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One of the more talked about items from Dennis’ presentation at Digital Marketing Strategies Conference yesterday was a proposed change in the way gross profit is calculated for the purpose of paying commission. The fundamental premise is that maximizing customer satisfaction requires a higher level of employee satisfaction. Much of the latter is compromised when employees feel the employer manipulates the cost from which gross profits are calculated.
A vehicle’s book value can be higher than the wholesale market value if it is not purchased right in the first place. It can also be inflated by packing the price with reconditioning costs. Repairs are generally packed into the book value of the vehicle at retail cost, creating a gross profit for the store that commissions are not paid on. We have heard dealers exclaim that the reconditioning pack is commission-free gross. Stores are small places, and it doesn’t take long for things like this to develop into an element of distrust that flows through the store.
The data exists today to allow dealers to pay commissions based on the difference between the retail price received and the wholesale market value of the vehicle, rather than book value. The result may not result in increased pay for sales people, but it does eliminate and age-old point of friction between sales people and store owners. Little things like this contribute to an increase in employee satisfaction and a decrease in employee turnover, both contributing to an increase in customer satisfaction, loyalty, and advocacy.
It should be noted that many stores are moving to a compensation model that does not factor in gross profits at all. Tom White Jr., owner of the nation’s leading Suzuki store, said in his presentation at DMSC that he pays a salary plus a bonus based on the number of units sold. In today’s world of market transparency, his feeling is that sales people have little contribution to the gross profit margin, but they do make a strong contribution to whether the up or appointment results in a sale. By paying them based on what they influence and what can be calculated without controversy, employees are more satisfied.
It’s time to take a hard look how employee satisfaction can be improved among front-line sales people. There is no silver bullet, but there are a multitude of little things that can be improved. From perceived fairness to increased training and better sales tools, this is an area where dealers can make a difference that will come back to them with a strong ROI.