CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
One of the temptations of Sales and General Managers is to look at the commissions of their salespeople as a great place to cut into their operating budget. After all, a great salesperson might out earn the vast majority of sales managers. Many dealerships will cut commissions to increase their bottom-line thinking that this is the smart and clever thing to do.
However there are four factors that come into play when you undertake such a strategic move:
Results: Sales is a results driven profession. Salespeople are naturally competitive and will compete with other salespeople as well as themselves to increase their performance and the results they can produce. There is no bigger high for a salesperson as getting a new sale. It makes their day. They live and die by the results they produce. It’s feast or famine since they have no fall back on a salary or the luxury of just showing up to be paid. They must produce results.
Motivation: Results are produced by a motivated individual. You either pay or fire a salesperson. There is no middle ground. When you reduce a commission rate, you have taken the wind out of their sails. Some sales managers will tell them to work harder to make up the difference, but the trust has been broken. Without that trust between the salesperson and the dealership, the motivation will quickly deteriorate.
Risk: Salespeople are natural risk takers. Being paid a commission is a natural risk in their profession. However risk takers expect to be compensated for the risk when it pays off. You as a sales manager benefit from the risk by not paying when the results haven’t been produced. It is suicide to tinker with the salesperson once they have reached the level of success which is both beneficial to both the dealership and the individual. It doesn’t undermine the relationship, it destroys it.
Retaliation: Once the dealership breaks the trust with the salespeople by tinkering with commissions, it can expect some form of retaliation. In a demoralized and demotivated sales force, there will be a notion of why even bother. Results will drop. This is the least of your problems. In many instances salespeople will actively voice their discontent with customers causing long-term problems. Salespeople are your company to the customer and people buy from people they like. This could cause a backlash. In many instances salespeople have left the dealership and taken a loyal following with them to their new employer. This is often difficult to counter and recover.
The risks that a dealership undertakes when they attempt to alter the compensation structure of their salespeople can be tremendous, well in excess of any earnings they might wish to recoup. Before you consider such a move, it is wise to explore all the possible implications and consequences such a move could cost your business. The short-term gain may not be worth the long-term loss.
If you’d like to learn more about Sales Management, visit www.autosalesmanager.net