and the impact they have on your customers. Set targets for each of those areas each year, and share with the employees where they are at, where they need to be and the specific steps they need to take to improve and grow. Two times per year, meet with each employee and do an honest evaluation on how they are progressing.
If they are hitting their targets and on track to becoming a better employee, give them a reward in their hourly rate or salary at the 6 month period. I know that a lot of employers give raises at the beginning of each year – why wait? I find that the sooner an employee is rewarded for good performance the more likely you are to motivate them to continue growing. Think of each day of an employee’s life at your store as a test. Would you want to wait for an entire year to see how you are scoring or would you prefer to know halfway through the year so if you need to make adjustments to achieve your monetary goal you would have time to make corrections?
Depending on what you want to do with your compensation program, your goal has to have some element of increased productivity. Your goal is to grow your people so that you can produce more sales with the same number of people. Every person you add to the department takes away from your ability to compensate the people who are already there. As in all cases, there is a point of diminishing returns. However, in most of the parts departments I work in, with some reorganization and better processes, more parts could be handled and more customers waited on with the same number of people.
My rule of thumb is to have one parts person for every $350,000 of parts sales. That’s not one person and a manager, but one person total. Most parts departments are staffed heavier than that. Does it mean that the person will be busy during season? Sure, but then the season only lasts for about 4 months. For most of my dealers, as the season wraps down, they find themselves now overstaffed, which drains monetary resources and reduces profits. You may be saying it can’t be done, but I have dealerships that I work with that do it day in and day out. Are they busy? Yes they are, but they also make a lot of money because the dealership doesn’t have the extra weight of people they have to carry during the slower times.
Read Part 2 in tomorrow’s Rural Lifestyle Dealer eBrief Daily email.
Next Installment: Developing a Bonus Program
In Part 2, Clements explains how to develop a bonus program that further incentivizes parts employees to improve and excel at their work. The ultimate goal is to motivate workers, brings together a parts team and increases sales.